M&A activity propels share index to record high

By Simon Louisson of NZPA

Tuesday 8th May 2007

Today was typical of many sessions on the sharemarket lately -- there was a takeover announcement before the market opened that set the tone for shares to rise.

The sharemarket's benchmark index smashed a new record propelled to new heights principally by merger and takeover activity.

Today's takeover involved TV3 owner CanWest MediaWorks and was by yet another Australian-based private equity company fund -- this time Ironbridge Capital -- valuing the company at $727 million.

The price offered was 49% above what MediaWorks' shares were trading at before its Canadian owner said in October it wanted to sell.

Australia is awash with cash thanks to its compulsory superannuation scheme and private equity firms are struggling to find targets for their hungry owners.

In the biggest deal of the year, Telecom in March sold off a fifth of its business -- its Yellow Pages directories unit -- for $2.24 billion. The buyer was a consortium of private equity firm CCMP Capital and Teachers' Private Capital, the private investment arm of the Ontario Teachers' Pension Plan.

At the end of last month, listed Australian tourism company MFS Living and Leisure Group launched a $277m takeover bid for tourism operator Tourism Holdings. The offer was at a 29% premium to what the shares had been trading at.

Numerous other listed companies are the subject of confirmed and unconfirmed merger and acquisition talk.

Any day now, Woolworths or Foodstuffs, or both, is expected to launch a $2.5 billion bid for The Warehouse.

Yesterday, Auckland International Airport, capitalised at $3.3 billion, shot up in value on rumours that Macquarie Bank was sniffing around.

Shares in investment company Hellaby Holdings took a jump this month after it confirmed it was considering the sale of its shoe retail chains, Hannahs and Number 1 Shoes.

Although a bid for Contact Energy, the exchange's No.3 stock valued at $5 billion, fell over last year, it is widely expected parent Origin Energy will have another lash at some point.

On a smaller scale, Finzsoft Solutions, Software of Excellence, Caci Group are all subject to bids.

The board of Restaurant Brands this month turned down bids for the company, but said it remained open to persuasion.

Likewise, Port of Tauranga called off merger talks with Ports of Auckland, but ports merger is very much on the agenda.

All this activity is the main reason for the rise in the NZSE-50 index to a new high of 4223.2 today.

The sharemarket has well and truly shaken off a speed wobble it underwent in the wake of a 9% fall in the Shanghai sharemarket in late February. The index has since risen 4.75%.

The local market is mirroring what is happening offshore. Both Wall Street and the Australian markets hit records this week.

In the US, the Dow Jones Industrial Average closed at a record today for the fifth day in a row, buoyed by Alcoa's massive $US27 billion ($NZ37 billion) bid for Alcan.

Every day, bids on a mind-boggling scale are announced. There is $133 billion being bid for Dutch lender ABN Amro, while BHP, the world's biggest miner, is said to lining up rival Rio Tinto for $136m. Media mogul Rupert Murdoch has Dow Jones & Co in his sights for at $US5 billion and Thompson Financial is mulling a $20 billion bid for Reuters.

The biggest international player of all, Warren Buffett, contributed to the M&A fever when he said on Sunday his investment company Berkshire Hathaway he would like to buy a "huge" business.

Although all the dinner party talk in New Zealand has been about the sizzling property market, over the past five years, the top 50 share index has outpacing the housing market's gains.

The NZSE-50 index, which includes dividends, is up 152% since calculations on it began in January 2001.

Over the same time, the median house price risen from $170,000, to $$343,500 -- a mere 102%.

Although the NZSE-50 has had a spectacular gain, the sharemarket's value as measured by the old NZSE-40 capital index, is still well short of the heights attained in the 1980s.

That index, originally known as the "Barclays', was based on the top 40 stocks, and unlike the current benchmark, strips out dividend payments. It stands today at 3221 -- still 18% below its 3969 peak hit just before the October 1987 sharemarket crash.

That index has only risen 46% since the start of 2001.

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