Stock takes: Making Contact

A few days to digest the detail of Origin's grand merger plan with Contact Energy haven't helped local investors warm to the idea.

The merger plan would give Contact shares a value of about $7 but they closed yesterday at $7.30, indicating that a premium exists based on expectations that Origin will have to sweeten the deal.

Local brokers are sounding unusually patriotic about Contact's wonderful New Zealand assets. Values like $10 a share are being talked about - at least half seriously - and there is a strong belief $8 or more is realistic.

Of course, this isn't actually a takeover so Origin and Contact would need to completely restructure the deal to meet those expectations. Otherwise, they could look at improving the bonus share offer or increasing special dividends to make the whole thing more appealing.

Kiwi investors love this company; they saw off a serious takeover bid by Edison Mission in 2001.

At first glance, Contact's ownership structure suggests that mum and dad shareholders will have little sway over the final decision - 75 per cent of the company is held by just 30 big investors.

But that doesn't make it a done deal, says one local fund manager. If small shareholders don't like it, then it will take only a few key funds to hold their ground to throw a real spanner in the works. 
 

RMG rebirth

Further to last week's tip that there might be some small relief on the way for shareholders in listed debt collector RMG, a general meeting has been called for March 22 (in Melbourne). Subject to a shareholder vote, there is a plan to hand control to Perth-based Ascent Capital - a company which specialises in the reconstruction and recapitalisation of existing listed companies.

The idea is to recapitalise the company, get rid of debt and then carry out a restructuring that will allow RMG to look for new acquisitions in the debt management field.

An Eric Watson creation, RMG was an amalgamation of 22 small debt collection agencies. It never took off and ended up in receivership last year.

A reconstructed RMG would have capital of about A$1 million but the share issues needed to make it all happen would leave it with a value of just 0.35c a share.

While it was trading at 2.2c a share when it was suspended from the stock exchange last April, the real value of the shares is nil, the receivers say in the notice of meeting.

If the deal is approved, Ascent will end up with a 94 per cent stake. 
 

Beachfront empire

Waiheke residents report the Hanover Group's Mark Hotchin is looking to expand his already sizeable beachfront stamping ground on the island.

Hotchin - business partner to Eric Watson and co-owner of the Warriors - hit the headlines a few months ago when he paid nearly $14 million for his 4ha property at Boatshed Bay, near Palm Beach.

Residents say Hotchin - whose wealth was estimated at $400 million in the NBR Rich List - has made "blank cheque" offers to his neighbours. One couple decided not to surrender their piece of paradise but the other said "just give me time to pack", or words to that effect.


The broadband debate

It is fair to say Telecom feels it's been getting a hard time from the media lately over the issue of broadband access.

So it must have been relieved to see Business Roundtable head Rob McLeod sticking up for it this week with a column in the Dominion Post.

Too bad the Dom forgot to disclose that McLeod is also on the Telecom board.

The beleaguered telco has another champion of sorts in Christchurch-based anti-globalisation group CAFCA.

The group has once again nominated Telecom as a finalist for "Worst Transnational Corporation Operating in Aotearoa/New Zealand".

It must be heartening for Team Gattung that someone still considers the company to be a "transnational". But surely its inclusion with the likes of British American Tobacco is a little flattering and more than a little over the top.

While they can be pretty frustrating, slow internet speeds have yet to be conclusively linked to death.

Telecom shares closed at $5.37 yesterday, down 7c.


Insurance boom

Nearly two months into the year and one sector has already broken clear of the pack when it comes to share-price growth.

As of yesterday, the top two stocks on the NZSX-50 are dual-listed Australasian insurance companies. Promina and AMP are both up nearly 16 per cent. AXA is also soaring - up 13.5 per cent and fourth on the list. The life insurance sector has been booming in Australia for some time - it grew 10 per cent last year.

But these stocks are also big investment companies and, inevitably, do well on the back of strong market performance, an Australian sector analyst says.

The fact that they are so far ahead of the rest of the market this year is probably due to investors playing catch-up, he says.

With that in mind, potential buyers should be aware that these stock are fully priced.


Looking good on paper

Speculation is growing that Graeme Hart and his Rank Group team are gearing up for a move on the Australian paper and packaging sector - presumably to leverage off the purchase of Carter Holt Harvey.

Hart's likely targets have been tipped as Amcor and PaperlinX - two companies that have been having a tough time in a market that is generally considered to be in dire need of consolidation.

Both reported big drops in half-year profit yesterday.

It looks as if all the stars are in alignment for Hart - a struggling, out-of-favour sector, synergy gains to be grabbed thanks to an already large foothold in the industry and the possibility of more acquisitions and consolidation down the track.

With the 20/20 vision of hindsight, it seems obvious now that Hart must have always been looking at the bigger Australasian picture when he set off on his CHH adventure last year.

Actually, when it comes to Hart's dealings, a lot of things seem obvious in hindsight - guess that's why he's the billionaire.

If the rumours are true, then PaperlinX chief executive Tom Park won't know whether to laugh or cry.

Park was chief executive at Goodman Fielder when Hart's Burns Philp took it over in 2002 - briefly. So he has already been sacked once by the Kiwi billionaire. And why would he laugh? Well, he walked away with A$2.5 million in severance pay. 
 

Slowly roasting

The private sales of local food brands Tegel and Griffins are moving slower than the sellers would like.

The sale of Tegel, in particular, is taking an unusually long time to complete, considering the deal for Pacific Equity Partners to buy it from Heinz was announced in December.

The delay is prompting interested food-sector observers to wonder if something has gone awry.

Danone's sale of biscuit-maker Griffins is still chugging along, albeit at a gentle pace. It is understood that at least one prospective buyer has dropped out of the race, leaving three private equity players crunching the numbers.

However, the shadow of Graeme Hart is hanging over the sale. The harder it is to sell, the more likely it is that Hart will be interested in joining the party.