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Indifferent or Ignorant?

Indifferent or Ignorant?

Friday 16th Feb 2001 Stephen Franks Media Release -- Other

The Government has enthused about the Australian Stock Exchange campaign to take-over the New Zealand Stock Exchange. To let that happen Marian Hobbs yesterday tabled the Bill to “mutualise” and privatise the Exchange. They think it shows they are commercially “with it” and “global”. The Minister of Commerce Paul Swain bubbles for harmonisation with Australia.

But they are breaking the best rules the Exchange makes for listed companies. If the Exchange were a listed company the non-controlling members would be protected against the self dealing influence of members with Australian bosses. The Board would have to get an independent ruler run over the proposal.

At the least, New Zealand could expect its Government to set out an analysis of the effects of the proposal. We haven’t seen one and the Bill contains no safeguards. Surely the Ministers would have stipulated for member protection, if only they had applied the Exchange’s own principles, and knew enough about business. That would mean:

* A rigorous independent report on the pros and cons, including an evaluation of alternatives. It must be by an expert first verified to have no conflicts of interest. * Separate review of the report for obvious omissions. * Disclosure of conflicts of interests by directors of the Exchange. * Directors must detail to the independent expert the steps taken to establish that the proposal is at full value, on a contestable basis. * Stopping Exchange members controlled from Australia voting to force the proposal through over the objections of members who don’t profit in Australia from increased domination by the ASX. * A right for dissenting members to be bought out at an independently appraised price, not a price forced on them by any self dealing colleagues.

Although not a rule, any broker will tell a listed company contemplating a merger or other major transaction to “test the market”. Proper value is rarely established without a contestable process. The information released by the Exchange so far does not show any contestable process.

As well as ignoring the principles of the Listing Rules, the Marian Hobbs’ Bill does not ensure members will have the protections they have under our Companies Act.

Under New Zealand company law shareholders with conflicting interests in a proposal like this could represent a separate interest group. The transaction could not proceed without majority approval or buyout of the non-conflicted members, i.e. members not associated with members of the ASX. But the NZSE members will vote on demutualisation without those protections.

All New Zealanders have a stake in a proper evaluation. Australia may be the worst to sell our Exchange to, if we want to avoid ending up a ‘branch office’ country. An alignment with a competitor of the ASX would more likely sustain and grow a vibrant financial sector in New Zealand. Having an Australasian competitor would be to the advantage of Australia as well. Wellington affiliation with another group should ginger up Sydney, just as Vancouver Exchange keeps Toronto on its toes.

We have seen no public policy assessment of this privatisation. I am sure that demutualisation is desirable. But not on terms that could overwhelm the New Zealand members without conflicting Australian interests.

The Ministers who have been so encouraging to the Australians are amazingly complacent. There is no evidence that they even asked their advisors to consider these matters for the Bill.


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