The Shoeshine Column: Gold Peak shines bright for PDL shareholders

Friday 11th May 2001

Takeover participants are habitually shy with the media while the deal's still on the table but they usually manage the odd "no comment."

Schneider Electric Industries' takeover of PDL, however, has had players of every description bolting for cover like ducks on opening day.

Shoeshine's repeated calls to PDL chief executive Mark Stewart failed to elicit a response although he is now back from his trip to France. Neither could chairman Warren Bell be raised.

Schneider's local office referred enquiries to its broker, Forsyth Barr, which referred them to its investment banking adviser, PricewaterhouseCoopers, which declined to comment - on anything at all.

With such a paucity of information PDL's minority shareholders - if there are any left - will just have to hang on to their hats and see what happens.

Shoeshine's bet is that Schneider, which held 26.3% on Wednesday night, is talking turkey with PDL founders the Stewart family, who have between them some 60% of the shares.

The French electrical and electronics giant's only comment to date was that it was seeking a strategic stake and wasn't making an offer for the whole company.

But that was back in February when it announced it was standing in the market for 15% of PDL at $5.20, $1.30 above the previous closing price.

Amazingly the market seemed to swallow it. After peaking at $6.50 the shares dived back down to $4.70. Those who sold at that price must now be feeling a tad sheepish.

Wiser heads didn't find Schneider convincing.

The company has operations in 130 countries, sales of $21 billion and assets of $24.5 billion, so it's hard to see why it would bother itself with a minority holding in a New Zealand outfit with assets of only $23 million.

Its clear intention was to scoop up a decent parcel of shares while it talked to the Stewart family about the main holding.

The temptation is to assume its timing was driven partly by the July 1 deadline on which the Takeovers Code becomes law.

Until then it will be able to offer the Stewarts a premium for their controlling stake without offering the same price to the minorities.

But that's assuming the Stewarts would take such a premium and leave minorities begging.

Doug Myers got a severe slagging for doing just that when Kirin bought into Lion Nathan.

Be that as it may Schneider had plenty of time to get the deal done before July 1.

Unfortunately Hong Kong-based Gold Peak Group seems to have had the same idea. Gold Peak announced on March 1 that it had, through various subsidiaries, amassed a stake of more than 5%.

Schneider reached for the writs right away, alleging Gold Peak had failed to comply with Securities Act disclosure requirements.

The High Court agreed, ordering Gold Peak to sell down its holding from 8.2% to 6.1%.

That left both bidders able to buy on-market. Schneider piled in immediately, offering an astonishing $8.80 a share, or 55 times the earnings PDL has forecast for the March 2001 year.

Schneider's apparent concern - that Gold Peak could get 10% of the shares and block compulsory acquisition - no longer applies. Between them the three major holders now have 92.4%.

Quite why the two are so keen on PDL isn't easy to see.

Five years ago PDL was in good heart with the share price at 780c and a $12.5 million profit under its belt.

But things have since gone seriously awry and the shares have been a rollercoaster for investors.

In 1998 profit fell to $9.7 million and the shares bottomed at 330c ahead of the really bad news, a $1.2 million 1999 loss. They peaked again at 600c ahead of a $4.5 million 2000 profit but slid steadily, to around 370c, before Schneider appeared.

The market's pessimism was justified two weeks ago when the company said it would this year make only $2.2 million, citing "one-off" restructuring losses, sluggish building markets on both sides of the Tasman, "material shortages," and higher prices for basic electronic components.

So Schneider has been in the market paying a price higher than the shares reached in 1997, when profits were six times as high. Gold Peak has bought them at up to $6.45.

Admittedly even at $8 the whole of PDL is valued at only $109 million, less than a tenth of Schneider's profit last year.

But Schneider presumably subscribes to the belief assets will only create wealth for shareholders if they're bought at a price at which future earnings equal or exceed the cost of the capital invested.

Those shareholders who sold for $8.80 this week have Gold Peak to thank for their good fortune. Schneider paid a premium of 126% over the price that prevailed before it began bidding.

With only 7.6% of the company, or just over a million shares still in the hands of the minorities it's highly doubtful PDL still makes the Stock Exchange's requirement listed companies have at least 500 shareholders.

That's another good reason for the Stewart family to sell. Shoeshine's guess is that Schneider has just bought itself one heck of an expensive asset.

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