NZ Society of Investment Professionals on the Montana takeover

Official statement

The New Zealand Society of Investment Professionals (NZSIP) has acknowledged the need for an immediate revision of corporate takeover legislation, following recent corporate activity surrounding Montana Wines.

The NZSIP, formed recently for the purpose of raising ethical and professional standards within the investment management industry in New Zealand, feels that the events surrounding Lion Nathan's takeover bid for Montana highlight the necessity of a suitable Takeovers Code if New Zealand is serious about wanting to attract investors and create wealth.

Last week's decision by the New Zealand Stock Exchange's Market Surveillance Panel to grant Lion Nathan a waiver of the two day "pause" required under Section 4 of the Stock Exchange's listing rules was intended to create a competitive bidding situation between Lion and Allied Domecq, the UK based conglomerate which had made a full takeover offer for Montana just the day before, potentially benefiting all shareholders.

Instead, subsequent behaviour of some market participants had the undesirable effect of disadvantaging some shareholders by effectively making them unable to participate in the Lion bid to the same extent as other shareholders.

Although currently within the law, such activities have further tarnished New Zealand's reputation offshore as an investment destination.

The NZSIP believes that the situation is also likely to have a detrimental effect on our country's savings rate, as local minority investors continue to avoid investing in their local share market due to lack of confidence or trust in the rules that govern market participants and the behaviour of those participants.

According to the NZSIP, the Montana situation arose largely due to a possibly naive application of the listing rules, combined with the absence of a suitable and vigorously enforced Takeovers Code.

Such a Code is to be introduced by the Government in July. While the NZSIP welcomes the pending introduction of the Code, it would appear that more similar situations of aggressive corporate activity may take place between now and July, resulting in even greater loss of investor confidence in the fairness of our capital markets.

The potential damage to New Zealand's reputation as an investment destination from continued inaction on the legislation front could be significant.

The NZSIP believes the Government needs to act more quickly and introduce not only a suitable Takeovers Code as soon as possible, but also ensure that an enforcement programme is in place which will strengthen public confidence and enhance the integrity of our share market.

The NZSIP strongly believes that the model adopted in the US and enforced largely by their Securities and Exchange Commission (SEC) must be considered the most successful global regulatory and enforcement regime.

This fact is reflected in the success of the US capital markets and the high level of stock ownership in the US by the public at large.

The NZSIP's view is that the US model must be considered as the basis for a New Zealand regime. We welcome and encourage the appropriate authorities and market participants to debate and ultimately arrive at a regime which is modeled on the US regime.

An additional compelling reason for modeling New Zealand laws and regulations on the US legislation is the growing dominance by many and large US funds management and investment institutions of the global pool of investable capital. The higher the perceived risk to these participants, the higher the risk premium they will require to invest in our local markets.

In order to attract foreign investment to New Zealand many things must be done right.

Our companies need to have economic cases to justify investment when they are assessed on a global basis, and a regime must exist which will provide all investors with the confidence that they will be treated fairly and consistently, once they have invested. The NZSIP strongly believes that this regime exists and is the model applied in the US.

The NZSIP is the local Chapter of the global, US based Association for Investment Management and Research (AIMR).