By ELLEN READ Markets Writer
Extra precautions are needed to protect small shareholders when their companies are subject to a proposed management buyout (MBO), says the NZ Shareholders Association.
The current tussle for control of Bendon has brought these concerns to the fore, association advocacy director Ross Dillon said yesterday.
Ironically, he added,
that particular tussle had in the end avoided the situation the association was most worried about - an unchallenged MBO.
The original MBO offer from a consortium led by Bendon managing director Hugo Venter and supported by AMP Henderson Global Investors is now competing with an offer for the whole company from Cullen Investments-controlled Pacific Retail Group.
The management consortium is offering $38.5 million for Bendon's operating subsidiary.
The board reckons that depending on the amount of cash the company has, shareholders could get a return of between $1.81 and $1.84 a share.
Pacific Retail has issued a takeover notice at $1.90 a share for the Bendon Group.
That includes cash reserves from the sale of another subsidiary, NZ China Clays.
Mr Dillon said to assist in the credibility of independent appraisal reports - which are required when an offer is made for a company - the reports should be addressed to the shareholders, rather than to the company as is current practice.
Mr Dillon said: "There is potential for influence by management on the appraisal process.
"It is our view that in such circumstances it would be best that any such appraisal was addressed to shareholders rather than the company."
The company itself was not likely to suffer harm from such a sale, he said.
However, the creditors of the company and the shareholders might suffer harm.
"If shareholders are asked to rely on any such report, then they should be able to sue on it, if it is not correct."
Mr Dillon said the recent events in the United States surrounding the collapse of Enron were a lesson regarding the potential harmful effects from close relationships between management and those who are relied upon to act independently.
The issue has also been raised by analysts, who have suggested an appraisal report could be contentious because independent valuations were usually based on management forecasts and, in the latest MBO, Bendon's managing director was fronting the offer.
However, the emergence of Pacific Retail as a potential buyer of the entire company could solve this problem.
That was because an independent report would be needed for the competing proposal.
