Brokers scoff at panel's story

By DANIEL RIORDAN and ELLEN READ

The Stock Exchange's Market Surveillance Panel says it let Lion Nathan make its controversial takeover offer to Montana's small shareholders earlier than rules allowed without considering that Lion would go to institutional shareholders first.

The panel's explanation - released yesterday after Lion had clinched control of Montana by mopping up the remaining 4.5 per cent of shares needed to lift its stake above 50.1 per cent - has been called "naive" by sharebrokers.

"Of course Lion was going to go to institutions first. If the panel couldn't realise that they need their heads read," said one broker, who asked not to be named.

The decision exacerbated the already inequitable situation facing small shareholders in the absence of a Takeovers Code.

The panel, which operates independently of the exchange, said it regretted the situation that arose after it granted Lion Nathan a waiver allowing it to start buying shares on Thursday, but maintained it had acted in good faith. After seeking legal advice, it declined to revoke the waiver, as requested by rival bidder Allied Domecq.

Panel secretary Philippe Leloir said in a statement there was nothing in Lion's waiver request "or in the surrounding circumstances" that suggested it would use the waiver to pursue off-market transactions before the market opened on Friday. He said the waiver was granted to ensure Lion could enter the market at the same time as Allied.

But Lion on Thursday night secured commitments from institutions to buy 18 per cent of Montana, effectively freezing out rival bidder Allied Domecq and most of Montana's 10,000 small shareholders who were unable to participate in the first-come first-served on-market part of the bid yesterday. Trading in Montana shares was suspended on Friday when the exchange realised not all market participants knew a waiver had been granted.

Mr Leloir said the panel could have revoked its waiver only if it determined it had acted on incorrect information when granting the waiver in the first place.

"While the Lion Nathan request caused the panel to focus solely on achieving a position of competitive neutrality for on market bidding, it did not contain any incorrect information."

The three panel members who granted the waiver - Tower Asset Management managing director Paul Bevin, retired Court of Appeal judge Sir Ian McKay and Ernst & Young director of corporate finance (and former sharebroker) Denis Wood - had less than four hours to make their decision.

Lion's takeover was completed yesterday amid delays and confusion prompted by procedural requirements imposed by the Stock Exchange.

Lion spokesman Warwick Bryan said after sorting out a procedural issue with the Exchange, Lion entered the market after 3.30 pm with its $4.65 a share offer.

He said there were other trades in Montana shares yesterday but Lion's on-market stand did not start until 3.30pm.

Lion would not know exactly how many shares it had bought until it finished processing transactions overnight.

Part of the procedural issue was the requirement imposed by the Stock Exchange for brokers to provide individual shareholder numbers on each trade to ensure each shareholder could sell no more than 5000 Montana shares to Lion.

This was put in place to ensure the maximum number of minority shareholders could participate in the deal.

The waiver meant Allied had no time to resubmit its total takeover bid, made on Wednesday at $4.40 per share. But the absence of a Takeovers Code protecting small shareholders from partial bids such as Lion's remains the fundamental problem.

"It's a bit of a debacle and doesn't present the New Zealand Stock Exchange as a viable or attractive investment destination for international investors," said a senior broker who did not wish to be identified.

"Why have the rules in the first place if you're going to waive them?"

He said it made New Zealand a laughing stock and substantially disadvantaged minority shareholders.

The broker said Allied Domecq would be confused as to how the situation arose and said it was not unusual that they hadn't retaliated with a counter offer to Lion's. "They knew the rules and pitched their strategy accordingly.

"I think they thought that they had two days (to lodge a counter bid). They would have been a bit stunned that Lion had been granted a waiver and would just be wondering that if this could happen, what else could happen and maybe this isn't the sort of place they should be investing in."