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Deals on wheels and other games

Peter V O'Brien

Friday 19th December 2003

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Acrimony about quality outweighed quantity in corporate deals this year.

Top of the "you said, we didn't" spiels and accusations about inaccurate statements were the spin-doctored releases during the battle of control of Tranz Rail Holdings.

The company's previous board must have known it would soon see the fortress slowly crumble when it manned the battlements against the siege engines of Australia's Toll Holdings. Tranz Rail's directors equally would have known their days in office were running out as Toll achieved control.

The Australian company would have total ownership of Tranz Rail if a few misguided shareholders accepted the deal, rather than staying locked in with little change of selling to anyone except the equally misguided.

Toll's inability to get 100% had no effect on board changes in October. Directors Roger Armstrong and John Loughlin were alone in retaining their seats. Both carried little of the company's earlier tattered baggage.

Resigning directors Wayne Walden, Jon Cimino, Leigh Davis and Thomas Rissman and managing director and chief executive Michael Beard were casualties of a normal takeover procedure but were also authors of their own fate.

Tranz Rail needed people with engineering experience at the board table but did not have them.

The former directors and their top executives got a final slap this week when the Transport Accident Investigation Commission issued reports on Tranz Rail's safety procedures in five "incidents" between August last year and February, when the previous board was in control.

Sorry, chaps, the buck stopped at the board table, irrespective of your ignorance of operation matters.

Reorganisation of financial services group Tower differed from Tranz Rail's. The latter's resigning directors knew the game was up. Some Tower directors initially brazened out their situations, although their inner selves could have realised it was a game, set and match.

Attention moved to Guinness Peat Group and its fight with Hanover Group over underwriting Tower's $210 million rights issue. That was resolved but echoes were heard last week when Hanover's shareholding was lifted past 10%.

Transport companies were again in the news when Mainfreight bid for Owens Group. The latter made the usual, possibly Pavlovian, responses, but had to accept the inevitable when Mainfreight got control.

Toll Holdings became a fly in the ointment (or an exotic moth in the container) when it grabbed 12% of Owens, stopping Mainfreight moving to compulsory acquisition if it went beyond 90%. Something is obviously going on there but we will probably wait until 2004 before revelations of the eventual outcome.

There were the usual weird arguments about some deals. The weirdest could have been a claim that majority shareholder SK International in food processor Cedenco Foods was misleading in its information.

SK increased its bid to move from 81% to 100% of Cedenco, a decision that unlocked another 15% from combined shareholding. The increased bid did nothing to validate the earlier claims.

A slightly less strange situation came toward the end of the year, when former Fonterra chief executive Craig Norgate and the McConnon family's Rural Portfolio Investments vehicle bought into rural services company Wrightson, the latest increase being at $1.45 a share.

Rural Portfolio could have got the scrip at less than $1.45 but a quick strike above market price quickly achieves the desired outcome. About 10% of Wrightson has a market value of $20 million, although Rural Portfolio's net investment would be less.

The investment company could have various strategies. A full takeover would cost at least another $180 million, on current prices, while a move to 50% would involve $80 million. It could be a goer, even at those prices.

Other big deals involved bids for Fletcher Challenge Forests' tree plantations and the demerger of AMP's UK and other assets.

AMP had to spend a massive amount on a 600-page document to one million shareholders at a cost of $A14 million. The outcome was as forecast (NBR, Oct 24).

A few hundred shareholders attended the meeting to approve the proposal. More than 90% of votes, including proxies, agreed to the deal, reinforcing the argument for law changes to allow people to opt out of receiving documents few would read while maintaining their rights to vote on issues that would be covered in a memorandum précis.

Next year will see more deals; do not bet on what will happen.

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