Gaynor: Brierley board back at the trough

By BRIAN GAYNOR

Brierley Investments' annual report is one of the more predictable lowlights of the year. It has two recurring themes - poor results and big handouts to directors and management.

The 2001 report is no exception.

The group reported a loss of $US119.6 million ($292 million) for the June 2001 year, compared with a loss of $US161.8 million in the previous year. In the past four years total losses have exceeded $1.5 billion.

But once again directors have their hands out for more money. At the past two annual general meetings, shareholders have approved the following resolutions:

* In 1999, the issue of 15 million options to chairman Sir Selwyn Cushing.

* Last year, an increase in directors' fees from $NZ250,000 to $US175,000 ($425,000).

At this year's annual meeting, which will be held in Bermuda on December 14, shareholders are being asked to approve a further rise of $US29,250 to $US204,250 ($498,000). They will also be asked to change the name of the company from Brierley Investments to BIL International.

But that is only the tip of the iceberg. Total remuneration for directors and executive officers, which includes redundancy and severance payments, has risen from $US3.4 million in 1999 to $US9 million ($22 million) last year. There is obviously no relationship between performance and reward at Brierley Investments.

Philip Burdon, the former National Government cabinet member, is the only remaining New Zealand director after Sir Selwyn retired on September 30. Mr Burdon, who effectively represents the large number of New Zealanders among the group's 75,882 shareholders, does not own a single BIL share.

That just about sums up the sad plight of Brierley Investments, once the largest company on the New Zealand Stock Exchange.

Arbitrageurs

International sharemarket arbitrageurs are playing a major role in the Contact Energy and Frucor takeover offers.

These investors buy large volumes of stock in a target company in the hope that the initial bid will be raised or another party will make a higher offer. They are short-term holders looking for a quick profit and dump their shares if an offer lapses or is withdrawn.

Arbitrageurs have taken a big position in Frucor as 38.4 per cent of the company's free float (the 62.4 per cent not owned by major shareholder Bain Pacific) has been traded since the Danone $2.35-a-share offer was made. This suggests that a large number of shareholders believe the offer is fair and have sold to arbitrageurs.

But Jardine Fleming Asset Management has adopted a different approach. The Hong Kong-based fund manager sold 1 million Frucor shares at an average $1.67 a share between July 19 and October 5, but after the Danone bid it bought back 2.7 million shares at an average $2.42. This is the classic action of an arbitrageur.

These short-term investors have been less aggressive buyers of Contact Energy as only 16.9 per cent of the free float (the 51.2 per cent not already owned by Edison Mission Energy) has been traded since the bid was made.

This suggests that existing shareholders believe the offer is too low and are not prepared to sell. It also indicates that arbitrageurs are less confident of an alternative offer and are concerned that the bid will lapse because the 90 per cent condition will not be achieved.

The recent decision to extend both the Contact and Frucor offers could be an attempt to frustrate the speculators and force them to sell. Arbitrage selling will have a negative impact on the Contact Energy and Frucor share prices and could encourage shareholders to accept the takeover offers.

Arbitrageurs are a welcome addition to the New Zealand sharemarket as they give existing shareholders the opportunity to exit above the offer price. But they can have a negative influence on a share price if a bid lapses and they dump their holdings.

Rubicon

The share-price performance of Rubicon has been hurt by arbitrage activity.

As part of Shell's offer for Fletcher Challenge Energy, shareholders received one Rubicon share, valued at $0.88, for every Energy share. Arbitrage funds took big positions in Fletcher Energy and ended up with substantial shareholdings in Rubicon.

In its first 12 days on the Stock Exchange, 169 million Rubicon shares, or 49 per cent of the company, traded between 40c and 49c a share. The share price picked up when the company bought back 74 million shares, or 21 per cent of the capital, at an average price of 81c a share.

But Rubicon's share price has slumped again and it has not been able to establish a strong, long-term shareholder base. There is still a hangover from the large number of short-term speculators that dominated its registry when it listed this year.

Wellington Drive Technologies

Last week's Wellington Drive Technologies annual general meeting had two distinct halves.

The official addresses in the first half were full of excuses and sombre forecasts. Chairman Dr Ray Thomson said that the company did not expect any increase in revenue from the sale of new licensing agreements before the end of the calendar year and the net loss for the six months to December 31 was expected to be $1.2 million, compared with a forecast loss of $200,000.

But the second half, which contained a lengthy question-and-answer session, was far more optimistic.

Managing director Dr Ross Green made several very positive comments and indicated that a breakthrough was possible in the next six months. Dr Thomson took a similar view after the meeting.

Wellington Drive, which has developed high-efficiency, ultra-low-noise electric motors, has been promising a m breakthrough for a number of years but has yet to deliver.

Shareholders are losing patience and the company will have to deliver within Dr Green's six-month timeframe to justify its $52 million sharemarket capitalisation.

Feverpitch International

Feverpitch International, the first New Capital Market float of the year, is creating a great deal of excitement among young investors, mainly because managing director Derek Hadley is only 23 years of age.

The company also has a high-profile board of directors, including John Hart, former All Black coach, Richard Waddel, former managing partner at Ernst & Young, Jock Irving, former chairman of the Casino Control Authority, and Len Ward, former chief executive of the New Zealand Futures and Options Exchange.

Under New Capital Market rules, Feverpitch will be floated as a cash box but has indicated that it will acquire FPH Ltd, which owns the online betting operations of Feverpitch. This betting operation, which can be found at www.feverpitchexchange.com, allows members to bet against each other. It does not involve bookmakers.

First-time participants receive a $US5 free bet and Feverpitch will make its money by charging a 5 per cent commission on each transaction.

Under New Capital Market rules, the prospectus contains no information on FPH Ltd or its betting operation.

Investors will have to wait until Feverpitch International acquires FPH Ltd before they can make a realistic assessment of the new listing.

* bgaynor@xtra.co.nz