Stock Takes: A sharp pencil

Whitcoulls retail shop.Photo / Greg Bowker

Stock Takes assumes the powers that be at The Warehouse are sharpening their pencils now that book retailers Whitcoulls, Borders and Bennetts have been put up for sale by REDgroup's voluntary administrators.

These companies turn over around $200 million a year, which is not exactly small beer. Perhaps they could provide The Warehouse with what in recent years has been so frustratingly elusive for the company - growth.

Having reached market maturity on its home turf, The Warehouse has rolled the dice in Australia with its ill-fated purchase of Clints Crazy Bargains and Silly Sollys, and had a stab at the local groceries market.

Both these initiatives turned out to be dead-end streets. It is conceivable that an answer to at least part of The Warehouse's growth problem may have turned up on its doorstep.

Could some Whitcoulls/Borders/Bennetts assets be absorbed into Warehouse Stationery? Or, could The Warehouse pack some Whitcoulls assets into Warehouse Stationery, keep the iconic Whitcoulls name and float it off as a separate entity?

Whichever way it goes, there's nothing quite like picking up a distressed asset on the cheap to give your share price a boost, and The Warehouse could definitely do with one. Its shares have been languishing over the past six months and the company's result for the 2010/11 year is shaping up to be a decline from the previous year's.

These issues are sure to be exercising the mind of Mark Powell, who is the number one at Warehouse Stationery and takes over from chief executive Ian Morrice later this year. The Warehouse credits Powell with turning around the underperforming Warehouse Stationery, and he's a man who knows his pencils.

Shares in The Warehouse closed up 2c yesterday at $3.43.

POOR RATING

New Zealand continues to rate poorly for investors in managed funds, according to investment research company Morningstar.

A Morningstar study, which focused on assessing key elements of the fund investor experience across different countries, rated New Zealand at "D minus" out of 24 different countries, unchanged from an initial rating given in 2009.

Morningstar researchers evaluated and scored countries in four categories: regulation and taxation, disclosure, fees and expenses, and sales and media. Countries were assigned letter grades for each category, and category scores were added to produce an overall country grade.

The study was based on publicly available information and interviews with local Morningstar analysts.

In New Zealand's case, Morningstar said a review of fees, commission structures, disclosure and related issues by the Ministry of Economic Development and the Securities Commission, plus the creation of a single regulator, the Financial Markets Authority (FMA), had potential to make the local investment environment more favourable for managed fund investors.

BACK IN BUSINESS

Meanwhile, the chairman of the FMA's establishment board, Simon Botherway, a one-time shareholder activist, will soon be back in the swim of things in this new regulatory environment.

Botherway, a former chief executive of Brook Asset Management, will step down from his FMA role to take up a position as general manager, investment management, for ANZ Wealth, which has some $12 billion in funds under management.

Botherway said the opportunity to play a custodial role for ANZ Wealth was too good to pass up. Botherway, an often outspoken critic of corporate governance standards in New Zealand, said he would be no less vociferous in his new role.

Perhaps his appointment will go some way to repair the damage to ANZ's reputation after the frozen funds fiasco. ANZ and ING last year agreed to pay investors $45 million to settle their dispute with the Commerce Commission over whether they misled investors in promoting and marketing two funds - the ING Diversified Yield Fund (DYF) and the ING Regular Income Fund (RIF).

The funds were frozen in March 2008, affecting around 15,000 investors. Both funds invested largely in collateralised debt obligations, which were exposed to the US sub-prime lending market, which collapsed, triggering the global financial crisis.

LOW BLOWS

With any luck, the new Financial Markets Authority will be granted the power to clamp down on low-ball stock offers the likes of which are used by Christchurch businessman Bernard Whimp.

Parliament's Commerce Committee has recommended the FMA's regulatory powers capture unsolicited offers, according to its report on the Financial Markets (Regulators and Kiwisaver) Bill. Under the recommendations, the FMA would require a warning to be published by someone making a predatory offer, and in certain circumstances the FMA would be able to block unsolicited bids.

Whimp's deeply discounted bid for shares over the New Year period captured some unsuspecting Vector shareholders who were duped into selling, and he's at it again. TrustPower and DNZ Property Fund are warning shareholders off unsolicited offers, which are being investigated by the Securities Commission. In two-page letters, TrustPower and DNZ shareholders are being offered above-market prices for their shares but in the fine print are told they will be paid off over 10 years.

This means they would miss out on dividends that would be paid out over that time. The companies also warned there is a risk shareholders may not be paid in full, given the danger the purchasing company could fail over a decade-long repayment period. A third company, Abano Healthcare Group, alerted investors that its share register had been sought by Whimp or his associates and shareholders should be wary of accepting any unsolicited offers that might be coming.

Contact Energy and GPG are targets and The Warehouse has also warned shareholders off possible low-ball offers after Whimp asked the company to provide a copy of its share register. Not to be dissuaded, Whimp has come up with a new offer for Vector at $3.20 a share, which is above yesterday's closing price of $2.40, but again using the 10-year repayment.

Vector chairman Michael Stiassny said: "This is blatant trickery and is targeting investors who may not read the 10-year payment period in the fine print or understand that they would be handing their dividends over to NZ Investment Securities."

He urged the regulatory authorities to intervene and fast-track a change in legislation that would offer shareholders better protection from low-ball unsolicited offers. "It is imperative that robust legislative changes are made quickly to protect shareholders," he said. Stock Takes concurs.