By Nick Stride
Friday 29th September 2000
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On its way to extinction is the "control premium" in the price holders of strategic stakes can expect when they sell their shares under present legislation.
"The days are numbered where a party that has a significant minority stake in a company can expect a premium," said Stephen Layburn of law firm Simpson Grierson.
This will disappear when the code is enacted, probably early next year. After that anyone wanting to buy a stake of 20% or more of a company's shares will have to make the same offer to all shareholders.
Brokers Merrill Lynch and Bancorp recently wrote to Auckland City Council warning the loss of the control premium on its 25.8% stake in Auckland International Airport could cost it $70 million. Councillors have been divided on whether to put the stake up for sale.
The change potentially affects major shareholders in around half of the companies listed on the New Zealand Stock Exchange.
Individual stakes need not be as great as 20% to attract a premium. The 14.6% TransAlta holding Hutt Mana Energy has agreed to sell to Natural Gas Corporation was "strategic" because it stood between NGC and the 90% it needed to go to compulsory acquisition.
In the same boat as Auckland City are Infrastructure Auckland, with 80% of Ports of Auckland, and Sir Michael Fay and David Richwhite, with 14.5% of Tranz Rail.
Brierley Investments is trying to offload 54% of Cedenco and has 32% of Tasman Agriculture and 30% of Air New Zealand.
Businessman Eric Watson has significant holdings in a crowd of listed companies including Pacific Retail, RMG, Metlifecare, and Eldercare.
Directors of recent New Capital Markets listings such as Rocom Wireless and Selector Group typically have large stakes. Also on the list are wealthy individuals such as Peter Masfen (Montana), Stephen Tindall (The Warehouse), Cliff Cook (Metlifecare), and Tony Timson (Cavalier), and overseas corporate investors such as SEA Holdings (Trans Tasman Properties) and Wisconsin Central (Tranz Rail).
Merrill Lynch director Peter Brook said the code's advent was likely to affect the price at which shares traded on the market only if a significant holding was seen by investors as being "in play." In that case any takeover premium priced into the shares would disappear.
"But you can't say in a blanket fashion that it would have that effect on all companies where significant minority stakes are held."
Somewhat ironically, both Lion Nathan and its cornerstone shareholder, Kirin Brewery, are potentially affected.
The volume of calls for a takeovers code rose significantly in April 1998 when Kirin paid a hefty premium to the market price for Lion shares held by chairman Douglas Myers, other directors and selected institutions. Although a limited public stand was made at the same price many shareholders missed out and the shares have lagged since. Lion this year bought a highly strategic 28% holding in Montana.
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