By DANIEL RIORDAN
Major sharemarket investors could lose significant value from new Government legislation ironically designed to protect shareholders.
The warning, from merchant banks Merrill Lynch and Bancorp, concerns the loss of premium faced by sellers of big share blocks under the Government's Takeovers Code, expected to come into force by the middle of next year.
The two banks have told the Auckland City Council it could lose about 20 per cent, or $60 million, of the value of its shares in Auckland International Airport under the code.
That $60 million relates to the premium the council could expect to fetch if it chose to sell its shares in a single block, said the banks in separate, unsolicited reports to the council's investments committee.
The council owns just over 108 million airport shares (25.8 per cent of the total), which at yesterday's closing price of 265c were worth $287 million.
The code's fundamental rule prevents anyone acquiring more than 20 per cent of a company unless an offer is made to all shareholders on the same terms.
The offer need not be for all the outstanding shares but it must be for enough to take the bidder's stake above 50 per cent.
The aim is to prevent control of a company changing hands by the transfer of a minority block of shares without other shareholders having the chance to participate.
Effectively, the changes would make it harder for a potential buyer (such as Singapore's Changi Airport which owns 7.1 per cent of Auckland Airport) to amass a controlling stake in acompany.
Market insiders and analysts contacted by the Business Herald acknowledge the code will reduce the flexibility of both sellers and buyers of major shareholdings, and may lower premiums, but they say the impact on share prices may not be as dramatic as portrayed by the two potential dealmakers.
Stephen Walker, head of New Zealand equities at the country's biggest institutional investor, AMP, said the greater comfort local and foreign investors would take from operating in a market with a code would in any case outweigh any loss of premium. Share prices should be higher because of the code, he said.
Tower Asset Management NZ equities head Wayne Stechman said the changes were more likely to reduce the level of stake-building rather than trim the premiums commanded by sales of bigger stakes.
Axa investment manager Barry Lindsay expects an increase in corporate activity between now and the code's introduction as 20-to-50 per cent investors decide what they really want to accomplish by their presence on various share registers.
Meanwhile, there appears to have been no change to Auckland City Council's views on the issue.
The council has debated the issue of whether to sell the shares several times over the past 18 months and appears not to have wavered in its collective, if divided, resolve to hold on to them.
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