KEY POINTS:
Troubled fast-food stock Restaurant Brands is trading at levels which suggest investors have all but given up hope that a sale will proceed.
Shares dropped below the $1 mark last week and the share graph indicates there is no takeover premium left in the price.
When chief executive Vicki Salmon stepped down two weeks ago there was speculation she had wanted to sell but the directors were not prepared to take the bargain basements prices on offer.
The sale process was supposedly live at that time, even though no official bids had been received.
Two more weeks without any news seems to have worn out the patience of many long-suffering Restaurant Brands shareholders.
Three potential bidders were believed to be taking a look: a couple of private equity groups including Pacific Equity Partners and at least one trade buyer. If any of them are still hanging around then the balance must be tipping in their favour.
But even the failure of the formal sale process might not be the end of the story. The longer the share price continues to stagnate the more vulnerable the company will be to hostile bids.
Restaurant Brands has a wide open register with no one investor holding more than 10 per cent.
So if the board was not happy with the kind of sale prices being talked about, a potential buyer might want to test the appetite among shareholders by making an offer. Restaurant Brands shares closed steady yesterday at 98c.
Property Plays
Australians generally find New Zealand politics about as exciting as watching a test match between the Black Caps and Bangladesh.
But as their institutions increasingly look to this country for investment opportunities, they are going to have to keep up with the play - at least as far as our tax changes go.
The Australians were caught out this month by the news of positive tax changes that sent shares in New Zealand listed property trusts soaring.
Unaware of what was driving the price of shares in property trusts such as Macquarie Goodman, Kiwi Income and AMP Office, they started selling to take advantage of what looked like an unusual price spike.
Now, after the trusts have finished their roadshows and broker presentations across the Tasman, the Australians are buying back in.
Four's A Crowd
A consolidation of second-tier finance companies has been on the cards for some time.
This week's news - that Dorchester Pacific is taking a 25 per cent stake in St Laurence Group - has finally got the ball rolling and is likely to result in a merger of the two groups.
In effect, it could end up being a back door listing for St Laurence, which has been valued at twice the size of Dorchester by this deal.
Whatever happens, the deal certainly creates a fascinating and increasingly incestuous scenario for Dorchester stakeholders.
A look at its share register suggests something has got to give. As part of yesterday's deal St Laurence now also owns 13 per cent of Dorchester, Brent King and Viking Capital get diluted to 9.7 per cent (from 10.96 per cent), and Rod Petricevic's finance company Bridgecorp's stake is diluted to 16 per cent (from 18.07 per cent).
The biggest stake holder, Hugh Green, goes down to 17.6 per cent (from 19.9 per cent).
King is a founder and former managing director of Dorchester. He sold out of the business and stepped down as managing director in 2005 but made a failed bid to return to the board last August.
It is no secret that King - who admits he still has an emotional attachment to the company - has been building his stake in Dorchester and that has sparked plenty of speculation that he may be planning a takeover of his own.
But King said yesterday he was pretty comfortable with the St Laurence deal and considered St Laurence managing director Kevin Podmore a "significant addition to the board", whose presence would "remedy many of the weaknesses we've been critical of".
He likes the increase in size of the business, which he hopes will enable the company to attract interest from more institutional investors and drive the share price.
But what he doesn't like is the "low" $2.05 share price at which the merger deal has been done.
"There's no question it is a back-door listing using Dorchester at rock bottom price," he said.
Meanwhile, Bridgecorp has been tipped as a possible seller of its Dorchester stake depending on how much it will need the cash in the next year, after a couple of hiccups around investments in Australia and Fiji.
If St Laurence was to get control of Bridgecorp's stake it would cross the 20 per cent threshold requiring it to bid for at least 50 per cent.
Just to spice things up a little more, Bridgecorp still owes St Laurence $8 million, which was due to be paid back at the end of last year.
St Laurence allowed Bridgecorp to roll the loan over for another three months, making it due again next week.
