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Four heavyweights all on the go

By Peter V O'Brien

Friday 11th July 2003

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It is becoming difficult to believe most business operations are progressing normally in view of the off-the-ball activities in major companies.

We are just over halfway through 2003, but have seen more action than in most full years.

Air New Zealand, Tower, Tranz Rail, Telecom and AMP were such an impressive list to get headlines that investors could validly wonder what is else was coming down the track.

It was also interesting to note the involvement of outside agencies, including the government, in the companies.

Air New Zealand is trying to cut a deal with Qantas. The government is Air New Zealand's major shareholder and apparently goes along with the airlines' plans.

The Commerce Commission disagrees, on grounds of lower competition and substantial higher costs to customers.

A fundamental clash is involved, irrespective of the competition and cost arguments.

The government considered it was in New Zealand's best interests 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 perhaps could be done, but the fallout would go well beyond the Air New Zealand 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."

Tower's immediate situation was apparently resolved last week with removal of the financial services company's shareholding cap and the underwriting arrangement for a share issue.

The company got itself into the mess the cash issue is designed to overcome, but the drawn-out affair, including a shareholders' meeting and institutional jockeying, distracted from Tower's basic business activities.

An outside agency in the form of NZX stymied one move between Tower and Guinness Peat Group, saying it required shareholder approval under the listing rules.

The costs involved in finally settling the Air New Zealand case and protracted dealing over Tower may, or may not, be eventually disclosed. They will have an impact on shareholder wealth in both instances.

Costs were also mounting in the battle for control of Tranz Rail. The local company's share should be relatively minor, the bulk falling on other parties.

The matter should be resolved soon now the government and Australia's Toll Holdings have agreed on a deal that, in the absence of any other bid, will give shareholders a clear choice. They now only have Toll's bid on the table, though this could meet resistance from Tranz Rail's board

The AMP saga started last year but spilled over to 2003. While AMP is an Australia-domiciled company, it has, or did have, thousands of New Zealand shareholders who have an interest in the group's affairs.

AMP was another company that got itself into a mess. There was a board reorganisation last year and proposals a few months ago to demerge its UK operations and raise new capital.

The annual meeting got a blueprint for the new way forward and the company raised $A1.22 billion from institutions in capital and had an issue to other shareholders.

AMP has some tricky negotiations in coming back from the brink, again adding costs which fell on it.

Telecom has incurred costs in dealing regularly with regulatory authorities, subsequent appeals and assessments of what would be involved in meeting the desires of competitors and other interested parties.

Current arguments include the question of the Kiwi share and the associated issue of the real costs of services to rural subscribers.

Companies always have to deal with matters which may be indirectly related to provision of their basic goods and services, but it is unusual for so many heavyweights to have so much on the go at the same time.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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