Brian Gaynor: Downey demonstrates his independence

Barrie Downey is the ideal independent director. He is experienced, perceptive, courageous and willing to stand up for shareholders when many directors would take the easy option and walk away.

He is a former Fletcher Challenge senior executive and a director of several listed companies, including Sky Network Television since 1991. Almost single-handedly he kept Escalator Advertising alive when most other chairmen would have given up and let the company expire.

Downey has been in the news recently over Sky Television.

On September 9, Independent Newspapers executive chairman Ken Cowley said that his company, which currently owns 66 per cent of Sky, would not be offering any more than the already announced bid of $3.35 cash for each Sky share and three INL shares for every 10 Sky shares.

Crowley said, "We have absolutely no intention of increasing the offer. The offer is fair. It includes a healthy premium that the market had already factored into Sky's share price."

Two days later Downey, who is one of Sky's two independent directors with former All Blacks coach John Hart, went on the front foot. He said that the independent directors did not agree that Sky's current share price contains a healthy premium.

The independent directors believe that Sky has a unique market position and excellent growth prospects.

Downey said, "Based on preliminary advice and discussions with our financial advisers UBS New Zealand, the committee is concerned with several aspects of the proposed offer and believe it may not be in the best interests of Sky shareholders".

Telecom has agreed to accept INL's offer in respect of its 12 per cent shareholding but Downey will not give up without a fight if he believes INL's offer is not fair.

Sky Television is a remarkable success story.

It was incorporated as Sky Media on November 26, 1987, just five weeks after the sharemarket crash. The two original shareholders, Craig Heatley and Terry Jarvis, put in $1 each and the company is now worth $1.9 billion.

Sky went to air on May 8, 1990, with three channels, sports, movies and news. At the time Heatley and Jarvis owned 53.8 per cent, TVNZ 35.2 per cent, Alan Gibbs and Trevor Farmer 10.1 per cent and ESPN 0.9 per cent.

Subsequently Todd Corporation and a consortium of US companies - Bell Atlantic, Ameritech, Time Warner and TCI - bought and sold major stakes.

Many of these, including TVNZ, will regret having sold out too early. Just think what Ian Fraser, the state broadcaster's chief executive, could do with a $500 million pot of gold from a Sky Television shareholding.

He probably wouldn't have had to employ Bill Ralston.

NEW ZEALAND EXPERIENCE

New Zealand Experience, the owner of Rainbow's End Theme Park in Manukau City, has been one of the sharemarket's best recovery stories in recent years.

The company was formed in 1990 as The Mount Cavendish Gondola Company. It raised $6.5 million equity to partially fund the construction of a gondola overlooking Lyttleton Harbour.

Like most sharemarket floats its performance was well below the prospectus forecasts and in 1995 it acquired Rainbow's End for $9.7 million and changed its name to New Zealand Experience.

The Manukau adventure park, which opened in 1982, was the brainchild of Craig Heatley and Ken Wikeley. It cost $21 million to build and in 1986 attracted 360,000 visitors and had turnover of $8.5 million, the park's best year.

Ownership was transferred from Rainbow Corporation to Argus Questar, which went into receivership after the 1987 sharemarket crash. While in receivership Rainbow's End was run down and turnover fell to $2.7 million and patronage to just 170,000.

After the Rainbow's End acquisition NZ Experience's performance continued to be adversely affected by the gondola. The company had several capital raisings and shareholder changes. In 1998 Emerald Capital, a Canadian investment group with large investments in New Zealand, acquired an 82 per cent stake.

Under the chairmanship of Geoff Cummings, NZ Experience focused on reducing debt. The Christchurch gondola was sold to Jim Boult for $1.4 million in 2001 and the land on which it stands for $450,000 four months ago.

In the June 2003 year Rainbow's End had 300,000 visitors and revenue of $7.8 million. This is still below the figures achieved during the Heatley/Wikeley era but the company has reduced its term debt from $7.5 million in 1995 to zero and produced net earnings of $1.2 million.

New Zealand Experience is now at an extremely interesting stage. It is generating surplus cash in excess of $2 million a year, has no debt and will run out of tax losses this year. The company has to expand or repay capital to shareholders.

It seems that NZ Experience's shareholder can look forward to a capital repayment in the not too distant future.

CEDENCO

SK Foods' decision to raise its Cedenco offer from $2.15 to $2.30 a share has had an immediate positive response. The offerer has reached 90 per cent and is moving to compulsory acquisition, but there is confusion over its recent bonus issue.

On August 4, more than three weeks after SK Foods' bid was revealed, Cedenco announced a pro-rata taxable bonus issue of fully paid ordinary shares on the basis of 1 bonus share for every existing 3.562182 shares. Immediately after the issue the company consolidated its shares on the basis of 1 ordinary share for every 1.280727 shares.

For shareholders holding 10,000 shares this meant that they received 2807 additional shares through the bonus issue but these shares were immediately cancelled through the consolidation and they ended up with 10,000 shares.

The bonus issue had a 33 per cent imputation credit but shareholders on a 39 per cent tax rate will now have to pay 6 per cent tax on the bonus issue even though they received neither cash nor shares.

It is difficult to see how shareholders on a 39 per cent tax rate have benefited from the bonus. They received nothing, yet they now have an estimated tax liability of $515 for every 10,000 Cedenco shares held at the time of the issue.

MOWBRAY COLLECTABLES

Mowbray Collectables, one of the few successful New Capital Market companies, deserves a big bouquet.

The company has sent a detailed five-page summary of its annual meeting to shareholders. The report contains a summary of the managing director's address and details of questions from the floor and the chairman's replies.

Mowbray's letter is a welcome development because most shareholders cannot attend annual meetings and a summary of the proceedings gives them a good understanding of the flavour of the occasion.

Shareholders were mainly concerned about dividend prospects after the company paid a maiden 2c a share in the March 2003 year.

The chairman replied that the auction business generated cash, and if not needed for capital expansion this would be available for distribution.

Another shareholder wanted to know about the major shareholders. One is the Rotorua Energy Charitable Trust with a 9.9 per cent stake and another is Ron Brierley with 6.7 per cent.

Mowbray Collectables is making sure and steady progress and deserves a special pat on the back for its shareholders communication.

* Disclosure of interest: Brian Gaynor is a Cedenco shareholder.

* Email Brian Gaynor