KEY POINTS:
Having been denied a quick fix last year for the ongoing issue of schemes of arrangements and amalgamations being used in corporate acquisitions to skirt around the Takeovers Code, the Takeovers Panel has been working on a more considered response. This week it released a discussion paper.
The panel says it has been spurred partly by concerns market participants had about last year's amalgamation of Waste Management and Transpacific as well as more recent proposals such as those involving Auckland International Airport, Dubai Aerospace and the Canada Pension Plan Fund.
The panel also points to media speculation about the future of The Warehouse Group indicating that a bidder would likely use the Companies Act reconstruction provisions, rather than the Takeovers Code, to pursue a takeover.
In its paper, the panel says that since 2001 it has recorded 97 takeover offers, or 14 a year on average.
Over that time it says it has "become aware of four completed amalgamations or schemes that appeared to be used deliberately to avoid the code [as well as a number of such proposals and recent attempts]".
"While it is not known how the use of amalgamations and schemes has impacted on shareholders in monetary terms, the panel is concerned that circumvention of the procedures provided by the code has adversely affected the rights of shareholders in code companies to participate in crucial decisions about changes in corporate control, regardless of the substantive outcome."
It has come up with five options to deal with the issues:
* Inserting anti-avoidance provisions into the Companies Act.
* Amending the Takeovers Act to exempt schemes of arrangement and amalgamations which would then be considered under the Companies Act amendments as above.
* Aligning the Companies Act's thresholds and disclosure requirements to more closely resemble those under the Takeovers Code.
* Prohibiting companies subject to the Takeovers Code from undertaking amalgamations under Part 13 of the Companies Act.
* Same as option 4 but also prohibiting code companies from using schemes of arrangement as per Part 15 of the Companies Act.
The document also asks for market participants' thoughts on the 90 per cent threshold for compulsory acquisition of shares in wider takeover situations under the code.
"Has it created the incentive for companies to utilise the Companies Act reconstruction provisions instead of the code for control-change transactions because 90 per cent is considered too hard to achieve or unreasonable?" the panel asks. The closing date for submissions is February 15.
Rock solid
Our big four Australian-owned banks this week got the Reserve Bank green light to calculate their own capital adequacy ratios from next year onwards, in line with the new international Basel II banking rules.
Capital adequacy ratios are the amount of capital banks must hold on their balance sheets as a buffer against adverse economic events and conditions.
It's widely anticipated the new regime, under which "internal models" are used to set the ratios, will allow the banks to operate with slightly lower ratios because they have large mortgage books which are now deemed to be relatively low risk by historical standards.
Stock Takes understands lower capital adequacy ratios broadly result in potentially greater profitability.
If so, is this then not a little bit like letting boy racers set their own speed limits according to how well they rate their skills as a driver?
At present the RBNZ is only giving the banks a restricted licence: they must keep their capital adequacy ratios at 90 per cent or more of those under the present Basel I regime during a transitional period.
Furthermore it assures us that it will have the ultimate say on the internal models used by banks to calculate risk capital.
Stock Takes is sure there's nothing to worry about: really, what are the chances of a serious housing market downturn that might cause the banks headaches? And when was the last time a bank went under?
Ray of hope
Last week Stock Takes reported some good news from the troubled finance company sector. But wait! there's more!
This week NZX-listed New Zealand Finance said it had secured additional funding lines from Commonwealth Bank of Australia and Westpac.
The new line from CBA is worth up to $40 million, while the Westpac deal was a $50 million extension of its existing "warehouse line" taking it to $250 million.
NZ Finance managing director John Callaghan hailed the deals as a vote of confidence in his company amid the investor stampede out of the debenture market.
"It also allows NZF to continue its growth. It means we can take advantage of profitable lending opportunities which arise as many of our competitors are simply unable to fund new business."
Chairman Richard Waddel pointed out the CBA line ranks equally with debenture holders, "unlike some other companies".
The Westpac "warehouse" facility relates to NZ Finance's mortgage securitisation programme under which it packages loans into securities and onsells them usually to institutional investors.
Property Finance Group , which had a mortgage securitisation programme worth hundreds of millions of dollars, blamed its failure on a seizing up of the relevant markets due to the credit crisis.
However Callaghan says the New Zealand mortgage-backed securities market is back to robust health and the increase in his company's warehousing facility is a result of its growing business in that sector.
Market safe-haven
It's worth noting that none of the finance companies that have gone bust over the last year and half have been listed - as long as you exclude the VTL Group-owned Nathans Finance.
One conclusion is that any problems within listed companies would be far easier for investors and analysts to spot early on due to the exchange's continuous disclosure regime.
Nevertheless, listed finance companies' shares have been getting a hiding recently due to a combination of their unlisted counterparts dropping with alarming frequency and the global equities retreat generated by the credit crunch.
NZ Finance's shares closed at 65c yesterday, well down from their high for the year of $1.50 in February.
Dorchester Pacific's shares closed at 88c from their year high of $2.39, also in February.
Dominion Finance's shares were at $1.34 from their May high of $2.40.
Other listed companies with finance company operations are Allied Farmers, whose shares were yesterday at $1.69 from $2.13 in March, and Pyne Gould Corp, trading at $3.80 from $4.90 in April.
Merry Christmas, Mr Reynolds
It seems it's time to farewell former Chase Corporation boss Colin Reynolds from the ING fold.
Reynolds rose to prominence during the 1980s when he led a property battle charge as the lion-faced boss of Chase, out to put up mirror glass towers and pull down any old building that got in the way.
This week, ING said his company - Symphony - had given notice that it was exercising its right to sell the 50 per cent shareholding it has in ING Property Trust Management.
But if the deal goes ahead, no one will know what Symphony, or Reynolds, stands to make. These property deals are closed-shop stuff, as the management is separate from the listed vehicle and not subject to the same rules of disclosure.
Merry Christmas, Colin?
Macquarie gets connected
Aussie investment banking giant Macquarie has caused a ripple of surprise across the Tasman by turning up on Telecom's share register recently with a 7.2 per cent stake.
The word was that the stake was nothing more than an portfolio holding related to Macquarie's funds management business but nevertheless the Sydney Morning Herald detected a faint whiff of takeover intrigue.
It points out Macquarie has made a name out of facilitating, or even leading takeover bids.
Furthermore, "Before the credit crunch put a dampener on private equity deals, Telecom NZ was seen as a much more logical target than Telstra".
"The Kiwi company has an open share register, largely because it doesn't have the same foreign ownership restrictions as Telstra."
Well, maybe not the same foreign ownership restrictions as Telstra, but Telecom does have some restrictions.
Stakes larger than 10 per cent must be approved by the Government. Stock Takes sees two chances of the present Government giving the green light to a Macquarie-led bid for control of our largest listed company - fat and none.
Still, as the SMH points out, Macquarie's buying may have contributed to Telecom's recent share price gains.
Even after falling 8c yesterday to $4.36, it is still up about 5 per cent since early November.
