THE DISTILLERY: Too creepy

One jotter finds anachronisms in creeping takeover provisions, while another sees something tricky in Pipeline's HDF bid.

The recent confrontations that billionaires Gina Rinehart and James Packer have engaged in with Fairfax Media and Echo Entertainment, respectively, have focused attention on the effectiveness of Australian takeover laws. In this morning’s edition of The Distillery, Fairfax’s Elizabeth Knight retraces the origin of creep provisions, while The Australian’s Bryan Frith takes a look at another contentious takeover tussle.

Fairfax’s Elizabeth Knight recalls where the creep provisions that have been criticised as permitting takeover by stealth actually came from.

"The reality is that there was no real logic to their introduction 30 years ago – rather they are the legacy of the corporate politics of the day. And the Liberal Party that was in power at the time – led by Malcolm Fraser – probably saw no reason to argue it. There is little to be found among the Canberra archives around any debate on the 3 per cent creep rules. Those that have a sufficiently long corporate memory (and there are not too many of them) say that it was not controversial. It was a concession given to business because the broader overhaul of the takeovers law – of which the creep provisions were only a small part – were more rigorous and the business community was concerned that the new rules would restrict the purchase of shares.”

The Australian’s Bryan Frith says the shortcomings of takeover rules were on display again yesterday with the apparently ‘binding’ offer for Hastings Diversified Utilities Fund from Pipeline Partners Australia.

"Despite the wording of the announcement, there is nothing binding on the parties and there is as yet no firm takeover offer for HDF despite the fact it is already two months since a "non-binding, indicative and conditional" proposal for a cash bid of $2.35 a security ($2.325 ex an already announced distribution of 2.5 cents a security), or $1.2 billion, was announced. That's 11 per cent higher than the existing scrip-and-cash offer from APA Group of 0.326 APA securities, plus 50 cents cash for each HDF security, which, at APA's present price of $4.96, values its offer at $2.09 a HDF security (also ex the 2.5 cents distribution).

"Since then the putative bidder, Pipeline Partners Australia, has been granted 45 days in which to conduct due diligence. That deadline ran out yesterday, which is presumably why the announcement was made. It's nevertheless curious as to why HDF felt an announcement to be necessary. On the face of it, the proposal from PPA has been upgraded from non-binding to binding, yet it appears that only means a proposed bid implementation agreement has been signed by PPA but not by HDF. Once an implementation agreement has been signed by HDF, it will become contractually binding on both parties, but until then it is not binding on either party."

In other news with regulatory implications, Fairfax’s Adele Ferguson looks at the consequences of another move by a stockbroker to shift third-party clearing elsewhere.

"The move by stockbroker Evans & Partners to transfer its third-party clearing from Berndale Securities to Pershing should be a reminder to Treasurer Wayne Swan of the concentration of risk now sitting in Australia's third-party clearing arrangements. It signals one of the last remaining retail stockbrokers still doing business with Berndale after it flagged to the market more than a year ago that it intended to abandon third-party clearing. Clearing is an important function of markets and when Swan said last year he would review the clearing and settlement system, the expectation was that it would include third-party clearing. That is yet to happen, despite the potential systemic risk that has been created with just one third-party clearer acting for retail stockbrokers, which are also referred to as market participants. The potential risk is this: if the third-party clearer fails, or several of its clients fail, it could threaten the entire settlement system.”

The big company story out of yesterday was Insurance Australia Group’s plans for Asia. The Australian Financial Review’s Chanticleer columnist, Tony Boyd, says IAG is taking a much more cautious approach, with an unimpressive tilt at the UK market in the rear view mirror. The same newspaper’s Vesna Poljak says chief executive Mike Wilkins carries the burden of that untimely venture, executed by his predecessor Michael Hawker, to this day.

In other company news, The Australian’s Barry Fitzgerald argues that Iluka boss David Robb deserves some credit for taking his continuous disclosure obligations seriously and reporting that demand for mineral sands is declining as global economic growth ebbs. Meanwhile, Fairfax’s Insider columnist, Ian McIlwraith, looks at the movements of Brisbane automotive group AP Eagers towards rival Automotive Holdings Group.

In China news, The Australian’s Glenda Korporaal keeps an eye on Treasurer Wayne Swan ahead of his trip to China to celebrate 40 years of diplomatic relations between Beijing and Canberra, which is taking place amid moves to liberalise the yuan. Meanwhile, The Australian Financial Review’s Robert Guy looks at the starkly worrying numbers out of China’s imports.

In other news, Fairfax’s Malcolm Maiden gives his perspective on how to bring executive remuneration down – it’s an issue that’s been kicked around by a few commentators in recent days.

And finally, Fairfax’s Ross Gittins spreads some truth on the perception that supermarkets are doing nothing but screwing farmers into the ground on price, while only discounting a few staples on the consumer end.