Metcash bid could boost share market

Metcash's bid for its rival Foodland, owner of the New Zealand supermarket chains Countdown, Foodtown and Woolworths, has brokers on this side of the Tasman salivating.

A key part of the Australian Metcash takeover, a plan to spin off the New Zealand chains into a separate company with its own listing on the Australian Stock Exchange, could boost activity on our own share market.

PricewaterhouseCoopers, brought in to value Metcash's bid, says the natural owners of the new company's shares are more likely to be New Zealanders, instead of the Australian shareholders that dominate the Foodland register.

That suggests the flow back of shares to New Zealand institutions and private investors could be considerable - and with it will come juicy broking fees.

The company has much to commend it. For a start PWC estimates the company will have a market value of A$1.6 billion ($1.73 billion) to A$1.9 billion, large enough to rank it in the top 200 companies in Australasia.

At the same time the duopoly it maintains with Foodstuffs, the co-operative that owns the Pak'N Save, New World and Four Square chains, makes it a relatively low-risk proposition.

PWC notes: "Given the small size and mature state of the New Zealand market and its dominance by two large chains we believe there is little prospect of a new participant entering the market, notwithstanding the occasional announcement of interest by third parties in viewing the sector."

However, Metcash has first to win its bid, and if Australian reports are to be believed, this will be no small task.

Secondly, there is a big chance that even if Metcash does succeed, a listing will be thwarted by yet another takeover.

Again PWC notes: "We are of the view that several of the likely buyers have shown recent interest in acquisition opportunities of this nature and have the financial wherewithal to make a bid."

In this case, an advisory fee for a lucky team of investment bankers may be all that is in the offing.

Bid coming The odds on Fonterra lifting its bid for Australia's National Foods are narrowing by the day. First the New Zealand dairy giant has reportedly asked National Foods to open its books, allowing it to make a more informed assessment of the value of the company. (It will not confirm or deny this, but the reports have more than a ring of truth.)

Meanwhile, investors appear to be getting antsy about the A$17.8 million penalty National Foods agreed to pay if it backed away from the A$1.78 billion offer from Philippines brewer San Miguel.

Some believe the fee could deter co-operation with Fonterra, and is an unnecessary drain on shareholders' capital. But that criticism could have been levelled as soon as the deal was struck. Coming now, it looks a little bit retrospective and suggests investors are only now beginning to digest the consequences of another offer.

Farmers are rightly wary about the bid - it is no small gamble by Fonterra. And as the co-operative's half-year results showed this week, strong payouts in the coming years are by no means assured.

Indeed, were it not for the record high commodity prices, Fonterra's 12,000-plus farmer shareholders would be looking at a less than stellar year. The dollar is high and at least for the moment is showing no signs of easing; meanwhile production has been hit by the bad weather.

Buck sharing The Takeovers Panel's latest missive on the principles it uses when deciding exemptions to the takeovers code indicates it is still smarting from its bungled decision on Prime Infrastructure's bid for the New Plymouth-based energy company Powerco.

To recap: its decision last year led to a flight of shares across the Tasman as investors decided the full cash offer available to Australian investors was more attractive than a mix of high-risk bonds and cash.

(The panel allowed for the differential on the very reasonable principle that complying with Australian takeovers rules as well as New Zealand's was an unnecessary impost. At the time less than 1 per cent of Powerco's shares were held overseas.)

By way of explanation the panel, led by John King, lays some of the blame on the adviser certifying the offer available to Australian investors was the same as the one available to those in New Zealand.

The panel said: "Although the certificate as to equivalence was obtained, unfortunately the exemption was exploited."

It adds it will ensure future exemptions will not provide opportunity for such exploitation. Investors will be hoping the same.