KEY POINTS:
Stock Takes is a bit reluctant to point this out for fear of jinxing it, but the NZX-50 has been looking a little healthier of late.
Since sinking to the abysmal level of 3040.45 on July 15, 12 of the ensuing 17 sessions have seen the index close
in positive territory and it has gained 11 per cent, closing last night at 3378.89.
The ASX200, by comparison, has gained a measly 3 per cent over the same period.
It's become clear that the global credit crunch still has further to run, and that has hit the Australian banks pretty hard. Here, where we have no listed banks, the Reserve Bank has cut interest rates and everyone expects more to follow.
In what is largely a result of the bank's new dovish outlook, our dollar at last looks to be making a sustained move lower, giving our exporters something to cheer about.
Yes, we may be in the midst of a recession, but if markets truly are as forward looking as they are supposed to be, at least some of us can see light at the end of the tunnel.
ABANO AFFAIR
Anyone following the recent Abano Healthcare/Crescent Capital/Masthead Equities imbroglio might have been surprised to see Abano disclose with its results $500,000 in non- recoverable costs it said was mainly related to takeover attempts.
A few days before its result, the company said it had reached a settlement with Crescent over reimbursement of costs incurred by Abano when dealing with the Australian private equity firm's unsuccessful takeover offer.
Abano said it was owed about $603,000, or around 80 per cent of the money it spent responding to Crescent's bid. Whatever the agreement reached with Crescent, Abano was still stuck with a $60,000 bill from the Takeovers Panel for a meeting requested by the company to consider the matter.
Meanwhile, Stock Takes understands that Abano asked for, and received, about $500,000 in costs from the Stewart family's Masthead Equities, for dealing with its unsuccessful offer.
Abano told Stock Takes that the $500,000 it disclosed included costs incurred in dealing with a potential offer from two other interested parties late last year. During the takeover battle that did eventuate, Masthead's Mark Stewart suggested Abano had invented these potential suitors as part of a defensive strategy.
Abano also said the non-recoverable costs included some of the money it was trying to recover from Crescent, but which it subsequently ceded as part of the settlement.
The costs also included the cash it owed to the Takeovers Panel. Finally, Abano said that while Masthead had fully settled its bill, there were some costs associated with any takeover bid which are always unrecoverable.
Abano shares rose 9c to $4.84 yesterday.
GREY AREA
The Abano affair, although dealing with relatively small sums, is significant in that it has prompted the Takeovers Panel to take what has proved to be a timely look at the issues.
Stock Takes understands that any takeover target begins incurring costs as soon as it allows prospective buyers due diligence. It has to provide due dilligence rooms and other facilities and must pay for lawyers to supervise the process. It is only able to recover costs once a formal takeover offer is made.
However, Stock Takes also understands that one of the issues in Abano and Crescent's dispute was whether Crescent should pay up for costs incurred before it made its formal offer.
This legal grey area could very well be one of the aspects of the ongoing action being taken by the Canadian Pension Plan as it disputes $6.25 million in expenses Auckland Airport says it incurred in relation to the Canadians' derailed takeover offer.
While it was not in the end required to decide on the Abano/Crescent dispute, the Takeovers Panel has said the questions raised still needed to be addressed and it will publish a discussion paper this month before drawing up clearer guidelines for market participants.
KVB KUNLUN
In previous weeks Stock Takes has taken a glance at the potential for consolidation among New Zealand's broking firms. This week Chinese-owned KVB Kunlun New Zealand Ltd was accredited as an NZX Advising Firm.
KVB Kunlun, which was pretty much a forex broker when it was begun by Stefan Liu in Auckland back in 2001, has grown pretty quickly since and now has about 130 staff across offices in Auckland, Sydney, Melbourne, Hong Kong, Toronto, and the home town of its current owners, Beijing.
Former Goldman Sachs JBWere head of derivatives Greg Boland was hired late last year to set up its sharebroking business here and in Hong Kong.
Its NZX accreditation means the firm can advise clients on securities listed on any of the NZX's markets while orders will be executed through another broker. However it's the Hong Kong, Chinese and Taiwanese markets Boland says the firm will focus on.
KVB Kunlun recently gained full accreditation as a trading, clearing and settlement participant on the Hong Kong Stock Exchange and this month will go live with on-line direct access to that market, which Boland believes will be a first in New Zealand.
"Our bread and butter is Chinese clients who want to invest back into China and Hong Kong," he says.
The firm is positioning itself to take advantage of any freeing up of mainland China's equities markets to allow more direct investment, but in the meantime investors can already get access to some top Chinese, or "Red Chip" stocks which are dual listed on the Hong Kong market.
APPLIANCE CHALLENGE
Having met Fisher & Paykel Healthcare's management a few weeks ago, Morningstar analysts paid a visit to sister company F&P Appliances recently to discuss the firm's cost-cutting initiatives, market outlook and new product releases.
Having done so, they reduced their earnings estimates for the company during 2009 and 2010, "due to our more cautious demand outlook".
"2009 will be a challenging year for FPA as the US housing crisis continues and NZ faces economic headwinds."
However, Morningstar sees earnings rebounding after a couple of years at which point the company's cost savings should really start to kick in.
With a bit of luck, by then the company might have closed a distribution deal with a US big box retailer such as Sears, with whom it is currently negotiating, which would be an "important breakthrough", says Morningstar.
Morningstar reiterated its "Buy" rating on FPA given it values the stock at $3 and it is trading well below that, closing 4c higher at $2.03 yesterday.
F&P FINANCE
Morningstar's F&P visit also yielded a couple of tidbits about its finance division, arguably New Zealand's sixth biggest finance company now a couple of bigger companies are in trouble.
F&P Finance has not been immune to "the malaise in the financial sector"as Morningstar puts it.
In fact its debenture reinvestment rate has fallen from 80 per cent to 60 per cent.
Stock Takes reckons most other finance companies would kill for a 60 per cent rate at present. Nevertheless F&P Finance is adopting a strategy of multiple funding sources just in case debenture funding dries up further.
A BARBARIAN AT THE GATE?
Crack mergers and acquisitions lawyer and NZX director Andrew Harmos is reportedly in the frame to succeed Simon Allen as NZX chairman.
NZX is facing a huge challenge as its main board continues to lose big companies, until recently often to private equity interests, at the same time as it experiences a dearth of up-and-coming smaller listings.
The potential irony of appointing Harmos, named in 2006's Guide to the World's Leading Private Equity Lawyers, has been pointed out elsewhere.
However, it seems a bit unfair to write Harmos off as one who has earned his living by helping facilitate the ongoing sell-off of our best companies to foreign buyers without a thought for the economic wellbeing of the country.
Harmos, who has often contributed to the Herald's letters page, wrote the following back in 2004 when there was some talk of partially ceding banking sector regulation to the Australians:
"Regulation of a key part of our financial system from Australia is the beginning of a slippery slope of dismantling New Zealand's financial infrastructure.
"Decisions like this need to be driven by what is best for the country and not ... by what might save money."
