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Business weathers weirdness

By Peter V O'Brien

Friday 17th October 2003

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We get a few weeks each year when corporate news comes in dollops of weirdness. Last week was one.

The dismal and strange releases came at a time of nationwide diabolic weather, which could have been more than a coincidence, given spring is supposed to be a time of rejuvenation rather than reversion.

Australian transport group Toll Holdings said it had 85% of Tranz Rail and was extending its offer to mop up shares required to get 90% and invoke compulsory acquisition of the rest.

Toll confirmed it would be required to make executive contract termination payments to current managers, information that was signalled earlier in the year. This did nothing to reduce the disquiet associated with such payments in many countries apart from New Zealand.

Weak boards have been manoeuvred into such termination clauses in contracts, part of the rationale for New Zealand companies "following the leaders" being the necessity to compete on the international executive market.

That argument proved nonsense here and in Australia where key executives failed to add value to their companies, including Tranz Rail, and were told to shoot through.

The termination payment clauses could be seen as cosy deals to protect failed executives' lifestyles when they went elsewhere.

There is an obvious way to handle the issue. Contracts for people above a given level of management should be approved at shareholder meetings.

Even that solution raises a problem, because dominant shareholders, whether majority corporate owners or institutions, have vested interests in approving the contracts. Their executives have similar arrangements.

Let's hope the directions, as opposed to executives, who move on from Tranz Rail are not given, or decline, retiring allowances.

We then had Fletcher Challenge Forest agreeing to a $17 million "break fee" to US-based The Campbell Group if another bid was made for Fletcher's forest assets.

Oh, joy; Fletcher and Campbell renegotiated the fee to $8.5 million.

Fletcher Challenge Forests joint chief executive John Dell said: "The variation to the letter of intent represents a good outcome for the company, as we improve prospects for completion by gaining the ability to deal with two potential buyers for our forests."

Mr Dell said the $725 million offer from Kiwi Forests Group more than compensated the company for the full break fee it would have to pay to Campbell.

"On the other hand, if the Campbell Group is successful, the company will not have incurred any additional cost."

There is no need to dissect that corporatespeak, except to note the weirdness in a comment that a payment of $8.5 million is better than $17 million when logic suggests any break fee should have be filed in the wastepaper bin.

Minor companies came up with attempts to stay alive. It was probably no coincidence Strathmore Group and Pure New Zealand have played in the technology market, the former describing itself in earlier days as a "technology venture capital firm."

It steadily disposed of assets and is now to acquire technology company Digital Disc Holdings, in a proposed deal that would give Digital Disc 87% of Strathmore, effectively a reverse takeover that could save the latter company.

Pure agreed with two private company creditors to capitalise debt, another saviour deal, which if not approved, could see the group cease trading.

Telecom chairman Roderick Deane's address to the annual meeting last week was another masterpiece of the learned doctor's optimism.

Apart from the regular swipe at regulation, it glowed with good tidings and praise for shareholders' commitment.

No reference to the "commitment" of trading shareholders who regularly flick Telecom shares for a quick profit turn or change holdings to keep within their benchmark-weighting enslavement.

On a light-hearted note, Wrightson's annual meeting on October 10 heard managing director Allan Freeth repeat one of his company's cherished myths.

He referred to "a heavily bearded man, Nathaniel Levin," on Wellington's Lambton Quay in 1841, "whose company Levin & Co, which was located on this quay, allows us to claim our 163-year heritage in New Zealand business."

Sorry Dr Freeth, Mr Levin may have been in business in the early 1840s, but Levin & Co was founded in 1852 as a venture with Charles Pharazyn, one of the "fathers" of Wellington.

It also stretches the bow to trace back to Mr Levin, given the history of the basic Wright Stephenson & Co structure.

Incidentally, Mr Pharazyn lived to be more than 100, just ahead of my late father who died four months short of 100 and sold a wholesale food and produce merchandising company to the Levin & Co subsidiary of the then Wright Stephenson in the 1960s.

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


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