Montana buy-up broke the rules

By DITA DE BONI and KARYN SCHERER

A corporate chess match for control of New Zealand's largest winemaker reached the "check" stage yesterday when brewer Lion Nathan's broker was found guilty of breaching stock exchange rules.

A secretive inquiry into trading in Montana shares four months ago has found that Credit Suisse First Boston - acting for the Australasian brewer - bought shares too early. The finding means Lion could be forced to give up its entire investment.

Lion paid nearly a quarter of a billion dollars for a 22 per cent stake in Montana on February 8 as part of a six-month campaign for control.

A stock exchange committee has found that just under half the purchase, worth $97.5 million then and $103 million now, was wrongly acquired.

Lion will be forced to sell the shares, and stock exchange rules mean it could have to sell the rest of its investment as well. It is not known who will finally buy the holding, and Lion watchers believe the game may not be over yet.

Since February, Lion has lifted its stake in Montana to 62 per cent. Its rival, British liquor giant Allied Domecq, also wants control but so far has only 26 per cent.

More than 100 hours of taped conversations grudgingly handed over by Credit Suisse First Boston to the stock exchange committee could loosen Lion's multimillion-dollar grasp on the winemaker even further.

Transcripts reveal that brokers exhorted would-be sellers to relinquish their holdings up to seven hours before a midnight embargo imposed by stock exchange rules.

The brokers used language such as "pushing the button" and "pulling the trigger" to describe how the $4.65 a share offered by Lion would turn to a pumpkin at midnight, leaving those unable to sell with Allied Domecq's offer of $4.40 a share.

The committee's report says the unnamed brokers told sellers that if they did not commit themselves to selling their shares to Lion before midnight, they would "miss out."

There was also a suggestion that those who agreed to sell would receive favourable treatment.

Montana's independent directors must now decide how far the winemaker wants to go in punishing Lion.

They favour Allied Domecq over Lion, and seem unlikely to make any concessions to the brewer after its aggressive tactics.

Last night, the board said it would not comment on the committee's findings but would meet as soon as possible "to consider the finding and take appropriate advice."

Credit Suisse First Boston chief Bill Trotter said the broker "may or may not" comment after studying the findings of the committee.

Lion Nathan chief financial officer Paul Lockey insisted last night that the brewer had acted properly and "we will be studying the ruling in detail and should be in a position to make a more detailed statement within the next 24 hours."

It is possible the brewer will distance itself from its broker's tactics because of the committee's findings that "Lion Nathan did not give CSFB any detailed instructions as to how they were to go about acquiring the desired number of shares."

Three Queen's Counsel - Sir Duncan McMullin, Sir Ian Barker and William Wilson - made up the committee that wrote the report.

Allied's director of corporate affairs, Jane Mussared, said her company still wanted full ownership of Montana, and was delighted with the ruling, which vindicated its stand.

She said the amount of stock Lion would have to sell depended on what Montana's independent directors decided.

Allied would be making a submission to the directors.

"We do believe there has been a serious breach of a serious rule. And that rule was always intended to have serious consequences. We believe the rule should be applied in full in this case."

She noted the precedent set when South Island meat company PPCS was forced to sell its full holding in competitor Richmond last year after Richmond directors found PPCS was in breach of Richmond's constitution.

As a result of Lion's night-time manoeuvres, its stake rose to 51 per cent. That may be the amount independent directors will target.

The price at which Lion would have to sell is not known. A previous valuation put fair value for Montana's shares between $3.95 and $4.70. In mid-May, Allied and Lion each put forward bids ranging from $4.65 to $5.05.

But after selling, Lion could come back into the market and compete with Allied in another bidding war.