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Success for AX-listed companies may mean their removal

By Peter V O'Brien

Friday 28th November 2003

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The potential for success of New Zealand Exchange's NZAX market could, paradoxically, undermine its growth.

There are 12 companies on the NZAX, with three to follow in the near future.

Others can be expected to use the alternative market listing in future, further expanding the pool of New Zealand listed equity investments.

The NZX announcement of the "NZAX 1st XV" included a statement from chief executive Mark Weldon extolling the new listings and suggesting they were the basis of a rejuvenated market.

It had to be discounted somewhat for the hype associated with many of Mr Weldon's NZX promotions but indicated the hopes for the AX.

"We are extremely proud to announce such a high calibre and broad range of companies that comprise the NZAX 1st XV. These companies represent the talent and diversity of small-medium business in New Zealand and we believe are only the start of what will become a stream of new listings from this economic sector.

"For investors, these companies represent new investment opportunities and a chance to diversify their portfolios."

It is unfortunately (or fortunately) a fact that companies representing "the talent and diversity of small-business" are other companies' preferred takeover targets provided they can be bought at realistic prices related to potential earnings growth.

Companies with depressed share prices, due to operating problems, and low or negative earnings can also be takeover targets, depending on their circumstances.

Investment opinion differs on whether it is easier or harder to acquire companies when they are listed but that point is immaterial when considering the AX market's future.

It is also immaterial that companies could have majority or dominant shareholders as apparent protection against takeover.

Anything and everything is for sale at the right price in a market situation.

Even dominant shareholders have their price.

We reach the paradox that successful (or unsuccessful in some cases) companies, representing the "talent and diversity of small-medium business" and part of a vibrant AX market of "new investment opportunities" could be removed from the AX list within a few months or years after listing.

There is nothing new in that phenomenon among companies that joined the main list over the years. Some failed to see out their first year.

It is interesting to note that companies involved in processing specialised produce from land use have a short-life record.

Wine companies are a peculiar example of the phenomenon. The NZX main board has no wine companies and any that listed in the past 25-30 years are no longer available for investment.

There are two wine companies on the AX list. The New Zealand Wine Company and Oyster Bay Marlborough Vineyards.

Both companies probably reckon they are on the list for the long haul but would have to think again if an offer came from another organisation with solid financial resources and wine expertise at a satisfactory price.

Merger into another group would not necessarily erode a winemaker's prized independence.

It could enhance independence as part of a stronger group, provided there was no meddling in the specifics of the actual wine products.

The NZX's unlisted stocks facility has three more wine companies, Palliser Estate Wines, Te Kairanga Wines and Terrae Vitae Vineyards.

They may or may not join the AX market but must decide one way or the other in the New Year when NZX will close the unlisted facility.

The NZAX has an example of another industry group that used to have exchange representation, before takeovers, mergers, changed regulatory conditions and even collapses.

Ashburton-based Loan & Building Society (LBS) was the first building society to list on the NZAX.

A backgrounder said LBS was formed in Ashburton nearly 95 years ago.

It had recently begun marketing its financial and investment services in other South Island centres such as Timaru and Christchurch.

The society first listed on the former secondary share market in 1999 and at the time of NZAX listing the shares had buyers at $2.75.

That buying quote was out to $3.02 on Monday with no sellers.

LBS has been around for long time and shares have been traded on an open, although limited, market for a reasonable period, but is still a freestanding operation.

The backgrounder said the society expected NZAX listing to stimulate trade in the shares, improve liquidity for shareholders and raise its commercial profile in the marketplace.

LBS has a NZX listing waiver to retain its current rules after listing on the NZSX, subject to conditions.

That could limit or dispose of interest from other organisations.

We will see if the NZAX increases interest in offers for its companies as well as giving investors "new investment opportunities and a change to diversify their portfolios."

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


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