Gaynor: 'Fair' is flexible for option deals

By BRIAN GAYNOR

Who is the luckiest listed company director in New Zealand? Is it Elizabeth Coutts or Warren Larsen?

Just before Vending Technologies issued shares to the public at $1 each in October last year, Ms Coutts joined the board and was granted 200,000 options. These options can be exercised between September 30 this year and September 30, 2003, at $1 a share.

Ms Coutts resigned as a non-executive director on August 24 but the company will allow her to exercise her options on September 30. Based on yesterday's closing price of $2.85 a share, this will give Ms Coutts a total return of $379,000, including directors' fees, for one year's contribution to the company.

Two months ago Mr Larsen, a former chief executive of the New Zealand Dairy Board, was appointed to the Vending Technologies board and was granted 200,000 options. These options are exercisable at $2 a share between September 30, 2002 and September 30, 2004.

Vending Technologies' share price has been around $3 for most of the past four months and at yesterday's closing price he is in the money to the tune of $170,000.

Options are an important and widely accepted part of remuneration packages but most shareholder organisations, including the New Zealand Shareholders' Association, believe they should have strong performance criteria and should not be in the money from day one.

Mr Larsen told last week's Vending Technologies annual meeting, which approved his options package, that that type of remuneration package would become more common. If this is true then non-performance-oriented option schemes will become a major point of contention between directors and shareholders.

Wrightson On Track

Wrightson shareholders will be asked to approve an options scheme for non-executive directors on September 19.

Up to 50,000 options will be issued to each non-executive director and 150,000 to the chairman. These options can be exercised between two and seven years from the date of issue.

The exercise price is determined by Wrightson's share price on the 10 days immediately following the announcement of the company's result for the June 2001 year and adjusted upwards by 12 per cent per annum but reduced by cash dividends.

Based on Wrightson's recent share price and dividends, the new options can be exercised at approximately $1.24 a share in two years. This compares with yesterday's closing price of $1.08.

KPMG's independent report concludes that 50,000 Wrightson options are worth between $3000 and $4750 and the terms are fair to shareholders. Corporate Finance's appraisal report on Warren Larsen's 200,000 Vending Technologies options determines they are worth between $288,400 and $338,000 and are also fair.

Obviously, the two independent assessors have their own definition of fairness.

Rubicon's speed record

What is Rubicon up to? What share buyback records is it trying to break?

On July 31, Rubicon began a $60 million share-buyback programme with the stated objective that it would pay the market price. In one month and four days the company has bought back 72.4 million shares for $58.9 million. Last year, Contact Energy took eight months and 23 days to complete its $60.8 million buyback.

On Tuesday and Wednesday last week, Rubicon bought 39.2 million shares at an average price of 83 cents a share. Most of these were crossed through the market, with Credit Suisse First Boston acting as both buyer and seller.

Although all shareholders have had the opportunity to sell, it seems a number of big shareholders have taken the opportunity to reduce their holdings. This includes Credit Suisse First Boston (Europe), which has sold 9.4 million shares.

It is not too difficult to argue that Rubicon has paid above market for its purchases because its share price has fallen from 83 to 74 cents since last week's frenzied buying activity.

Trans Tasman Properties

Ross Investments, based in Sandringham, Auckland, has made a cheeky offer for Trans Tasman Properties' ordinary shares at 17.1 cents a share. Ross specialises in buying securities of companies in financial difficulty and the offer is being made to 4100 shareholders holding between 2000 and 10,000 shares.

Trans Tasman is not in financial difficulty but it has been a disaster for investors.

The 17.1 cents may be attractive to some shareholders because no brokerage will be charged. But most investors should be able to realise a higher price through the market, even after brokerage.

Trans Tasman's ordinary shares closed yesterday at 19 cents, 11.1 per cent above Ross Investments' offer.

ABN Amro Craigs

A recently released analysis by ABN Amro Craigs attempts to boost the tattered image of the New Zealand Stock Exchange.

Under the heading "Richard and Judy - You're looking at the wrong index!" it argues that the NZSE40 Capital Index quoted on TV One's evening news understates the performance of the New Zealand sharemarket.

The central theme of the report is that the New Zealand sharemarket has a high dividend yield and that a gross index, which includes reinvested dividends, is a better measurement of the market's performance.

To some extent this is true. In the 10 years ended June 30 this year the NZSE40 Capital Index rose by 45 per cent and the NZSE40 Gross Index, which includes reinvested dividends, by 172 per cent.

But the performance of other sharemarkets also improves when dividends are reinvested.

For example the Australian All Ordinaries Index increased by 127 per cent over the same 10-year period and by 232 per cent when reinvested dividends are included.

The problem with ABN Amro Craigs' analysis is that most investors look to the sharemarket for capital gains and this form of return is usually more tax effective than dividends. Gross indices also exaggerate returns to investors because dividends are included on a pre-tax basis.

But the report does raise the question why New Zealand companies pay such high dividends when dividend payout ratios are low in most of the world's successful sharemarkets.

* bgaynor@xtra.co.nz