Expect harmless trampling and trumpeting

Peter V O'Brien

Friday 23rd April 2004

It has been a good month for people who enjoy seeing the business and investment worlds' elephants trample the grass and trumpet menacingly at each other.

This rarely leads to anything more dangerous because the beasts know posturing can be a more successful battle tactic than fighting to the death.

Trumpeting was well under way this week regarding Rubicon's bid for shares in Tenon (formerly Fletcher Challenge Forests) to take the former company's holding from 19.997% to 50.01%

Shoeshine covered most of the issues last week, some of which were described as "hideously complicated."

Apart from the general and specific issues related to the bid and Tenon internal matters, reference was made to the timing of the bid (April 8) a few hours after Tenon issued a revised profit forecast for the year ended June.

It might seem strange for offers to be made within hours of Easter, but it hardly mattered in these days of tight controls over takeovers and partial acquisitions.

Really old hands would remember the years of loose rules, or no rules. A young pup called Brierley tried a raid on the New Zealand Unit Trust, a creation of investment banker and sharebroker Frank Renouf, during the Easter break when New Zealand went into a four- (sometimes five-) day coma.

The later-to-be-knighted Mr Renouf was highly miffed at the later-to-be-knighted Mr Brierley's action. Many years passed before the two became buddies. (You will be forgiven anything if you succeed and accused of everything if you fail.)

Rubicon had notable exponents of raids in director Tony Gibbs, of Guinness Peat Group (chairman Sir Ron Brierley) and director Hugh Fletcher, the latter's experience going back to 1980 when he was chief executive of the then Fletcher Holdings, which raided Carter Holt Harvey.

Subsequent events, including Commerce Commission decisions against Fletcher, led to the formation of Fletcher Challenge Corporation, then to letter stocks, on to Fletcher Challenge Forests and Rubicon.

What goes around comes around.

The Rubicon/Tenon affair had reached the "we said, they said" stage after Easter and clearly had a long way to go this week.

Hong Kong's SEA Holdings and Trans Tasman Properties had little to say about the former's offer of 40¢ a share for the 40% of the latter it did not already own, apart from Sea saying there would be no increase in price. Trans Tasman replied with its reported 63¢ a share net asset backing, $282 million in cash balances and total profit of $40.6 million for the year ended December.

Investment analysts did the trampling and trumpeting in that case. They would do everyone a favour if they refrained from conjuring up appropriate offer prices until independent advisers Ferrier Hodgson produced their report.

Analysts work for firms that often have direct or indirect vested interests in takeover offers and rarely have as much information as formally appointed independent advisers.

SEA is unlikely to say much more, except in the doubtful event of raising the price. It rarely communicates more than necessary. It already has control of Trans Tasman and can make incremental additions if desired at its leisure.

Shareholders often face such take-it-or- leave-it situations and have to decide whether cash in hand is better than possible gains in the never-never. Trans Tasman shares sold in the past week at 41¢ and 42¢. Anyone buying at those prices was either speculating on an increased offer or taking some form of strategic position.

Rural Portfolio Investments had a strange sound to its trumpeting when announcing a $1.50 a share offer for rural services group Wrightson sufficient to take its current 13% holding to 50.01%.

The offeror (a combination of interests of former Fonterra chief executive Craig Norgate and the McConnon family) could apparently walk if it failed in its target.

That may, or may not, be what happens, but was an unusual attitude, given apparent commitment to the sector.

RPI could reach its goal, because Wrightson sold at $1.42 on Monday, but a strategy of signalling a walk if unsuccessful was mystifying.

Widespread rejection of a $1.50 offer, knowing the bidder would walk, would mean shareholders had said "so what" to some perceived investment threat.

The bid from Sky City Entertainment Group for the remaining 26% of its subsidiary cinema operator Sky City Leisure was 24 hours old when this column went to press. An instant assessment machine was already at work, some parts saying the offer was fair and others wondering why there was a discount to the ordinary share price.

The facts were that the offer was for a mixture of mandatory convertible notes and shares, the share price pre-bid was an historic price/earnings multiple of 13.4 (probably too high on fundamentals) and a counter-bid would be daft, given Sky City Entertainment's 76% holding.

There could still be some harmless trampling and trumpeting.

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