Editorial: Taking a Lion by the tail

The stock exchange's notice and pause rules serve a worthwhile purpose. Their existence is intended to bring a degree of order to the often tempestuous process of takeovers and, most important, allow shareholders time to assess offers, especially if competing bids are on the table. Without such rules, some parties in a takeover usually feel hard done by. Such was the case in Lion Nathan's swoop on the shares of winemaker Montana.

Only institutional shareholders were targeted by Lion's broker when it completed a dead-of-night purchase of 10 per cent of Montana. Small shareholders were left floundering, as were the prospects of British liquor company Allied Domecq, Lion's rival for control of Montana. Lion's manoeuvre gave it 51 per cent of the winemaker, putting Allied Domecq out of the running.

A stock exchange committee, consisting of three QCs, has now found that Lion's broker bought shares before the notice and pause rules permitted. What happens next is in the hands of Montana's independent directors. They could confiscate the 10 per cent of Montana bought illegally, or strip Lion of its entire holding. If that all sounds vague and a recipe for prolonged resolution, it reflects the fact that such rules have rarely been strenuously enforced by the stock exchange.

As some brokers have commented, the exchange is demonstrating a new toughness. In part, that is a reaction to the furore surrounding the waiver originally granted to Lion, which set the issue in motion. In part, it is a reaction to the Government's wish for an environment more friendly to the small shareholder.

It is important to note, however, that Lion has not been struck down by a new set of suffocating regulations. The notice and pause rules have been in place for many years - and with good reason. The sharemarket is a healthier place when they are applied.