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Investment air changes

By Peter V O'Brien

Friday 14th March 2003

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There must be a change in the investment air when summer turns to autumn at the beginning of March.

The change seems to coincide with unusual, self-justifying and straight out wacky statements from companies and official watchdogs.

Comment from the Stock Exchange about its market surveillance panel's (MSP) decision on the Vertex affair was unusual.

The MSP said Vertex was in breach of Stock Exchange rules in relation to its 2002 prospectus profit forecasts and subsequent downgrades. Relevant issues were dissected in last week's Shoeshine column.

The NZSE's reaction to the MSP's finding was also unusual.

A statement from the exchange said Vertex's breach warranted censure, rather than merely noting a breach of a rule.

But the next comments suggested possible tension between the exchange and the MSP.

"With regard to the MSP, the NZSE would like to reiterate that the panel, in its capacity as administrator and enforcer of the NZSE listing rules, is an independent body. Accordingly, the rulings of the MSP do not necessarily reflect the views of NZSE.

"The NZSE has for some time been reviewing its business and infrastructure, including the legal and regulatory framework. Any relevant findings of this review, which will include all services discharged by independent bodies to the NZSE will be made public at the appropriate time.

"This statement constitutes the full and final comment the NZSE is prepared to make on these matters."

The NZSE statement was unsigned, another unusual occurrence, and the "full and final" comment was also strange, given the exchange's strenuous attempts in recent years (even before the arrival of chief executive Mark Weldon) to justify its activities.

It is immaterial that the MSP waffled about rule breaches for years, relying on "censure" as its toughest penalty.

No hardnosed operators worry about a censure. They might be concerned if trading was suspended for a long period or the stock delisted and brokers forbidden to deal in it.

That would incur shareholders' wrath, but the MSP on past occasions said it was not prepared to penalise shareholders, a point obviously not lost on companies and directors in breach of listing rules.

The NZSE statement on Vertex seemed to signal a possible revamp of the MSP and general surveillance procedures, with or without concurrent moves from the Securities Commission.

Strengths of the MSP could, paradoxically, be its weakness. It comprises eminent businesspeople and individuals with investment, legal and accounting knowledge. They are close to the "play" although doubtlessly conscientious in their deliberations.

The NZSE could improve the MSP's image if, for example, it appointed a retired judge with commercial court experience but no involvement with companies to the panel and it increased resources, including a substantial boost to members' payments.

Something seems to be blowing in the wind. We have to wait, given the NZSE will say nothing more about Vertex.

Autumn saw strange company statements. Goodman Fielder produced an "open letter to ... shareholders," in the form of a newspaper advertisement, in the battle against Burns Philp's takeover offer.

Chairman Keith Barton said Goodman Fielder was a "great" Australasian company, had "great" brands and was (again) a "great" company and recommended shareholders reject the "unsolicited, opportunistic and inadequate takeover bid."

Sorry, Dr Barton. Goodman Fielder could hardly be described as a "great" Australasian company, given its size (total assets $A2.12 billion last week), irrespective of its status in the food industry.

Companies reporting substantial losses in the latest round were strangely optimistic about their results and prospects.

Pure NZ had a $271,000 loss for the six months ended December. Referring to a difficult restructuring phase, it said it wanted to improve the performance of its Tasman Extracts subsidiary and had Tasman up for sale. Tasman was supposed to be an operating saviour when acquired but is now on the way out.

Rocom Wireless and GDC Communications had similar comments, again talking about restructuring and, in Rocom's case, making the point that a "new team" was applying "their experience, knowledge, confidence and skills necessary to new levels."

No comment about the "old" team, a standard spin doctor technique.

When will listed companies realise they should get rid of the PR spinners and report realistically without apologetic jargon.

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