Between the lines: 'Naive' takeover move devastates NZ reputation

The Montana debacle has dealt another huge blow to the Stock Exchange's tarnished reputation.

It has cost minority investors, including Peter Masfen, $84 million and left our international reputation in tatters.

At the heart of the issue is the Exchange's inability to enforce its own rules and curb the aggressive behaviour of one of its members.

When Allied Domecq made its offer last Wednesday, it took full advantage of the Exchange's takeover rules.

These rules gave it a slight advantage over Lion Nathan because the Australasian brewer had to give two days notice of any price increase before it could start buying Montana shares.

So when Lion raised its offer price on Thursday, it could not buy any shares until yesterday, while Allied was free to buy on Friday.

But Allied's advantage was more apparent than real because nobody would sell to the English-based group on Friday if they knew Lion would pay a higher price on Monday.

At 4.40 pm on Thursday, Lion was granted a waiver which allowed it to buy Montana shares on Friday.

The waiver converted Allied's slight advantage into a game winning home run for Lion Nathan.

Credit Suisse First Boston, Lion Nathan's broker, immediately began soliciting selling orders from institutions on Thursday.

It wanted firm commitments as soon as possible but sellers could withdraw these orders up until midnight.

CSFB's action seems to be inconsistent with the Stock Exchange's listing rules, which indicate that the buyer cannot enter "into any agreement or commitment concerning the sale of equity securities" until the transfer date. Lion's transfer date was Friday.

It was 3.40 am Thursday in London when the waiver was announced.

As CSFB had immediate access to the large institutional shareholders, Allied Domecq had no opportunity to respond quickly.

It had been comprehensively checkmated by the bizarre decision of the New Zealand Stock Exchange.

Ironically when the Exchange introduced its takeover regulations, it called them 'notice and pause' provisions and argued that they "address the concern shown in many countries that sudden takeover offers with short deadlines amount to coercion of some shareholders."

Yesterday the Exchange said it granted the waiver "to put the two bidders on equal footing when the market opened on that day (Friday)." This was incredibly naive.

To the contrary, CSFB's aggressive solicitations on Thursday afternoon and the partial nature of Lion Nathan's bid meant that Allied Domecq was effectively shut out of the auction process.

Every market participant, with the exception of the Exchange's three Market Surveillance Panel members, knew the waiver would give a game winning advantage to Lion Nathan.

At yesterday's closing price of $3.62, Montana's minority investors have lost 78c a share or $84m compared to Allied Domecq's 100 per cent offer.

The damage to New Zealand's reputation is immeasurable.