Australian scribes loves a good corporate bust, and they got one yesterday when former Hanlong vice president Calvin Zhu pleaded guilty to a series of insider trades that netted him more than $371,000. While some jotters ruminate on the success of the Australian Securities and Investment Comission, one commentator reckons the watchdog needs to do more. Elsewhere, there's a bold call to let Ford fail, while DuluxGroup finds a new friend in its bid for Alesco.
But first, The Australian's John Durie is pleased ASIC was able to nab Calvin Zhu, who admitted to insider trades linked to separate jobs at Caliburn, Credit Suisse and Hanlong. Durie thinks it's part of a positive trend.
"Of 22 insider trading actions brought since January 2009, ASIC has successfully prosecuted eight people. Four have lodged guilty pleas and sentencing is pending, and nine are awaiting trial and will contest their charges. Those statistics compare with the 15 criminal cases ASIC pursued in the entire 11 years to 2008, of which 10 were successful. The better success rate is in part due to the fact that, unlike the ASX, the plod has the power to force people to hand over information when asked and it is also confronting people early with the aim of persuading them to hand over the keys without a fight.
But Fairfax's Elizabeth Knight says ASIC's victory yesterday "couldn't be described as a major haul".
"Yes, of course, the regulator and the Director of Public Prosecutions have a duty to pursue any case of criminal activity if the evidence is strong enough to chance a win, but it is really the high-profile cases that are needed to satisfy one of the major aims of chasing insider trading: to act as a deterrent. There have been a few in recent years that have attracted a bit of publicity, but not enough."
Elsewhere, The Australian Financial Review's Alan Mitchell makes a bold call for the government to allow Ford's Australian manufacturing operations to fail.
"While painful, there would be a clear upside to the demise of Ford, the weakest member of Australia’s second most subsidy-dependent manufacturing industry. It would increase the chances of survival for other Australian producers – from Ford’s local competitors, Holden and Toyota, to the manufacturing and service sectors’ struggling hatchlings. The economy would be stronger as Ford’s share of labour and capital was reallocated to more profitable or more promising businesses."
If the mining boom that is responsible for lifting costs chokes off: "…the experience of other developed economies tells us that manufacturing and the service industries would soon expand again to fill the gap. Where there are opportunities for profit, there is growth."
On another topic in the same newspaper, Tony Boyd says DuluxGroup's hostile bid for Alesco has received a "huge boost" on the back of an announcement the suitor had won over two of its target's major investors, Northcape Capital and Wilson Asset Management. Interestingly, WAM, chaired by Geoff Wilson, only amassed its 4.5 per cent stake last week.
"Wilson’s mandates allow him to invest up to 10 per cent of total funds under management in a single stock. That suggests he has the capacity to buy another $22 million of stock on top of the $8.5 million already invested. …if Wilson keeps buying and other institutions accept the Dulux offer, and that results in more than 50 per cent of the company being in the hands of Dulux, a change of control will soon occur. Dulux would probably sack the Alesco board and drop its 90 per cent acceptance condition. Alesco says the bid materially undervalues Alesco and continues to recommend shareholders reject Dulux’s offer."
However, Fairfax's Ian McIlwraith reckons the test will be whether Dulux can convince retail investors to relinquish their shares.
McIlwraith's colleague, Ian Verrender, throws cold water on a rumoured plan to carve up ownership of Echo Entertainment, which would see shareholders Crown and Genting each taking 25 per cent of the company. That "would represent a serious breach of the Corporations Act," he says.
"Such a deal would make the pair related parties. As a result, they would be prohibited from buying any more than 19.9 per cent between them. And should the pair want to extend beyond that, they would either have to jointly launch a takeover or buy 3 per cent every six months through their joint vehicle."
That's not to say regulators aren't keeping an eye on Crown.. The Australian's Bryan Frith thinks ASIC's new recommended changes to takeover laws were made with the casino operator's chairman, James Packer, in mind.
"[ASIC chairman Greg Medcraft] has now confirmed that ASIC has lodged reform proposals with Treasury. Apart from limiting the creep provisions to 'prevent company takeover by stealth', ASIC has apparently also made recommendations for changes to the substantial shareholding provisions to include derivative economic interest as well as holding of physical securities, and to bring the provisions governing schemes of arrangement more into alignment with the takeover requirements. ASIC has also recommended some form of 'put up or shut up' provision, similar to that in Britain, to counter the now-pervasive 'bear hug' tactic, in which possible, but non-binding, proposals are leaked to pressure target boards to engage."
Finally, The Australian's economics editor, David Uren, looks forward to the release of the Asian Century white paper, intended to chart a path for Australia to become a more competitive and attractive regional partner. However, Uren says it won't address the urgent need for Australia to lower the barriers to foreign investment.
THE DISTILLERY: Hanlong haul
Jotters are split on the success of ASIC's Hanlong bust, while one calls for Canberra to cut Ford loose.
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