An attempt to promote asset sales in yesterday’s Dom ended up falling on its face. The author takes the government line, that Contact provides the template for ‘mum and dad’ investors buying SOEs. But the article admits the truth: only a tiny fraction of Kiwis ever invested in Contact, less own it now, and even they may soon be forced out.
Here’s what the article says about Contact:
Contact provides a blueprint of probable success. In 1999, 227,000 “mum and dad” investors rushed the issue,
227,000 – that’s less than 10% of adults at the time:
and 80,000 are still shareholders.
Wow. Less than 3% of adult New Zealanders now own shares in Contact when just 12 years ago, we all owned it in common as a public asset. Even that tiny residual Kiwi ownership is under serious threat:
They have battled hard at some contested special meetings to keep the company local by fighting takeover bids from major shareholders, the latest from Australia’s Origin which has a 51.8 per cent stake.
Even so, the locals seem to be headed for ultimate defeat in spite of showing solid support in the recent cash issue. Origin is staging a steady creeping takeover and would have taken up all its rights in this issue, and may have also bought some of the 3.8 million rights not taken up by shareholders, which were sold at 80c, a total price of $5.85, compared with the $5.05 in the rights issue.
So, Origin is forcing ‘mums and dads’ out by making Contact offer existing shareholders the opportunity to buy more shares. Origin takes up all the new shares it is entitled to. Every ‘mum’ or ‘dad’ who can’t afford to take up the issue, or isn’t aware of it, or has other priorities, sees their interest in the company diluted while Origin’s expands.
Eventually, Origin will have enough shares and enough support from instituational investors that it will be able to forcefully buy all the other shares. Contact investors have already seen off at least one attempt at this.
Now, here’s a thought. Say the worst happens and a National/ACT government gets in next term. 49% of the energy SOEs are sold.
Later the board of one of these now partially-privatised assets (perhaps at the prompting of foreign investors) decides to raise money through a rights issue. A future government suddenly has to find tens or hundreds of millions of dollars to retain its thin majority shareholding, or it will become a minority shareholder. And ‘mums and dads’ will be forced to dip into their pockets as well if they want to keep their little slice of what was once theirs as a birthright.