Baycorp plans Sydney move

By DANIEL RIORDAN

Sharemarket darling Baycorp Holdings is planning to move its primary listing to Australia as it finalises merger talks with Sydney-based Data Advantage.

Negotiations between the parties have progressed quickly since they confirmed merger talks were taking place last month.

Baycorp, which has a market capitalisation of $1 billion, completed taking a 9.9 per cent stake in Data Advantage last September (since diluted to 9.3 per cent) as the two formed a joint venture.

Baycorp paid an average of $A4.64 for those shares. They have since risen as high as $A7.10, reflecting not only better performance from the company but the market's view that it was only a matter of time before Baycorp took it over.

But sources close to the deal now say it is more likely Data Advantage will take over Baycorp, and the new dual-listed entity will have its primary listing on the Australian Stock Exchange.

Such a move makes more sense than other options. The two roughly equally sized companies are looking to expand out of Australasia and into Asia. Being Sydney-based better serves that thrust.

The shareholding in the enlarged company would be split 50:50 between present shareholders of the two entities, almost half of whom have shares in both companies.

Baycorp management are expected to have the bigger hand in running the new company, and managing director Keith McLaughlin is tipped to move to Sydney.

Negotiations are said to be at a delicate stage, and Mr McLaughlin declined to give details.

But he said that whatever their outcome, Baycorp shareholders would not be disadvantaged.

Baycorp is, however, understood to be concerned at Data Advantage's galloping share price, which is pushing up the potential price of the transaction.

Although Baycorp shares have slipped from $13 to $12.20 since last September, it has been a star performer on the local sharemarket for several years.

The company ranks consistently near the top in surveys of economic value added and it dual-listed in 1999 to improve access for international investors.

Although it made a 2-for-1 share split at the same time to boost its liquidity, its share price has since surged past the $10.25 level from the time the split was announced.

A report on the deal by JBWere analysts Marguerite Ricketts and Maree Henwood rates the merger "a strategically compelling initiative" and says the likelihood of discussions failing are low.

The report suggests that the large number of institutional owners would probably overlook the accounting nuisances of goodwill amortisation, which would dampen bottom-line earnings of the merged entity.

About 45 per cent of Baycorp is owned by Australian institutions, which would ease the migration of the company across the Tasman.

Baycorp's biggest shareholders are Deutsche Australia (14.2 per cent), Commonwealth Bank of Australia (12.6 per cent) and ING Australia (4.5 per cent).

Data Advantage's biggest shareholders are Baycorp (9.3 per cent), AMP (9.4 per cent), CBA (9.2 per cent), Permanent Trustee Company Group (7.2 per cent) and Trans Union (5.3 per cent).

JBWere estimates the merged entity would have a market cap of about $A1.5 billion, and rank about 70th on the ASX 20 and ninth on the NZSE-40.

UBS Warburg analyst Dave Roberton also believes the merger would benefit shareholders of both parties. If NZ investors continued to receive good information on Baycorp, its move to Australia should not disadvantage them, he said. "At the end of the day it would still be a story New Zealand investors would be comfortable with."

Although trading in dual-listed stocks tends to be more liquid where the company has its primary listing, that is not always the case.

Local issues to do with tax imputation of Australian dividends would be minor, "because no one buys Baycorp for its dividends - it's a growth story."