Lion tramples helpless Allied

By DITA DE BONI

Australian brokers poured fresh scorn on New Zealand's stock market yesterday as Lion Nathan used the new takeovers code to gazump Allied Domecq's bid for Montana Group.

Freshly punished for breaking sharemarket rules in its eagerness to buy Montana, the brewer yesterday morning took advantage of a loophole in the code to make another offer for the company. The new terms are an initial offer of $5.50 for 11 per cent of Montana, which would return Lion to a 51 per cent holding, followed by a second offer for remaining shares at $3.70 each.

Although the takeovers code - which came into force on July 1 - is designed to limit the use of partial offers, Lion's $5.50 partial offer complies because it is open to all shareholders, and will be allocated pro rata. Thereafter Lion is free to offer a different price for the remainder of Montana, in this case $3.70 - a 25 per cent discount to last night's closing share price of $4.90.

The cherry on top for Lion Nathan, forced to forfeit a 19 per cent stake in Montana for buying shares illegally in February, is that Allied Domecq could only watch from the sidelines.

Last week, Allied improvised an offer for Montana, hoping it would be code compliant by "irrevocably" promising to buy up to 23 per cent at $4.80 a share. But the Bristol-based company's hopes were dashed when the new takeovers panel decided Allied's bid required further scrutiny. Compounding Allied's frustration, the panel said it could not meet to consider the matter until Friday, leaving Allied unable to add to its 27.1 per cent holding without making a new formal offer.

The situation has appalled Australian and New Zealand brokers, who say that a similar "pro-rata" provision in Australian takeover legislation in the 1980s was revised after the loophole it created proved too wide.

"We thought New Zealand's takeovers code was a mockery before. We still do," said one.

"It's like saying, 'let me give 14 days notice to screw shareholders'."

In Australia, any shareholder reaching 20 per cent and wanting to go further must make a uniform offer for 100 per cent of the company.

Late last night, Allied cobbled together a response to Lion's bid, saying it would "move to formulate a formal structure to make a general offer of $4.80 per share for all shares in Montana Group."

Spokeswoman Jane Mussared said a formal offer would be made as soon as possible, perhaps today.

Before news of Allied's counter-offer, David Cook, alcohol analyst with ABN Amro in Sydney, said Lion would probably be successful in buying 11 per cent at $5.50 and divesting the 19 per cent it has been ordered to relinquish at $4.50, giving it an average in-price of $3.78.



Lion Nathan's first offer for 11 per cent will be made within 15 working days and remain open for 30 days, as required under the code. The Lion offer is being handled by Macquarie, not Lion Nathan's regular broker, Credit Suisse First Boston (CSFB).

Market commentators say using different brokers is an attempt by Lion Nathan to distance itself from the last share-buying fracas which led to the punishment from the Market Surveillance Panel committee.

Lion's chief financial officer, Paul Lockey, said that if all shareholders, except Allied Domecq, accepted both offers for all their shares, they would receive an average of no less than $4.38 a share.

"Lion Nathan's offer provides Montana shareholders with an opportunity to sell all their Montana shares at a fair value."

Meanwhile, Allied Domecq said its $4.80 offer was "clearly ... far superior to the Lion Nathan blended rate of $4.38."

The company wheeled out chief executive Philip Bowman to address the company's latest censure by the Takeovers Panel.

"We admire the panel's proactivity," he said, "but are clearly very surprised that [it] has acted without providing an opportunity for us to provide it with the full facts and that it is furthermore unable to schedule a meeting until Friday, given the potentially significant adverse commercial consequences to Allied of a restraining order."