Richard Inder: Investors should wait on ARH bid

PASS THE PORT

Auckland Regional Holdings' $170 million bid for the Ports of Auckland is not a done deal.

ARH has offered a 24 per cent premium over the $6.55 the shares were trading on Thursday and more than a dollar above what stockmarket analysts estimated is fair value.

That is not a bad return, but ARH could still be forced to offer more. Investors will look at the buyer and rightly recognise they can bargain hard.

ARH is politically motivated. The usual disciplines imposed on hard-nosed trade buyers, such as returns on investment and competitive positioning, carry much less weight.

Even if ARH gets to 90 per cent of the shares, allowing it to compulsorily acquire the outstanding shares, a group with just 10 per cent of the outstanding equity can ask for a reappraisal by an independent expert.

Experience suggests such hold-outs generally lead to a higher bid. And investors such as Peter Masfen and ACC hold the requisite number of shares between them to force such a move.

However, it is also true that beyond Masfen and ACC there are few professional investors on the share register to lead the charge for a higher offer.

And uncertainty over the port's earnings plays into ARH's hands. The port is vying with arch rival Port of Tauranga for one of the New Zealand's largest freight contracts - dairy giant Fonterra's Waikato export business. As the drift in the port's share price over the last year has shown, many investors doubt its ability to secure this deal.

Whatever happens, ARH has set a floor under the share price and investors would be wise to pause before selling into the market.

Meanwhile, Port of Tauranga will be enjoying the spectacle. At the very least, the takeover will distract management. And, furthermore, Ports of Auckland's would-be owner has designs on its most limited resource - land. Any success ARH has in wresting control of land, which could be used to build shops and cafes, can only weaken the port's position relative to its aggressive southern rival.

DISCONNECT

Telecommunications regulation on one level is easy to understand.

It is about price - how much we pay for our phone calls and our internet connections.

Looked at this way, it is also easy to understand New Zealand is getting a raw deal.

We rank near the bottom of the developed world for high-speed internet connections, while our mobile phone charges are among the highest.

Most people prefer to send text messages from their mobile phones rather than calling, not because texting is cool, but because it is an affordable means of communication.

We still cannot keep our mobile phone numbers, and keeping our home or business number if we switch is complicated and expensive.

Few disagree that a high-quality and accessible telecommunications infrastructure is an essential ingredient of a sophisticated economy.

But when we take the next step - asking what we can do about it - we seem to prefer dry and convoluted answers. This is why the debate stalls and Telecom (and to a lesser extent Vodafone) reap the benefits.

The latest review of the telecommunications law epitomises the conundrum.

In November, the then Communications Minister, Paul Swain, launched the project with the less-than-exciting goal of "improving the processes set up by the Act, with a particular focus on the monitoring and enforcement of the prompt development and implementation of regulated service supply agreements". The detail is much worse.

The most hotly debated suggestions of the review, judging by the submissions lodged on the Government website, concern reference offers.

The detail is sketchy but it seems to involve the Commerce Commission issuing broad directives about the sorts of products and services Telecom must offer; from corporate connections to wholesale internet services. Then Telecom developing these minimum specification offers and making them available to all comers. It is, however, allowed to negotiate variations.

Sounds fine in theory but, in practice, the plan suffers from the same problems hampering the present regime.

It is open to filibustering. It favours the network owner and it is founded on the false premise that the law can cope with the billions of variations of products and services Telecom and its competitors can conjure up.

Arguments in Australia as the Howard Government readies itself to sell its 51.8 per cent stake in Telstra, the Aussie version of Telecom, point to an alternative. There, instead of 'reference offers', politicians are mulling ways of aligning Telstra's interests with the wider Australian economy.

The proposals boil down to some sort of separation of Telstra's network from its retail operations.

The theory is such a move would remove the advantages Telstra gets from owning the only connection into a home or business. These may include the company offering its own retail division more favourable terms or simply being more co-operative with its own salesmen than it is with a competitor's.

The retailer becomes a customer advocate rather than a weapon in the armoury of a monopolist. It is these ideas that informed the reform of New Zealand's electricity industry in the 90s. And although they are not a stand-out success, they do provide good arguments for a similar regime to be imposed on Telecom.

Telecom will naturally be opposed. It will say such a move is too expensive, that it represents an assault on property rights and that if it had any merit it should have been done when Telecom was privatised. And as Telecom says in its submission to the latest review of the act; it will argue the present regime is working well.

Many of these arguments are not without merit. But many have also figured among those Telecom has used since it was privatised and are worth revisiting in that light.