There is a lot of interest in the sector about whether St Laurence will allow Bridgecorp to roll over the payment date a second time.
To outsiders it all starts to look a bit like a high-stakes game of musical chairs.
Let's just hope that this thing plays out in a way that leaves investors smiling because in this sector, when the music stops it is often the little guys who can't find a chair.
Dorchester shares closed up 6c yesterday at $2.18.
Healthy Dollar
The kiwi dollar, which topped US72c this week, is once again putting the squeeze on exporters and has put a big dent in the share price of some pretty solid NZX listed companies which rely on exports for their revenue.
For example, Fisher & Paykel Healthcare - which to its credit disclosed the calculation for the impact on earnings last last year ($3.5 million off ebitda for every 1c increase against the US currency) - has shed 15 per cent since February.
Last week F&P Healthcare issued profit guidance which chopped $10 million off its forecast operating profit because of currency costs.
But although the currency losses are relatively easy for analysts to track, the guidance contained other details which have prompted Goldman Sachs JBWere to downgrade its outlook.
"We were simply too bullish," is the forthright title of Marcus Curley's latest note on the company.
He has dropped Goldman's discounted cashflow valuation of the share from $4.40 to $3.90 and changes its short-term recommendation from "outperform" to market perform.
The problem has been in slower underlying growth of pre-hedging operating profit for 2007 - 33 per cent against Goldman's earlier estimate of 46 per cent. That has been caused by lower revenue growth and lower margins that had been expected.
Consequently Curley has lowered his forecast for 2007 net profit by 7 per cent to $58.1 million and for 2008 by 13 per cent to $78 million.
But Curley retains a long term "buy" recommendation on the stock which, as the price drifts, looks increasingly like a good play for investors who believe that what goes up (ie the dollar) must eventually come down.
Fisher & Paykel Healthcare shares closed down 3c yesterday at $3.66.
The Warehouse - Don't Expect A Bargain
And so the wait goes on. The Warehouse shares slid further this week on news that the Commerce Commission had delayed its decision on whether to allow takeover bids by Foodstuffs and Woolworths. They have now fallen from a January high of $7.30 to yesterday's close of $6.75. The suspicion is that the hedge funds and arbitrage players are still in but many institutions and retail investors are not prepared to wait for a bidding war that may or may not be allowed to happen by the regulators.
It's not hard to see the logic of those who have cut and run but some news out of the US offers a timely reminder of the upside that remains for those who are staying in.
US based discount store Dollar General - operating in a similar space to The Warehouse - has been bought by private equity group Kohlberg Kravis Robert (KKR) for a price which gives it an historical enterprise value to ebit multiple of 20.8.
Applying that kind of multiple to The Warehouse's historical normalised ebit gives it an implied per share takeover price of $9.68.
That might seem like a heady price, but there is no reason to assume that a bidding war between two industry players with good strategic reasons for buying it, couldn't push The Warehouse to a similarly high multiple in the current climate.
Interestingly KKR (one of the unsuccessful bidders for Telecom's Yellow Pages) is also one of the parties bidding for Australian retailer group Coles in a process which may now be completed before The Warehouse sale.
Going For A Song
Graeme Hart's latest foray - the possible purchase of Blue Ridge Paper Products in North Carolina - sent local journalists scampering to find financial information on his new target. Despite Blue Ridge being a private company, the task proved exceedingly simple. US law seems to require the company to publish accounts in at least as much detail as a New Zealand-listed company.
Maybe its a post-Enron thing but there were some areas where their disclosure really put New Zealand to shame. For example, in its annual report Blue Ridge provides 21 pages of detailed information about pay for executives and directors. Something for the NZX to think about perhaps.
For the record Blue Ridge Paper takes its name from the Apalachian mountain range made famous by John Denver in the song Country Roads: "... Blue Ridge mountains, Shenandoah river..."