Gaynor: Lion finally gets legal message

By BRIAN GAYNOR

Legal system 5, Lion Nathan 0. Lion Nathan's run of legal defeats continued when the High Court announced on Monday that it was refusing to put on hold the sale of 19 per cent of Montana while the brewer pursued a judicial review of the standing committee's decisions.

Lion Nathan has now suffered three defeats at the hands of the committee and one each from the Takeovers Panel and High Court.

Justice Noel Anderson indicated that Lion Nathan's dismal legal record would continue. He said: "In my judgment there is every likelihood that on a substantive hearing, the rulings [of the standing committee] would be found to be entirely legally correct."

The Sydney-based company now has little option but to abandon its legal challenges and accept the committee's rulings.

The next few weeks will be interesting. Lion Nathan has to sell its 19 per cent Montana stake to independent parties by midnight on Friday. Allied Domecq's full takeover offer at $4.80 a share will expire two weeks later, on August 31.

Allied has 27.03 per cent of Montana, Lion Nathan 43.84 per cent (after the sale of 19 per cent) and institutions and the public 10.13 per cent. PricewaterhouseCoopers estimates that a fifth of the institutions public shareholding is in the hands of passive investment funds that cannot accept the offer, or is owned by shareholders who cannot be contacted.

Under the Takeovers Code, Allied will have to return all acceptances under the current offer unless it reaches 50 per cent of Montana. To achieve this, it will have to win most of the 8 per cent held by institutions or the public and at least three-quarters of the 19 per cent sold by Lion as default securities (see table).

The table shows that Allied Domecq will still have extreme difficulty reaching 50 per cent.



Disclosure

Why are our listed companies unwilling to disclose important information to shareholders?

Take Natural Gas Corporation, for example. In the past two months the company has sold 406,000 On Energy (formerly TransAlta) residential electricity customers to two state-owned enterprises but has not revealed the price.

These were important transactions yet the announcements to the Stock Exchange specifically stated that the sale price was not being disclosed.

That gives a huge advantage to insiders and analysts who are close to the company because they are in a much better position to determine the impact on Natural Gas.

The sale of Expozay by Hellaby Holdings to Bendon Group, announced last week, was another transaction where the parties refused to disclose the price. It was low but it would have been helpful if the companies released the details.

Poor disclosure and inadequate communication are a big issue with many investors. A recent survey by the popular investment website ShareChat found that 57.6 per cent of the 486 respondents believed that New Zealand listed companies were poor communicators.

Listed companies in other countries are much more aware of the importance of high-quality disclosure standards. This year several listed companies formed the Australian Investors Relations Association to improve communication among companies and the wider investment public.

Two weeks ago the association released new guidelines (www.aira.org.au) that will enhance communications standards, particularly as they coincide with changes to the Australian Stock Exchange's listing rules on disclosure, effective from October 1.

A more progressive and enlightened attitude by New Zealand companies, and the Stock Exchange, towards disclosure would encourage higher individual participation in our sharemarket.

Frucor

Frucor managing director Mark Cowsill looked obviously relieved at yesterday's post-result conference. Although the company failed to meet its prospectus profit forecast of $20.4 million, it exceeded its revised predictions of $11.4 million by $307,000.

Frucor's main problem is in Britain, where it reported an operating loss of $10.2 million compared with a break-even forecast.

As far as the future is concerned, sales in New Zealand are doing well and Australia better than expected. Sales have picked up in Britain, but that region will produce a smaller loss in the current year.

Overall, the company is expected to report an increase in earnings for the June 2002 year but the result will probably fall well short of the $20.4 million predicted for the latest 12-month period.

Wakefield Hospital Wakefield Hospital is offering 3.3 million new shares at $2.50 each in an issue that opened on Monday and will close on September 3 at the latest. The new shares will represent 36.1 per cent of issued capital and will list on the main board of the Stock Exchange on September 6.

Based on prospectus forecasts, the company is on a March 2002 year price/earnings ratio of 10 and a dividend yield of 2.9 per cent fully imputed. Wakefield is a stand-alone, Wellington-based hospital that was established in 1929 and became a commercial operation in 1989.

The biggest problem with the issue is that it is priced like a growth stock, particularly in terms of the dividend yield, but directors have not spelt out a specific growth strategy.

Most of the proceeds from the issue will be used to build two new theatres but it is not clear what additional earnings these facilities will generate and directors have said there is no current plan to acquire other health providers.

Directors forecast a 15 per cent increase in net profit to $1.96 million for the March 2002 year. This is after taking into account a first quarter that was hurt by the temporary absence of some surgeons and a reduction in cardiac surgery.

As the company has no disclosed growth plan, the first-quarter performance was disappointing and it is too small to attract widespread institutional support, the issue would be far more attractive if it was priced at $2 a share, or less.

* bgaynor@xtra.co.nz