Lost from the New Zealand sharemarket: Tegel delisted in October last year. Photo / File
COMMENT:
The NZX will be in the spotlight over the next few weeks as the domestic stock exchange celebrates its 150th anniversary and the Capital Markets 2029 Steering Committee releases its report.
Once again, there will be a great deal of focus on the paucity of domestic initial public offerings, but emphasis should also be placed on the large number of delistings, particularly following successful bids from foreign buyers.
There have been only six IPOs since the beginning of 2016 — Tegel, Investore Property, New Zealand King Salmon, Oceania Healthcare, Cannasouth and Napier Port — compared with over 30 delistings.
These delistings include takeovers as well as receiverships, notably Pumpkin Patch, Intueri Education and Wynyard. They also include migrations to other markets, including Xero moving to the ASX and Pyne Gould Corporation to Guernsey.
Consequently, the NZX has taken a battering since early 2016 with total company listings falling from 173 to 132, although total market capitalisation has risen from $110 billion to $153b over the same period.
Meanwhile, ASX company listings have risen from 2238 to 2265 over the same period.
The accompanying table shows the 10 largest takeovers in terms of value.
The first points to note are the two columns under "Value": the takeover value column and the current value column.
The takeover column shows the total value of each takeover while the current value is the assessed present value of each company if they had remained listed. This is based on their pre-bid share price adjusted for the increase in the NZX50 Capital Index since that date.
For example, Nuplex announced on February 15, 2016 that it had entered a scheme of arrangement to allow shareholders to vote on a proposal to sell the company to a Belgium-based private equity company for $5.55 a share. This was a 44 per cent premium over the company's $3.86 share price the previous trading day.
As the NZX50 Capital Index has risen by 57 per cent since this pre-bid date, there is an argument that investors would have been better off to have rejected the scheme, although the counter-argument is that the best option would have been to vote in support of the $5.55 a share offer and re-invest these funds in better-performing companies.
These 10 companies have been a big loss to the NZX, particularly as their total assessed current sharemarket value is slightly higher than their takeover value based on the assumptions used above.
The other point to note is that five of these takeovers were achieved through schemes of arrangement, with the other five through conventional takeover offers.
The median share price premium for schemes of arrangement was 29.5 per cent compared with 35.5 per cent for conventional takeover offers.
A scheme of arrangement, which is an effective endorsement of an offer by the target company directors, requires the approval of 75 per cent of votes at a special shareholders meeting. Once a 75 per cent vote has been achieved, all shares are acquired by the offeror.
As scheme of arrangement motions are put to shareholders by the target company directors, these directors have effectively agreed to support the offer unless a higher offer is received.
By comparison, traditional takeover offers are not totally successful until the bidder reaches the 90 per cent shareholding target when it can move to compulsory acquisition.
Shareholders quickly acquiesced to all 10 offers included in the accompanying table because half of them were through schemes of arrangement, with many major shareholders agreeing that they would vote in support of the scheme before the deals were announced.
Meanwhile, all five takeover offers had lock-up agreements. A lock-up agreement is where a single shareholder or several large shareholders agreed to accept offers before they are revealed.
The only company to put up a genuine fight was Hellaby Holdings, mainly because of the tenacity of Alan Clarke, the chief executive. Clarke managed to get the offer price up from $3.30 to $3.60 a share. This was the only material offer price increase, demonstrating that in most instances New Zealand shareholders acquiesce without putting up a meaningful fight.
It may also indicate that they are extremely frustrated with the poor performance of many boards and domestic management teams, leaving them with little option but to sell out to foreign bidders.
The other notable feature of these successful takeover offers is that all but one, which represented only 1.7 per cent of the total value of the 10 takeovers, came from overseas interests. Two originated from China, two from Australia, two from the United States and one each from Belgium, Canada and the Philippines.
Although Orion Health was purchased by NZ founder Ian McCrae, it had already sold a substantial proportion of its business to an overseas private equity firm.
The Orion Health Target Company Statement was a sad document, particularly a graph showing how its share price had plunged from more than $6.00 after its November 2014 IPO to McCrae's offer price of only $1.224 a share.
The tiny 6 per cent offer price premium indicated that shareholders couldn't wait to exit the poorly managed company.
It is extremely disappointing that New Zealand shareholders haven't developed the determination and capabilities to replace poorly performing directors and management as their clearly preferred option is to sell out to low-priced offers from foreign bidders.
These offers often have a negative impact on the NZ economy in terms of dividends, money flows, tax payments and management and director opportunities.
The overseas ownership of the four major banks has resulted in a massive outflow of dividends to Australia and there are clear signs that other overseas-owned companies prefer to acquire goods and services from offshore, rather than from New Zealand.
There is also evidence that overseas-owned companies move revenue offshore in order to reduce their New Zealand tax payments. This is a loss to NZ in terms of tax revenue.
Trade Me, which was recently acquired by a United States private equity fund, is now ultimately owned by Titan Aggregator LP, which is registered in the Cayman Islands. Most websites promote the Cayman Islands as a "tax haven" where company documents are private and not available to the public.
The NZ parent company has six directors, four from the United States and one each from Singapore and New Zealand.
Trade Me has appointed a Norwegian online expert as the new chief executive to replace Jon Macdonald.
These Trade Me board and management appointments illustrate that the top paid positions are now going to overseas appointments, instead of New Zealanders. It is also highly unlikely that Trade Me has its ultimate parent in the Cayman Islands because of any intentions of maximising its New Zealand tax payments.
Early last month, New Zealand Oil & Gas announced that it had entered into a scheme of arrangement for O.G. Oil & Gas (Singapore) to acquire the remaining 30 per cent of the New Zealand company for 62 cents a share. This valued the NZ oil exploration company at $104.1m compared with its cash resources of $105.4m. The 62c a share offer was a 25.3 per cent premium to its pre-announcement price.
NZOG announced: "The independent directors unanimously recommend shareholders vote in favour of the transaction, subject to the scheme price being within or above the valuation range specified by an independent adviser, and in the absence of a superior proposal".
The beat goes on:
• NZ directors unanimously recommend offers from foreign bidders
• Shareholders accept
• The NZX shrinks further.
The beat goes on and on and on.
- Brian Gaynor is a director of Milford Asset Management.
Luxon's international meetings included French President Macron and EU President von der Leyen.