This article originally appeared in the NZ Herald.

There have been a number of developments in recent months involving potential control changes to NZX-listed companies. These include Abano Healthcare, Chow Group, Hellaby Holdings and NPT.

These are important issues, often involving complex rules, where shareholders have the final decision. It is important that shareholders carefully consider all decisions regarding proposed changes of control of their companies.

Abano Healthcare: $181m market value

On November 4, Peter and Anya Hutson and James Reeves announced their intention to make a partial takeover offer that would raise their Abano Healthcare shareholding to 50.01 per cent. As the Hutson/Reeves partnership currently owns 19.02 per cent of Abano, its offer is for 30.99 per cent of the listed entity at $10 a share.

The Hutsons and Reeves claim that the $10 a share offer is attractive but it is important to note that their bid is for only 30.99 per cent of Abano; it is not for the outstanding 80.98 per cent they do not own.

The Takeovers Code requires the Hutsons and Reeves partnership to achieve 50.01 per cent exactly. If it receives acceptances for less than this amount, the partnership must go back below 20 per cent and if it receives acceptances in excess of 50.01 per cent, then accepting shareholders will be scaled back.

Tactics are important in partial takeovers because if a small number of Abano shareholders accept in respect of all their shares, and the bidder reaches 50.01 per cent, then they could receive $10 for all of their shares. In this situation, non-accepting shareholders will miss out on the $10 offer.

Abano directors will want to convince every shareholder to reject the offer because if the Hutsons/ Reeves partnership reaches 50.01 per cent, it will have effective control of Abano. The new controlling shareholder will probably change the board and adopt a new business strategy.

Abano has appointed Grant Samuel to prepare an independent adviser’s report and has advised shareholders to take no action until the target company statement is released.
Abano shares are currently trading at $8.41, which reflects the fact that this is not an offer for all shares at $10 each.

Chow Group: $16m market value

Earlier this year, John and Michael Chow backdoor listed some of their property interests through RIS Group.

RIS originally listed on the NZAX in June 2006 – under the name Holly Springs Investments – with no trading activities and $170,000 of cash.

Holly Springs’ original plan was to identify a business for acquisition and raise additional capital to acquire this business.

The NZAX initiative was a low-budget strategy to boost the domestic sharemarket. The stock exchange’s half-hearted commitment to the NZAX has been a major disappointment, particularly when the recent NZX/Ralec High Court judgment revealed that the NZX was prepared to invest up to $100 million in agri-businesses, including the development of an electronic market for agriculture commodities.

Holly Springs acquired Retail Information Systems in 2009 and changed its name to RIS. The new acquisition was a failure and it was sold a few years later. RIS’s poor performance, which included a large number of director changes, has not helped the NZAX’s reputation.

This year the Chow brothers sold two buildings in Otahuhu, Auckland to RIS for $7.6m, with the brothers receiving 19,491 million RIS shares as consideration. This gave the Chows a 94.9 per cent shareholding in the listed company, which subsequently changed its name to Chow Group.

Ironically, the NZX couldn’t handle the large number of shares on issue and Chow’s shares were suspended for a week while the NZX sorted out its technical difficulties. Subsequently, Chow Group has had a 1:25 share consolidation.

Chow Group came under the scrutiny of the Takeovers Panel when the Chow brothers sold down their shareholding, from 94.9 per cent to 88.6 per cent, to “friends and family”. This was a technical breach of the Takeovers Code because these “associated” shareholdings would exceed the 20 per cent threshold when added to the Chow brothers’ stake.

Chow Group shareholders retrospectively approved the Chow brothers’ selldown to 88.6 per cent but it raises the question about the overall benefits of having the Holly Springs/RIS/Chow Group combination of companies listed on the New Zealand sharemarket.

Hellaby Holdings: $317m market value

On September 27, Bapcor, the Australian automotive parts company formerly known as Burson, announced its intention of making an offer for Hellaby at $3.30 a share. The announcement revealed that three large shareholders had agreed to accept the $3.30 offer in respect of 29.84 per cent of Hellaby’s voting rights.

Hellaby directors issued a “don’t sell” recommendation because they believed that the Bapcor offer “is opportunistic and does not represent fair value”.

The offer was dispatched to Hellaby shareholders on October 21 and 11 days later Hellaby released the target company statement with a bold “Reject the Bapcor Offer” on the cover. The statement included the Grant Samuel independent adviser’s report, which valued Hellaby between $3.60 and $4.12 a share.

Subsequently, Bapcor asked the Takeovers Panel “to convene a meeting under Section 32(1) of the Takeovers Act 1993 to consider allegations of misleading or deceptive conduct by Hellaby and Grant Samuel”. The Panel rejected this request.

Bapcor continues to attempt to discredit Grant Samuel’s valuation but at this stage the Australian bidder has received acceptances in respect of only 29.84 per cent of Hellaby, which is the same as Bapcor’s pre-offer agreement with three major shareholders.
The offer will remain open until at least December 20 and shareholders don’t have to make a decision until this date.

NPT: $105m market value

On September 26, NZX-listed Augusta Capital purchased 9.3 per cent of NPT from Accident Compensation Commission at 73c a share.

Nearly five weeks later, Augusta requested NPT to convene a special meeting of shareholders. This is consistent with the ability of shareholders holding 5 per cent or more of a company to request a shareholders’ meeting.

Augusta has asked that the meeting consider the removal of three directors, including chairman Sir John Anderson, and the appointment of three new directors.

In addition, Augusta intends to raise a number of matters at the special meeting, including: that NPT acquire a number of properties from Augusta and Augusta purchases NPT’s management contract. The latter would give Augusta the management rights over NPT’s properties on a long-term basis.

These are important issues as they clearly show that Augusta wants to have a major influence over NPT, even though it owns only 9.3 per cent of the company. It also indicates that NPT would become the property owner of the combined group and Augusta would effectively become a property fund manager with minimal property assets held in its own name.

Any proposed management agreement between Augusta and NPT will be important because, as far as Augusta’s property syndicates are concerned, the investors and owners of the properties carry all the risks. Augusta Capital, which manages these syndicates, is relatively immune from any downturn in the property market.

A2 Milk: $1.72b market value

a2-milk-shareholder-breakdown-nz-vs-aus a2-milk-shareholder-numbers-nzx-vs-asx

Finally, the accompanying graphs were presented to a2 Milk shareholders at the company’s annual meeting in Sydney on Tuesday.

The graphs show Australian investors, who now own 64.3 per cent of the company, have become the dominant shareholders since it listed on the ASX in March 2015.

The a2 graphs clearly demonstrate that New Zealand shareholders relinquish control of the country’s companies far too easily.

This is why Abano Healthcare, Hellaby Holdings and NPT shareholders need to adopt a long-term perspective when deciding whether to cede control of their companies.

Brian Gaynor

Portfolio Manager

Disclosure of interest: Milford Funds Ltd holds shares in Abano Healthcare, a2 Milk and Hellaby Holdingson behalf of clients.

Disclaimer: This article originally appeared in the NZ Herald and is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so should not be viewed as investment or financial advice. If you require financial advice we recommend that you speak to an Authorised Financial Adviser.