O'Sullivan: Montana race is one solely for winning

By FRAN O'SULLIVAN

Carl Icahn, the Princeton-trained, battle-scarred veteran of the infamous corporate raids that rolled like a tidal wave through 1980s corporate America, used to say: "If you want a friend, buy a dog."

Allied Domecq, the British drinks giant, does not need a dog to do its barking in the Montana takeover contest.

Plenty of local players have been willing to perform that role. Unquestioningly, they peddle damaging myths about New Zealand's takeover regimes - past and present - as Allied's contest with Australasian brewer Lion Nathan deepens.

Add in the Australian institutional "sources who dare not speak their names" - the self-serving ignoramuses who are reportedly outraged that New Zealand's new takeovers code allows partial bids.

Then mix in the line of overblown hyperbole that suggests "the world is watching" the Montana takeover war and will "in due course judge whether this is a financial market in which it wants to do business" - and you could be forgiven for thinking Armageddon was nigh.

It all speaks of a colonial cringe mentality of the first order.

In fact, the New Zealand financial market has been on a roll in 2001 - to the great profit of many an opportunistic local and international investor.

The media have been fixated with their seemingly endless replay of the sins and excesses of 1980s players (does anyone ever get let off the hook?). Deeply Calvinistic views have been promoted to suggest New Zealand will not prosper unless it adopts stultifying British norms. But many an investor has been doing very nicely thank you through local sharemarket investments.

Takeovers activity as investors strengthened positions or mounted control offers before the July 1 introduction of the new takeovers code played a part.

So, too, did recognition that entry prices for many stocks had slipped well below their net tangible assets price.

Faced with a flagging US stock market, many astute investors simply cashed up some of their holdings and reinvested them in New Zealand. Any losses were offset to a degree by our collapsed exchange rate.

This may not be the stuff of riveting commentary, but it is a factor which New Zealand's regulators must keep to the forefront of their minds as they are asked to rule on the respective arguments put forward by Allied Domecq and Lion Nathan.

The last thing New Zealand now needs is for the regulators to play to the crowd by throttling the lifeblood out of the takeover market.

Today Lion will once again be in the frame as two regulatory bodies issue determinations, which could dramatically affect the next phase of the takeover.

Most games are over when they are over.

But the Takeovers Panel - which did not initially cavil at Lion Nathan's July 2 press statement announcing that it intended to make takeover offers to enable it to acquire all the shares in Montana Group - appears to have had a change of heart.

Lion Nathan's July 1 takeover notice specifically stated it intended to make a takeover offer under the takeovers code for 11 per cent of the ordinary shares in Montana at $5.50 a share. It also stated that should the offer become unconditional, Lion Nathan intended to make an offer for all outstanding shares at $3.70 a share.

On July 2, Lion expanded, saying: "Shareholders will ... have the opportunity to divest any remaining shares in the subsequent offer. If all shareholders, except Allied Domecq plc, accept both offers for all their shares, accepting shareholders will receive an average of no less than $4.38 per share ... Lion Nathan is committed to acquiring 100 per cent of [Montana] ... "

On Wednesday, the panel said the combined effect of the takeover notice and public statements might constitute a full offer for all shares and thus not comply with the code.

If the panel rules against Lion Nathan, the Australasian brewer will have no option but to increase its bid price to above the $4.80 Allied Domecq is offering and make a single offer for 100 per cent of Montana - that is if it decides to stay in the game.

The more critical ruling is that which the Stock Exchange's Montana standing committee will make. The committee had earlier ruled that Lion Nathan must sell down a 19 per cent stake in Montana to disinterested third parties as remedy for defaulting on exchange listing rules in an earlier takeover round.

Allied Domecq argues that by selling the 19 per cent stake at a time when Lion has already telegraphed it will first issue a partial offer for 11 per cent of Montana - then if successful, mount another offer for the remaining shares - Lion Nathan effectively has a put option over the shares it is selling.

Lion Nathan must be expecting the worst: that it will be ordered to abandon its offer for 11 per cent of Montana until the 19 per cent stake is sold.

The committee has shown itself to have little appreciation of market realities - but it would be handing an unfair advantage to Allied if it banned Lion from divesting shares while it had an offer in the market.

All Montana shareholders - Allied Domecq, the 10 per cent of existing Montana shareholders who have not sold to either Lion or Allied, and those future shareholders who will acquire a portion of the 19 per cent stake once it is divested - will all be ranked equally when it comes to selling into Lion's $5.50 offer.

As Allied has a 100 per cent offer on the table at $4.80 a share, such a move would give the British firm an advantage it has not earned.

The Takeovers Panel stymied Allied from undertaking some shifty footwork of its own which had been designed to gain control of Montana without necessarily having to make a full offer to all shareholders, through exploiting a measure in the previous takeover rules.

But the self-styled "friend of the small shareholders" has not received anywhere near the local media opprobrium that Lion has attracted and the small shareholders' lobbyists have been remarkably silent on that score.

Allied's "irrevocable promise" offer was slapped down last week - but it has already put in motion moves for a 100 per cent offer under the takeovers code.

The battle for control of Montana does not create new assets - it rearranges slices of a pie. Each competing bidder wants to gain control without having also to buy its rival's holding.

In this game winning is not the important thing - it is the only thing. The contestants realise that, but do our regulators?