THE DISTILLERY: Creepy consequences

Jotters assess the impact of increased red tape on takeovers and question the timeliness of ASIC's decision to consider reforms.

The conflicts that billionaires Gina Rinehart and James Packer have started with Fairfax Media and Echo Entertainment respectively have finally attracted a meaningful response from the corporate regulator. But two of Australia’s leading business commentators make the points that more red tape for takeovers will hinder the already quiet M&A market and the Australian Securities and Investments Commission (ASIC) might have something else in mind beside reform.

Firstly, The Australian Financial Review’s Chanticleer columnist Tony Boyd says the proposed changes from ASIC chairman Greg Medcraft would bring us into line with the rules in the UK, which have had some negative consequences.

"Medcraft wants to limit the six-monthly creep to 1 per cent and cap the total that can be bought before being forced to make a full bid at 30 per cent. These moves would bring Australia into line with the rules in the United Kingdom. He also wants to ensure bidders who make takeover offers for companies only do so when they are in a position to bid. This is the so-called ‘put-up or shut-up’ rule. The main argument used by Medcraft for these changes is to ensure Australia’s markets are fair and efficient. He argues that laws that allow someone to gain control of a company without paying a premium are against the spirit of the law. However, bankers familiar with the functioning of the UK market say that the combination of the 30 per cent threshold and the ‘put-up or shut-up’ rule have repressed takeover activity. The bankers would argue that the last thing Australia’s equity capital markets need is more red tape to inhibit takeover activity, which is a proven way of delivering value to all shareholders. Takeover thresholds, whether they are 20 per cent or 30 per cent, have been implemented to ensure that all shareholders are afforded an equal opportunity to share in the price paid for change in control of a company.”

The Australian’s John Durie, a former Chanticleer columnist himself and card-carrying ASIC antagonist, says the corporate regulator might be trying to use the issue as a cover.

"The best possible way for a regulator to divert attention away from itself is to talk up a reform agenda – which is precisely what Australian Securities & Investments Commission boss Greg Medcraft is doing right now. Each of his laundry list of reform items on their own has some merit, or at the very least is worthy of debate. The question is whether we need the debate now. As Medcraft has said himself, even with the 14 per cent increase in his budget this year, his own house is stretched with extra work to monitor the burgeoning superannuation assets. Just maybe his efforts would be better focused on regulating rather than talking up a reform agenda of his own or on behalf of someone else.”

Meanwhile, Fairfax’s Adele Ferguson, who has perhaps the best understanding of the somewhat hidden Australian reinsurance industry of any of our commentators, says reinsurers weren’t as mean as expected this year.

"With so many calamities hitting the insurance industry in 2010-11 - including earthquakes in New Zealand and Japan, floods in Queensland, storms in Victoria and eight big tornadoes in the US – the fear was that reinsurance rates might soar as much as 50 per cent for some categories. Instead, the small regional players that didn't have big loss exposures are believed to have paid between 15 per cent and 20 per cent to renew their reinsurance policies. Reinsurance brokers in London estimated that the big players suffered price rises of 25 per cent, and in some cases higher. An increase in reinsurance rates generally translates into higher premiums on general insurance policies as general insurers seek to pass on the higher costs.”

In other news, Fairfax’s Rania Spooner has come across some research that perhaps offers some insight into the industrial relations tension that’s emerging from the mining industry. Exorbitant wages, it seems, aren’t keeping the transient workforce together. It’s friendship that could keep miners in the fly-in, fly-out lifestyle better – much like an interstate football recruit. Elsewhere in mining, The Australian’s Robin Bromby says the nickel industry, already battling low prices, is set for more pain.

Meanwhile, Fairfax’s Michael Pascoe says Australian banks haven’t realised that they are now, primarily, technology companies. Mining their vast reservoirs of data for a greater understanding of our economy should be one of their priorities, the writer argues.

In economic matters, Fairfax’s Tim Colebatch says the slight improvement in the Westpac-Melbourne Institute consumer sentiment index finally reflects the handouts and interest rates cuts that have been showered on consumers, particularly in New South Wales and Victoria. Fairfax’s Ian Verrender says this reporting season looks like it’ll "surprise on the downside,” which he points out is a euphemism for "disappointing”. However, the business writer says there are some positive signs to focus on.

And finally, Fairfax’s Jonathan Swan says analysts have very little sympathy for Darrell Lea, which in their belief failed to evolve to the new retail market that’s taking chocolate with it.


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