By Peter V O'Brien
Friday 31st October 2003
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It should also have sent the government away to think again about its involvement in companies as a dominant shareholder.
Finance Minister Michael Cullen said last week the government would take no position on whether Air NZ and Qantas should appeal the commission's decision. Any appeal would have to be on legal grounds, because the merits of the decision are unable to be revisited, unlike the situation with Australia's Consumer & Competition Commission.
There might be a legal ground if the companies could argue the decision was so far at variance from a reasonable interpretation of the evidence that any judicial or quasi-judicial tribunal reaching such a conclusion acted "unreasonably" in the narrow legal interpretation of the term. That would be a matter for the courts to decide if the companies thought they had an arguable case.
It seemed extraordinary that a shareholder with 83% of a company's capital would do a Pontius Pilate on what was apparently a vital issue for the organisation's survival.
The government's attitude was more bizarre when related to the fact that the government exercises the rights attached to the "Crown's" shareholding on behalf of the people of New Zealand.
Its position is therefore similar, in an investment sense, to that of a financial institution or other company holding shares on behalf of its shareholders or fund investors.
Imagine the fuss if an 83% shareholder in a listed company left a decision crucial to the company's survival to the board and said nothing, even if it disagreed with the decision.
The government may see its position as legitimately "hands off" but that is naive, as noted here on July 11: "A fundamental clash is involved, irrespective of competition and cost arguments. The government considered it was in New Zealand's best interest to bail out the airline, becoming the controlling shareholder and therefore having a vital interest in the proposal with Qantas, to which it says yes and the commission says no.
"In the absence of the commission being overturned if there was an appeal, the government's only recourse would be to reverse the ruling through legislative or regulation action. It could perhaps be done but the fallout would go well beyond the Air NZ case and the commission.
From an investment viewpoint it seems nobody consulted the minority shareholders but that is irrelevant in the context of the commission's writ and the country's best interest."
The government got itself in a situation where it appears to be nothing more than a lender of last resort to Air NZ.
If it were passing on or giving information to the company unbeknown to the market, it would be an insider but the 2002 annual meeting was assured the "Crown" was "exemplary in its dealings with the company in regard to the Crown's rights as a majority shareholder and its respect for the board's obligation to undertake its governance role in the interests of all shareholders."
The meeting was told processes that did not conflict with other shareholders' interests were in place to allow the Treasury, as the Crown's agent, access to sufficient and timely information for Crown accounting and oversight purposes. This also ensured the information that flowed to the Crown as shareholder was effectively kept separate from the information the Crown received in its various regulatory roles.
The elaborate systems disguised fictions associated with the government's holding in the airline and the fact that the Crown, the Treasury, the "government" and ministers were agents for the rest of us.
Assuming Air NZ needs about $200 million of new capital, a 1:8 issue at 40c would raise the money at an 18.4% discount to the current share price of 49c.
The government would be up for about $166 million, of which it has already made a $150 million commitment.
Air NZ is unlikely to fall over because of the commission's decision but the controlling shareholder would be exposed as an impotent investor in the event of a fall.
It would also be an incompetent agent for shareholders of the much more important New Zealand Inc.
The situation and tortuous structures to avoid numerous conflicts of interests, including dealings with the Commerce Commission, suggest the government should think before it acts when tossing money at public companies.
Imagine the fuss if an 83% shareholder in a listed company left a decision crucial to the company's survival to the board and said nothing, even if it disagreed with the decision
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