By BRIAN GAYNOR
Baycorp and Data Advantage have proudly announced their forthcoming marriage. The bride and groom are extremely popular and successful, and friends and supporters have greeted the union with great enthusiasm.
The ceremony will take place this year after a number of formal procedures are completed. The couple will live in Australia but maintain a secondary residence in New Zealand.
They have chosen Australia as their main abode because it offers better earning potential in the longer term.
Baycorp was established as a small debt collection business by Ray McLaughlin in Lower Hutt in 1956.
In June 1986, the company joined the big boys when it was listed on the stock exchange after the issue of 10 million shares at $1.00 each. Investors also received one free option for every two ordinary shares.
The company's chairman and chief executive was Neil McLaughlin, son of the founder and brother of the present managing director.
Baycorp quickly became a hot stock, and by the end of 1986 its share price had reached $5.70 and options $4.90. Enthusiasm continued into 1987, when the ordinary shares traded at a high of $8.60 and options at $7.50.
But the sharemarket crash had a devastating impact on Baycorp and it experienced major operating problems, particularly in Australia.
It had to write off all its activities across the Tasman, and by 1990 shareholder funds had slumped to $2.1 million. The company had one foot in the corporate graveyard, was sinking under a mountain of debt and its share price hit an all-time low of 2.5c.
In the meantime, Jim Boult replaced Mr McLaughlin as executive chairman, Ceramco acquired a 19 per cent shareholding, and Charles Bidwell joined the board.
Baycorp's steady recovery began in the early 1990s under the stewardship of Mr Boult, Mr Bidwell and Keith McLaughlin, who later became managing director.
Mr Bidwell, who was managing director of Ceramco and the company's representative on the Baycorp board, recognised the potential of the debt collection-credit reporting company. He resigned as Ceramco managing director in March 1994 and immediately accepted an executive position at Baycorp.
In October 1995, Mr Bidwell finally resigned from the Ceramco board and a few weeks later the company, which is now called Bendon, sold its 19 per cent Baycorp stake for $12.3 million. This shareholding is now worth $200 million.
Baycorp went from strength to strength. In June 1998 Mr Boult resigned to concentrate on Shotover Jet and sold his 877,000 Baycorp shares for $4.3 million. This holding is now worth $23 million, after adjusting for the two-for-one share split in May 1999.
In September 2000, Mr Bidwell resigned from the Baycorp board and a month later sold most of his remaining shares at $11.90 each. He realised a total of $100 million for his shareholding, which at one stage represented 15.1 per cent of the company, compared with a total cost of approximately $10 million.
Meanwhile, in September 1999, Baycorp and Data Advantage formed a joint-venture company called Alliance Group Holdings.
This was aimed at the arrears management and debt recovery market in Australia, with Baycorp contributing technological expertise and Data Advantage the Australian database.
Data Advantage is a well-established Sydney-based company originally formed as a mutual organisation in 1967 to supply credit information on individuals and companies. In 1998 the society was demutualised and shares distributed to members before listing on the Australian Stock Exchange.
Data Advantage has been one of the better-performing Australian shares since then.
Its relationship with Baycorp was strengthened last year when Baycorp bought a 9.9 per cent stake for $A45.6 million at an average price of $A4.64 a share.
The partnership took another step forward when the joint-venture company, Alliance Group, was appointed sole provider of outsourced debt management services for Commonwealth Bank of Australia. At the same time, CBA took a one-third shareholding in Alliance.
Baycorp and Data Advantage seemed a particularly good fit, and the announcement that they were investigating a merger was not unexpected. Protracted negotiations followed, with media reports in Australia suggesting the merger was on, then off, then on again.
A major issue was the merger terms. Early indications suggested that Baycorp shareholders would receive 1.5 Data Advantage shares for each of their own shares. The eventual outcome is more favourable to New Zealand investors - Data Advantage is offering 1.56 shares for every one Baycorp share.
In other words, Baycorp shareholders will have 58 per cent of the merged group and Data Advantage 42 per cent. This follows the cancellation of Baycorp's 9.3 per cent interest in the Australian company (this has been diluted from 9.9 per cent after the issue of new shares).
Baycorp and Data Advantage appear to be ideal partners. The New Zealand company has a strong information technology-based platform in debt collection and credit information services. The Sydney company has several software products, including credit risk management solutions and fraud detection.
The new company, Baycorp Advantage, is expected to achieve merger benefits of
$A15 million a year within three years. Cost savings will account for $A10 million of these.
The big challenge for management is to deliver on its promises and turn the new company into the leading debt collection and credit information organisation in Australasia and Southeast Asia.
Mergers can be extremely difficult to manage; they may not deliver the expected returns and may take longer than expected to produce significant synergies. The Australasian debt collector Receivables Management, run by former Baycorp chairman Jim Boult, and Montana/Corbans are good examples.
Although Baycorp Advantage will be based in Sydney, the initial responsibility for making the merger work is in the hands of New Zealanders. Keith McLaughlin will be managing director and Rosanne Meo interim chairman until a Sydney-based chairman is appointed in the first quarter of 2002.
Although the merger has been greeted with great enthusiasm, brokers have downgraded their Baycorp recommendations from a buy to a hold since the recent sharp increase in the company's share price.
As the new company is on a prospective price/earnings ratio in excess of 30, the next big shareprice lift will depend on whether it can achieve merger synergies in excess of $A15 million, and whether this can be achieved in less than the three-year time frame.
The departure of Baycorp to Australia is a loss to the New Zealand business community, but it is the correct decision as far as the company and its shareholders are concerned.
Many New Zealand companies have gone to Australia on their own account and been badly burned. This includes Baycorp, which had to write off all its Australian activities in the June 1990 year.
The company learned from this experience and this time entered the Australian market through the Alliance joint venture and is now merging with Data Advantage. This should be a far more rewarding strategy in the longer term.
From a national point of view, the biggest problem is not that our successful companies are moving to Australia, but that there are no up-and-coming organisations taking their place on the New Zealand Stock Exchange.
* Disclosure of interests: Brian Gaynor is a Baycorp shareholder.
* bgaynor@xtra.co.nz
<i>Gaynor:</i> Long courtship ends at the altar
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