Action hotting up pre-July 1

By ELLEN READ markets writer

Lion Nathan's takeover of Montana may be a sign of things to come in the next few months, say brokers, as companies jockey for position before a more robust takeovers code takes effect on July 1.


Contact Energy, Tranz Rail, Independent Newspapers, Sky Television and Carter Holt Harvey have all been singled as potential takeover targets.


As well as Montana, Schneider Electric's quest for 19.99 per cent of PDL Holdings and yesterday's announcement that Sky City is bidding to buy Force Corporation have been cited as examples of the building action.


"There could be people moving to control on things ahead of that July date," said one broker, mentioning the prospect of News Corp moving on INL followed in turn by INL moving on Sky TV. This kind of activity would get more difficult after July.


Cavill White Securities managing director Don Turkington has been expecting to see increased corporate activity for some time.


"It's quite likely that we will see more of that leading up to the 1st of July," he said, adding that activity had picked up in the past week.


Dr Turkington said that under the present regime it was very easy for companies to acquire limited holdings but this would change come July.


"If you want a minority stake over 20 per cent and you don't want to buy the whole company then you really have to get in prior to July 1," he said.


While it was difficult to identify which companies might move in the next couple of months, said Dr Turkington, Tranz Rail was one which needed to look carefully at its situation, given that both Wisconsin Central and the Fay Richwhite interests had indicated that they were sellers of their Tranz Rail stakes, which together exceed 20 per cent.


"Now if someone was interested in buying those two stakes but didn't want to buy the whole company they would have a strong incentive to move pre-July 1," Dr Turkington said.


International Paper already controls Carter Holt, but if it wanted to increase its holding then it too would have an incentive to move now, he said.


"On the other hand if they wanted to sell their stake, they would also have an incentive to do that before July because they might feel it's easier to sell 50 per cent rather than forcing someone under the new takeovers code who buys 50 per cent to make that offer to other shareholders."


Another broker mentioned Edison Mission's 41 per cent stake in Contact Energy.


"They've always been pretty close about what they wanted to do but if they wanted to increase their stake or if they wanted to have a controlling interest then they should do that before July," he said.


Commerce Minister Paul Swain has said the takeovers code cannot be implemented before July 1 as this would not allow enough time for consultation, the necessary parliamentary processes and for companies to familiarise themselves with the new regime.


Nor does he have the authority to suspend takeover action until July.


However, he said, recent events demonstrated that the current takeovers code was not adequate.


"The fact is [the Montana takeover] was a shambles. It simply does not encourage people to think seriously about the New Zealand sharemarket."


Mr Swain said he hoped there would not be a rush of similar takeovers between now and July.


"It's hard to say but I don't see any others on the horizon. But my advice really would be that small shareholders have been bitten twice in recent times and they'll be looking very, very closely between now and July at the whole regime," Mr Swain said.


"My view is that the reputation of our sharemarket has been damaged and our international reputation needs to be resurrected and I would be encouraging people to think very carefully before a repeat of the fiasco of the past couple of days."


How the code works


Under the code, there will be six ways to lift a stake above the 20 per cent threshold:

* With the approval of shareholders.

* By an offer for all the outstanding shares (a full offer).

* By an offer for a percentage of the total company (a partial offer). Such an offer must be made to all shareholders, at the same price.

* For acquisitions in the 50 to 90 per cent range, at a rate of 5 per cent a year.

* In the 90 to 100 per cent range, by a compulsory acquisition.

* Under an exemption granted by the takeovers panel.