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Sam Morgan traded up while Feltex carpets rolled up in 2006

Simon Louisson

Thursday 21st December 2006

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Two events at different ends of the spectrum captured investors' imaginations this year -- the sale of Trade Me and the collapse of Feltex. Simon Louisson of NZPA reviews the highlights of the business world in 2006.

The sale of on-line auction house Trade Me to publisher Fairfax for $700 million was not the biggest deal of the year, but it was the most exciting.

Twenty-eight-year-old founder Sam Morgan personally pocketed $227m and several smaller shareholders were turned into instant multi millionaires, generating admiration and some old-fashioned, green-eyed envy.

Trade Me captured the imagination because it was the New Zealand equivalent of Google -- an Internet start-up built from nothing, that quickly started generating real profits and value from a smart idea.

In the wake of that sale, a number of other lesser deals received attention -- mostly because the founders had started their business in similar vein, often in a garage or basement.

Jan Cameron's sale of her outdoor goods retail chain Kathmandu Group to Australian investors for $276m created as much publicity as the reclusive founder would allow.

Similarly, the sale of vodka firm 42 Below for $138m to Bacardi also caught the imagination because founder Geoff Ross, a former Saatchi advertising executive who is far from publicity shy, developed a product and international brand from what would seem an unlikely base.

Unlike, the other two, 42 Below at least was a listed company that allowed the public to participate in the payout.

Another winner was GPS parts maker Rakon which had beginnings in a basement. Its owners raised $66m in May when the Robinson family and other shareholders sold 39%.

They may have sold too cheaply, as the value of their remaining stock has soared to $239m since listing.

Generally, it was another dismal year for capital raising by exchange operator NZX. Just $280m was raised for new companies and $100m of that was by Barramundi, an investment fund.

Just as in the last few years the amount raised is laughable in comparison to Australia which has raised nearly $A8 ($NZ9.2) billion in the year to November 1. The exchange's failure calls into question the viability of a New Zealand stock exchange as a separate body.

A number of companies disappeared due to takeover, including Waste Management (worth $864m) and Gullivers Travels (235m). Two other top 10 companies, Contact Energy and The Warehouse, received takeover bids that failed, but these could well be reactivated next year.

One of the few big capital raisings in the last few years, Feltex Carpets, turned into a financial and public relations disaster for the industry.

The IPO in 2004 raised $170m but by September, when the receivers were called in, that money was worthless. The company was sold to Australian rival Godfrey Hirst which had made several earlier bids at different prices which were rejected by the directors.

The sorry saga damaged the reputations of Credit Suisse First Boston, brokers involved in the float -- First NZ Capital, Forsyth Barr, ABN Amro and Macquarie Equities -- and the directors including chairman and NZX director Tim Saunders.

Another nasty little business came to light in September when backdoor listed Plus SMS admitted it had been economical with the truth with "unrealistic statements". The text messaging company had seen its value shoot up from virtually nothing to $284m. The outcome of a Securities Commission investigation into a number of dealings involving key shareholders will be a test of the watchdog's credibility.

Although investors identified with the likes of Sam Morgan and Jan Cameron, New Zealand's richest man Graeme Hart was rarely out of the news and involved in bigger deals.

He wrapped up the $3.4 billion purchase of Carter Holt Harvey, sold Uncle Toby's to Nestle for $1.1 billion, and then bought out the 42% of Australia's Burns Philp he did not already own for $A1.3 billion ($NZ1.5 billion).

The intensely private Hart is reported to be worth between $3 billion and $4 billion. Having completed the Burns Philp takeover, sold CHH's forests for $1 billion and Bluebird for $245m, he is said to be sitting on a war chest of over $3 billion and said to be poised to pounce on any number of Australasian companies. Watch this space in 2007.

The market's dominant stock Telecom had a year to forget. The Government decided in May to force its networks open and split the company into three operating units.

A third of its value -- $3 billion -- was wiped out although even more would have gone west had the Government had forced structural separation.

The year was far from gloom and doom for the sharemarket with the NZSX-50 benchmark index rising 16% to record levels despite Telecom's woes.

A key reason for the rise was the frenzy of activity involving private equity companies, mostly from Australia. They have snaffled up numerous hundred million dollar deals and pushed up the value of many other firms simply through the threat of takeover.

The performance of Fletcher Building, which lifted to No 2 spot on the sharemarket, almost made up for Telecom. Its shares increased 40% during the year, adding a $1.5 billion to its capitalisation. With focused performance and judicious deals, its value has quadrupled since the Fletcher Challenge conglomerate was split five years ago.

The hard-headed Australian who led the company over that period, Ralph Waters, dealt a couple of serves to New Zealanders when he stepped down as chief executive in August.

New Zealanders saw the glass as half empty and had done their utmost to talk the nation into a recession, he said.

The country had just enjoyed "the biggest boom it's ever seen" but because the economy was inevitably turning down business became unnecessarily pessimistic.

"New Zealand is the most unusually pessimistic environment I have ever encountered."

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