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Opinion: NZSX abuzz with takeovers, but what about average Joe?

By Rachel Pannett of NZPA

Friday 1st July 2005

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The sharemarket was abuzz with takeover activity this week, causing investors to defy the gloom of recent economic figures and propel the benchmark index to a new all-time high.

The NZSX-50 gross index struck 3247.21 in intra-day trade on Thursday, eclipsing its previous high of 3245.80, set in March.

For the month of June the market was up 8% - the biggest monthly rise since the NZSX-50's inception.

The buoyant trade was led by a string of "in-play" stocks including Feltex, Carter Holt Harvey, NGC, and The Warehouse.

But the jury is still out on whether all the wheeling and dealing will benefit the average investor.

Kicking off the week's activity was Carter Holt Harvey (CHH), whose majority shareholder, International Paper (IP), on Monday announced it is exploring "strategic alternatives" for its 50.5% stake.

The statement was interpreted by the market and CHH itself as signalling an intention to sell, which - under New Zealand takeover rules - would trigger a full-blown takeover.

The news was greeted cheerily by minor shareholders who have long suffered under the overhang of a potential sale. The stock added as much as 20% during the week, hitting $2.31.

But analysts say investors have jumped the gun, and are unlikely to come out on top in any of the potential sale options - as a going concern to a private equity firm, as individual assets, or in a gradual sell-down on market.

"Shareholders have been left in the dark as to the outcome of the sale process," Forsyth Barr research manager Rob Mercer said.

With the share price languishing of late on the back of poor earnings, a full takeover by another party would be at a "disadvantaged price", he said.

And if the other viable alternative - divvying up the company's assets for separate sale - was easy, IP would have done it sooner and extracted the value from the company themselves.

"Why would they want to sell that upside to another party when they have been on the register for such a long period?"

CHH shareholders already have the ideal partner in IP - the world's largest timber products company - Mercer said, and will be left out of pocket if IP dumps its holding to make a quick buck.

The US group has flogged $US1.25 billion ($NZ1.6 billion) of assets since the start of the year in an effort to turn around its own poor performance. At today's prices, the CHH sale would net a further $NZ1.5 billion.

Another underperforming company in play this week was carpet maker Feltex. On Wednesday Godfrey Hirst made a move on its beleaguered rival, building a 5.83% stake in an on-market stand and hinting it is keen to talk mergers.

Australia's Godfrey Hirst is privately owned and would get a backdoor listing on the New Zealand exchange, manufacturing "synergies", and significantly more marketing muscle from a reverse takeover of the company.

But it would mean diluting existing shareholdings to give Godfrey Hirst a majority stake - spelling further pain for investors who bought the stock at $1.70 when it listed in June last year.

Market commentators see little option for the cash-strapped company.

"Things can't get much worse than they already have," Hamilton Hindin Greene partner Grant Williamson said.

He sees Godfrey Hirst as a potential "white knight" with the tools and reputation to turn Feltex's financial performance around.

"Godfrey Hirst know the industry, they are the ideal partner for Feltex going forward."

Investors appeared to agree, pushing the stock above what Godfrey Hirst paid for its stake and well ahead of last week's all time low of 39c.

Feltex employees may not be so hot on the deal - with Godfrey Hirst already indicating that it sees its own manufacturing plants as better suited to the merged company.

In other takeover activity this week, community-owned Auckland lines company Vector - which is about to list a quarter of its shares in the biggest public offering in six years - on Monday said it would offer shares and cash valued at $3.40 a share for the 32.8% of NGC it does not already own.

It is a better offer than Vector made last year when it snared its current 67% holding at $2.91. It was seeking full ownership then, but fell short with some investors viewing that offer as too low.

NGC shares have been trading well above the new offer this week, clocking up a fresh all-time high of $3.90 on Thursday. Brokers say the NGC share price is a proxy for Vector, with investors trading in NGC at prices that reflect their assessment of Vector shares' worth.

An independent appraisal report is being prepared by Grant Samuel which will give NGC shareholders further food for thought.

The other big mover this week was The Warehouse , whose shares shot up after it revealed it is in talks to merge its troublesome Australian "Yellow Sheds" chain with rival Miller's outlets and then sell off the joint operations.

Shares in The Warehouse hit a high of $4 on Thursday - a level not seen since April.

Brokers see the likely sale as positive because The Warehouse's Australian operations have been a drain on cashflow and profits.

The company hopes to break even across the Tasman by 2007, but even if it achieves that objective, the Australian operations will always be a poor cousin to its solid New Zealand business.

As usual, this week's slew of news has offered up a mixed bag for shareholders. Today, red downward arrows were already beginning to dominate the share trading board - suggesting the initial euphoria surrounding the takeover news is subsiding.

With rising world oil prices set to put the pressure on companies' bottom line, a correction in the overall market is on the cards.

Investors will be looking for snappy, concrete decisions, not just meaningless corporate chatter like "strategic alternatives" and "operational synergies".

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