Judgments measured in millions

By KEVIN TAYLOR

Assessing major corporate deals - such as the Government bailout of Air New Zealand last year - is a specialised job and few can do it.

Credibility is everything, and the risks can be high. But Grant Samuel and Associates has been making those judgments on both sides of the Tasman for years.

Grant Samuel was in the news again when it prepared reports on Fletcher Challenge Forests' plan to buy the Central North Island Forest and concluded the plan was fair and reasonable.

It concluded the same over the recapitalisation of Air New Zealand, but noted that the airline's financial position would still be precarious.

Deals worth hundreds of millions regularly hang on the advice of the independent investment bank and corporate advisory firm, which has by some estimates gained about 60 per cent of the Australasian market for big independent assessments and valuations.

The company says it has led in providing informed comment and analysis on deals so shareholders and directors can make the right decisions.

It is a far cry from what passes for publicly released analysis in the United States, where a major deal might attract just a one-paragraph endorsement.

"In Australia and New Zealand, we have much more disclosure in these reports in terms of content and analysis than certainly there is in the US and UK," says company co-founder and expat New Zealander Ross Grant.

He believes things have developed differently in Australasia because of the "natural cynicism of people in this part of the world".

Founded by Grant and Graeme Samuel in 1988, the company wields considerable influence when an independent opinion is sought on major deals, as stock exchange rules often require.

Grant, chairman of the Sydney-based company, is Invercargill born and "still supports the right team on a Saturday".

The company has more than 70 staff and offices in Sydney, Auckland and Melbourne. He says it built its reputation on the quality of its reports.

"In Australia and New Zealand, what we have done - and in a sense we have pushed the envelope for a long time - is tried to make reports self-explanatory so the assumptions and analysis are set out clearly."

He says the reports are constructed to leave the reader room to take a different view.

Business Herald columnist Brian Gaynor is one who subscribes to that view. He believes the main purpose of the reports is to provide information from which shareholders can make decisions.

He says the conclusions are probably less relevant than the data - such as divisional breakdowns and profit forecasts.

Although people get annoyed with some conclusions Grant Samuels provides, he has not heard anyone say the firm has too much power or influence.

Although the company dominates the market for assessments in New Zealand, Gaynor says their word is not taken as gospel.

"For example, it said that the bid for Contact Energy last year was fair and reasonable and shareholders should accept it. Shareholders didn't."

Grant Samuel was formed with a number of the staff from Macquarie Bank. Grant had been running the bank's corporate finance business and Samuel ran the Victoria operation.

Samuel is still a small shareholder but is no longer active in the firm. He chairs the Australian National Competition Council.

Grant says Grant Samuel focuses on quality independent expert and valuation reports. He estimates their market share in Australia and New Zealand at 60 per cent.

"There's a number of reasons for that. One is that the big investment banks haven't liked to do that work because it's hard - and there are risks or liabilities involved.

"As soon as you are in the position of giving opinions in the public arena, you are always going to have people that are unhappy one way or another, and you always going to be vulnerable to lawsuits."

But he says the company has taken the view that if you do it well and professionally, the risks are manageable.

Grant Samuel does not have the conflicts of interest some others doing such reports have.

"We are not a bank nor a securities distribution business, so hopefully we can approach these tasks with independence. That's the primary requirement of anyone reading them - some level of confidence that the people involved are independent."

New Zealand Shareholders Association chairman Bruce Sheppard says nobody else is doing company valuations and research who is "qualified and not conflicted".

"Generally they are regarded as competent - they are certainly better than a bunch of others that have been out there."

Under NZSE listing rules, many deals require an independent appraisal, so there is steady business.

Sheppard says shareholders put a lot of reliance on independent expert reports.

"If they read the detail and disclaimers - which are all there to be read, I might add, but mostly people don't read them - they probably would have a little bit more discomfort."

He raises concerns about the process itself, saying the independent appraiser has to use the information from the parties as the basis for the report. It is an issue he has raised with the exchange surveillance panel.

Appraisal reports are unaudited and reach conclusions based on the information from the parties in the transaction.

"That whole philosophy and process leaves shareholders with disquiet - but that does not necessarily mean they have disquiet with the people involved in the process."

Grant accepts Sheppard's views.

"If the accounting systems throw out wrong information or if the management deliberately gives you wrong information, then it's garbage in, garbage out."

He points out that the company specifically says it does not do audits or due diligence, partly because the timeframes mean it cannot.

"We just don't have the time nor the resources normally to go back and do due diligence, do an audit."

Grant thinks there will be greater regulatory scrutiny of accounts in future and probably more onus on management to ensure accounts are true and fair.

Grant Samuel