Traditional torpor as market cleans house, tidies up in July

Friday 20th July 2001

July is one of those strange months in the investment world when nothing much happens, apart from release of the June-quarter movement in the consumer price index and a few company profit announcements and annual meetings for groups with March 31 balance date.

Even the CPI figures have little effect on markets, because economists are usually spot-on with their predictions or near enough to the outcome to be within an acceptable margin of error.

The lack of news probably has little to do with the fact that the month is mid-winter in New Zealand but is related to July being mid-summer in the northern hemisphere when people's minds and their physical presences stray to holidays.

Confirmation of continuing quiet Julys is seen in the Stock Exchange's daily memorandum which covers statements from companies relevant to their requirement to keep the market fully informed.

There are fewer pages issued in July than any other month.

Students of trivia would be pleased to note that information. Company announcements so far this July have been concerned with housekeeping matters, in a broad sense, although there was the continuing corporate soap opera of Montana Group/Lion Nathan/Domecq.

A letter sent from Montana's independent directors to shareholders on July 12 showed the practical working of the new takeovers code.

It said the company had received takeover notices under the code from both Lion and Allied.

"The Takeovers Codes require Montana to respond to these Takeover Notices by sending shareholders a 'Target Company Statement' in response to each notice. The target company statements will contain important information which will be relevant to a shareholder considering whether to accept or reject an offer from either Lion or Allied."

After setting out the information to be included in the target company statement, the letter continued: "Shareholders will not be prejudiced by delaying their decision whether to accept either offer until they have received the relevant target company statement ... both Lion's and Allied's offers must be open for acceptance for a period of 30 days and the relevant target company statement must be sent to shareholders within the first 14 days of this 30-day period (approximately 15 days) to consider the target company statement and then whether to lodge an acceptance."

That was the position from Montana's viewpoint, but the twisting tale about the two offers and the involvement of the Stock Exchange and the takeovers panel was more complex and may not be over yet, despite what the regulatory bodies decided on Monday (after this column was written).

Activities of other companies in the "housekeeping" category this month related mainly to capital structures.

Evergreen Forests provided an interesting example of capital restructuring and strengthening the balance sheet, to the point of considerable conservatism.

The company raised $4.88 million through a placement of $9.3 million ordinary shares at 52.5c a share to finance a pro rata offer to convertible noteholders to buy back 4.275 million of the 28.5 million notes on issue. A letter to noteholders said the company was undertaking those transactions to strengthen its balance sheet by reducing debt and lowering interest costs.

"This will increase Evergreen's harvest flexibility and positively support shareholder value in the long term."

At December 31 Evergreen had shareholders' equity, including that attributed to minority interests, of $108.48 million, convertible notes of $31.17 million (including accrued interest), term borrowings of $48.79 million and total assets of $193.39 million.

The interest bill for the six months ended December was $1.35 million, adding together interest paid from operating activities and that paid from investing activities.

The relationship of total equity to total assets was 56.1%, not a bad ratio for any industrial company.

Evergreen's buyback, if achieved in full, would save the company $307,000 in annual costs, before tax allowance on the notes, and, subject to how much debt was repaid, lower general interest costs and lift the relationship between equity and total assets/liabilities.

The "real" relationship would probably be higher, because the forestry company carried the value of its forests in the balance sheet at cost. That value was $144.64 million at December 31 but the company said on July 4 the independent valuation was $157.4 million, an increase of $8.9 million, over the previous June.

The new independent value was 3.5% above the expected year-end book value of the company's forests. That would put the book value at $152.08 million.

There were shares issues from other companies, with technology group Selector Group reporting a shortfall in its offer, which underwriters will cover, Cue Energy placing 8.47 million shares to finance an exploration venture in Papua New Guinea and CableTalk Group (curiously) commenting on rights trading for its 10.8 million new shares in the ration of 9:1 to finance its key transaction. Roll on August.

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