KEY POINTS:
The Shareholders Association's Des Hunt has alerted Stock Takes to the fact that Sky TV's proposed share buyback has the potential to see Rupert Murdoch's News Corp increase its control over the country's monopoly pay TV company without paying a control premium. ABN Amro analyst Carolyn Holmes says
the same thing in a note published this week.
Sky TV will seek shareholder approval for the buyback of up to 4.99 per cent of its stock at $5.60 a share at its annual meeting next Friday in Auckland.
Shareholders will also vote on whether to grant 43.65 per cent shareholder News Corp an exemption from participating. Should that happen, News Corp's stake would rise to 45.95 per cent as other shareholders' stakes shrink.
Curiously, Sky's independent directors have decided the buyback will not proceed if News Corp doesn't get its exemption.
"We find it difficult to understand why the company will not undertake a buyback if the exemption is not approved, raising doubts in our mind about the stated reason for the buyback," says Holmes. "In our view, News should participate."
Holmes says News has gone from an initial 34.2 per cent indirect holding in Sky, to its current stake, "which is generally viewed as control of Sky without ever having paid a premium for control".
She believes shareholder approval of the News exemption would "potentially set a precedent" in subsequent buybacks.
With Sky likely to continue generating sufficient imputation credits to allow further buybacks if News continues to get exemptions, "it could reach 50.1 per cent by 2012".
As it approaches that level, "it will become increasingly difficult to demand a premium". Shares in Sky TV closed yesterday up 4c at $5.86.
The right stuff
Rights issues let companies raise capital while giving the shareholders the chance to pick up more shares for what is usually a pretty attractive discount. Of course the issue of new shares will dilute existing stakes, but by and large shareholders do well out of them, unless of course, for whatever reason they fail to exercise their rights.
In the case of a couple of Tower rights issues over the last few years, GPG as the underwriter has ended up taking up unexercised rights, capturing an additional stake at a sharp price in Australian Wealth Management and Tower Australia.
You could, as the Shareholders Association's Bruce Sheppard does, view that as a transfer of wealth from some shareholders, ie the ones who don't excercise their rights, to another, ie GPG.
However with its recent issue of instalment shares, Infratil has taken a different approach, and one that is likely to contribute further to their already vaguely saintly aura.
Infratil's recent issue of 88 million instalment shares saw shareholders pay $1 now and $1 in a year's time for each new share.
Infratil's Tim Brown says 83.4 million of the rights were taken up. However the company tendered the remaining 4.6 million rights to a panel of brokers who ended paying an average of $1.97 for them.
"After deducting the $1 per share we were looking to raise and brokerage costs, that left 94c per right. This amount has now been paid back to the holders of the rights that were not exercised," says Brown.
In other words those Infratil shareholders too apathetic, cash-strapped, or simply unaware of the value of the rights to take them up still end up with a fair chunk of the upside anyway.
"No wonder we are popular with our shareholders," says Brown.
Infratil shares closed yesterday up 1c at $3.08.
A little turbulence
Rocketing oil prices are bad news for many businesses not least of all airlines, where fuel is one of the biggest costs.
No surprise then to see Air New Zealand's share price suffer as crude prices nudge record highs.
But there a couple of other factors likely weighing on the national carrier's stock. Goldman Sachs JBWere analyst Marcus Curley this week lowered his valuation on the airline due to the increased competition in the domestic market and lower earnings expectations.
Air NZ shares closed 13c lower at $2.11 yesterday.
Rolling stone
Chris Stone and John Marker, two of the founding shareholders in Wellington brokerage McDouall Stuart, have struck out on their own, forming an investment banking and advisory firm called Rockpoint.
Stone, who was principal author of McDouall Stuart's annual finance company round up, says Rockpoint will specialise in investment and financial and strategic advisory work across a number of sectors. The finance company sector is an area Rockpoint will keep an eye on, but it won't be the firm's principal area of activity.
"Our real focus is classic corporate finance, which is merger and acquisition, valuation that sort of thing," says Stone. "We sense there is plenty of work out there for us."
Stone says his and Marker's departure from McDouall Stuart, the firm they helped establish in 2002, was amicable.
PPCS
The Securities Commission a week ago slammed Feltex's former directors for not disclosing a change to the failed carpet-maker's banking arrangements and a breach of its banking covenants in the months before it slid into receivership.
In their response, Feltex's directors said the changes were generally known to the market and in any case they'd received an expert opinion from Deloitte "which confirmed that the changed banking terms would not have had any effect on Feltex's share price had they been announced at the time".
However recent price action in meat processor PPCS's NZDX listed bonds suggests investors are indeed bothered by that type of thing.
Funny thing is, at least some investors seemed to have been bothered before PPCS's own breach of its banking covenants was disclosed to the market.
The yields on PPCS bonds rose during May prompting a yield price inquiry from NZX. In response PPCS said it was likely to have breached its banking convenants due to difficult conditions related to the strength of the dollar.
Yields on PPCS's March 2009 bonds headed for the sky again in late August, well in advance of its announcement last month that its merger proposal with rival Alliance had been rejected.
"Both developments are very negative and the rise in yield indicated there were some in the market who knew of both developments before they were announced," a Stock Takes reader notes.
In the wake of recent finance company collapses which have put more than $1 billion of investors funds at risk, NZX has boasted that fixed interest investments via the NZX listed debt market were more transparent and had the protection of regulatory and supervisory overview.
"Why is the NZX doing nothing about this?" the reader asks.
