Brian Gaynor 's Opinion

Brian Gaynor is a Weekend Herald columnist.

Brian Gaynor: Fonterra's Aussie giveaway leaves sour taste

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THL vote, Pyne Gould no-show add to controversies.

The allocation of 42 per cent of units overseas raised questions in New Zealand. Photo / Michael Cunningham
The allocation of 42 per cent of units overseas raised questions in New Zealand. Photo / Michael Cunningham

The past week has had its fair share of controversies, including the Fonterra IPO allocations, the unexpected dumping of Tourism Holdings director John Bongard and George Kerr's non-appearance at Pyne Gould Corporation's annual meeting.

The Fonterra Shareholders Fund prospectus noted that units would be issued to the following groups - New Zealand resident clients of NZX firms, supplier shareholders of Bonlac Supply Company in Australia, New Zealand and offshore institutions and current Fonterra shareholders, employees and sharemilkers.

The maximum size of the offer would be $525 million and the indicative price range between $4.60 and $5.50 per unit.

Demand was overwhelming, with some individual investors obtaining only 5 per cent of their demand and institutional investors between 10 and 20 per cent of their applications. As a result the issue price was set at $5.50 a unit, the top end of the range.

However, there was considerable anger that 42 per cent of the total offering was allocated to offshore institutions, mainly Australians.

Why 42 per cent? Why not 15 per cent or 20 per cent? Why was Fonterra so generous to offshore investors when there was overwhelming demand for the securities in New Zealand?

Fonterra argues that overseas investors give more depth and liquidity to the secondary market but only time will tell whether this is true.

New Zealand investors usually receive nothing when an Australian issue is oversubscribed yet we give 42 per cent - and a 21 per cent opening price capital gain - to offshore investors when more of this could have been kept in New Zealand.

The Fonterra allocation was particularly frustrating because domestic investors have little opportunity to invest in the country's burgeoning dairy sector and the newly created units offered the first major opportunity in this regard.

With this in mind it is extremely annoying Australian superannuation and pension funds got large allocations when many of our KiwiSaver, superannuation and pension funds got only 10 per cent of the Fonterra units they were after.

We seem to be far more interested in pleasing foreign investors - particularly when the sale of many of our more profitable companies to offshore interests are also taken into account - than taking a hard-nosed, self-interested approach to business.

One of the main observations from the annual meeting season is that the majority of our companies still decided motions by a show of hands whereas poll voting dominates in Australia.

Section 251AA of the Australian Corporations Act 2001 requires all listed companies to notify the ASX of the following:

a) All proxy votes in support, against and abstaining from resolutions even if these resolutions are decided by a show of hands.

b) All proxy votes - and all total votes cast - in favour, against and abstaining from resolutions if these resolutions are decided by a poll vote.

As a result most major listed Australian companies have a poll vote with full disclosure of all proxy and total votes released through the ASX. Westpac Bank was the only top 10 ASX company to approve motions by a show of hands but its proxy votes, disclosed through the ASX, show that a clear majority of proxies voted in support of all resolutions.

But in New Zealand there are no requirements to disclose proxies and most resolutions are decided by a show of hands with shareholders having little idea of voters' intentions.

Four of our top 10 companies - TrustPower, SkyCity, Ryman Healthcare, and Port of Tauranga - don't have poll votes or disclose proxy votes to the NZX.

Sky TV releases its proxy vote tallies to the NZX and notes that all motions were passed by a show of hands. This is similar to Westpac in Australia.

TrustPower has the poorest level of disclosure, it doesn't even notify the NZX that directors have been re-elected or the outcome of the other motions.

Poll voting and full disclosure should apply to all listed companies, as it does in our political system.

The advantages of poll voting are obvious - it gives all shareholders a vote, not just those who attend the meeting, and it gives a better indication of the issues that concern shareholders.

It can also help directors of other companies to identify major issues of investor concern.

In general shareholders are a fairly passive bunch as indicated by the accompanying figures which show the average percentage of votes cast against all resolutions at annual meetings.

The most contentious issues among our top 10 companies at this year's meetings were:

*9.5 per cent of votes were cast against 1 million options issued to new Fletcher Building chief executive Mark Adamson.

*7 per cent were cast against the re-election of Contact Energy director Phil Pryke.

*5.8 per cent voted against Adamson's financial assistance package at Fletcher Building.

The issue of proxies and poll voting was clearly illustrated at the Tourism Holdings annual meeting on Tuesday.

Chairman Keith Smith told shareholders 13.9 million proxies had been received by the company.

This seemed like an extraordinarily low level of proxies considering the company has 110.2 million shares on issue and all of the major shareholders were corporates or institutions that are required to appoint proxies to vote.

This columnist, as a proxy holder, called for a poll vote on the re-election of director John Bongard, the former Fisher & Paykel Appliances chief executive.

It seemed clear that Bongard would be re-elected because Smith said he held most of the 13.9 million proxies and, in addition, there appeared to be a further 24.4 million shares with board representation.

The next day Tourism Holdings announced to the NZX that Bongard had received only 11.5 million votes for, versus 14 million against, and was not re-elected.

The release noted that an additional 31.1 million shares voted in support of Bongard "but those votes were deemed invalid and not counted due to a technicality regarding their proxy status".

In other words proxies were not lodged by several large shareholders more than 48 hours before the meeting, as required by the company's constitution, and these shares were declared invalid.

The only positive outcome from the Tourism Holdings debacle is that Smith played by the rules whereas a number of companies have turned a blind eye to late and incorrectly filed proxies.

The main lesson from Tourism Holdings' meeting is that shareholders should lodge their proxies on time, and in a proper form, while companies should be better prepared for poll votes because they are going to become a more regular feature of our annual meetings.

Unfortunately the only lesson to be learned from Pyne Gould's meeting is how not to run a listed company.

The company's share price plunged 14.8 per cent on the day following the meeting after chairman Bryan Mogridge said Pyne Gould would probably never pay a dividend and its activities were sound, particularly the loan from Perpetual Trust's cash management fund to Torchlight.

Pyne Gould's activities may be sound and legal but investors and shareholders are looking for an "investor comes first" attitude in this post-GFC era whereas the clear impression at Pyne Gould is that George Kerr always comes first.

That attitude may have been tolerated pre-GFC but it is not acceptable in the aftermath of the financial crisis.

CORRECTION

Brian Gaynor was incorrect to say in this column that Link Market Services conducted the poll at Tourism Holdings annual meeting. Link is Tourism Holdings share registry but it was not required to attend the annual meeting. Consequently Gaynor's comment on the performance of Link was inaccurate.

*Brian Gaynor is an executive director of Milford Asset Management which holds Tourism Holdings shares on behalf of clients.

bgaynor@milfordasset.com

- NZ Herald

Brian Gaynor

Brian Gaynor is a Weekend Herald columnist.

Brian Gaynor has written a weekly investment column for the Weekend Herald since April 1997. He has a particular particular passion for the NZX and its regulation. He has experienced - and suffered through - the non-regulated period prior to the establishment of the Securities Commission in 1978 and the Commission’s weak stewardship until it was replaced by the Financial Markets Authority (FMA) in 2011. He is also a Portfolio Manager at Milford Asset Management.

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