Technically Speaking: Kirin played it by both the New Zealand and Japanese books

Friday 16th February 2001

Chart 1: Lion Nathan

Chart 2: Montana International

Scandal has again broken out over a corporate play in the New Zealand liquor industry sector of the sharemarket. Lion Nathan (chart 1) is once more at the centre of a row over whether a bidder can gain control of a listed company by making only a partial takeover bid.

Lion's lightning raid to seize a majority stake and therefore control over Montana International (chart 2) has aroused fury among some shareholders who believe they have been done out of the chance to get a price for their shares equal to that achieved by those who sold to Lion.

Such controversy will be eliminated if the government passes a proposed bill that would oblige a compulsory offer of a full takeover to all shareholders should a bidder wish to exceed a 20% stake.

In all the finger pointing, it should be made clear that most parties involved have not acted wrongly under present rules. Lion acted in the interests of its shareholders in exploiting its opportunity to grab control of Montana. Institutions that sold to Lion did the same thing by their investors. Montana chairman Peter Masfen was entitled to act in his self-interest in seeking to dispose of his private property for the best deal.

The Stock Exchange market surveillance panel had the power to grant the necessary waiver for Lion's bid, although it is argued it did not apply the rules correctly in failing to require sufficient pause before Lion could proceed. Whatever media pundits, foreign observers or small shareholders might have to say, the Montana deal was largely done by the book under local conditions.

Despite what we have been told about foreign horror at the Montana raid, the deal would raise no eyebrows in Japan, from whence it ultimately originated. It is typical in that country, the second largest nation-state economy in the world, for corporations to take strategic shareholdings that give them effective control without full ownership.

Such deals are often done through the back door by secret negotiations with major existing shareholders, as the Japanese value speed and surprise once they have committed themselves to action. The end result is a fait accompli once the public is informed.

Western countries do not have a moral monopoly on adjudicating what is right and proper under takeover regulations. Kirin Breweries acted as a normal Japanese corporation would when it gained control of Lion Nathan.

The company repeated the strategy with Montana, using Lion Nation as its proxy. In Kirin's view, it has played by both Japanese and New Zealand rules.

It seems the new takeover law will be passed but that does not foreclose a philosophical debate over whether what happened with Lion and Montana should be permitted. At the heart of the matter lies the question of what, if any, obligations shareholders in a company owe to each other.

Directors and company officers owe obligations to shareholders, but can the same be required of inter-shareholder relations? If it is true that shares are private property, then in principle at least, shareholders should be free to alienate their shares as they see fit. Similarly, if a shareholder wishes to acquire more shares, then, again in principle, he should be free to contract as he pleases to buy them.

Those who disagree with this argument should prove there are obligations that properly exist between shareholders that require a decision by one shareholder to be subject to the interests of all other shareholders. That all shareholders have a say over the company they have jointly invested in is not identical with the question of whether all shareholders should have influence over the actions of some shareholders.

Self-interest and common interest need to be reconciled in a just manner where common endeavour is involved. Usually argument about the correct form of such reconciliation is terminated at the practical level by legislation, but the law is not the same thing as morality.

While some have been quick to hail the government's takeover legislation as the answer to a jilted maiden's prayers, it should not be forgotten that the new law is a product of a socialist administration ideologically committed to the Marxist principle that collective rights supervene on individual rights, especially where property is concerned.

For the Labour-Alliance regime, social justice in the form of redistributive takeover rules is business as usual. But for the rest of us, there are still some matters to be addressed.

Never mind that Australia has rules similar to those proposed for New Zealand. That is just a red herring.

The moral concerns, which will not go away regardless of the legal position, have to do with whether buyers should be treated differently from sellers in law, and larger shareholders differently from smaller shareholders.

Self-interested outrage by some Lion and Montana shareholders should not obscure the ethical dimension of the debate, which is about individual rights against collective rights.

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