Sharemarket retreats from high level

Press, 14 April 1980, Page 20

Sharemarket retreats from high level

By

ADRIAN BROKKING,

, cofiunercial editor

The New Zealand sharemarket began the three-day trading week last Wednesday on a firm and busy note, and the N.Z.U. index passed the 400-mark for the first time in seven years to come within 2.45 points of its all-time high level of 405.26.

However, the weaker trend which became apparent on Thursday in spite of the high point of 402.81 reached that day, continued on Friday, when the market 'gave up some of the recent gains to fall back to a level of 400.12 — 2.47 points higher than the closing level of the. Thursday before Easter.

This is' probably a reaction to the defensive moves surrounding the Carter Holt take-over, -the unhappy inflation figures announced on Friday, and the indications that interest rates are still rising. Not that the market has taken much notice so far ■this year of the mriny adverse indicators, but perhaps it is prepared to sober up a little and take a more realistic look at the local and overseas economy. The inflation rate of more than 18 per cent was predicted by a few market watchers including myself,|

and should not surprise — just as it should not sur* prise that Mr Muldoon thinks that the rate has not peaked yet.

Interest rates have a rough-and-ready relationship with inflation, and it should therefore Once again not surprise that these do not appear to have .peaked either. Marac last week Was the latest finance company to increase its' medium-term rates (2 to 5 years)'to 15.5 per cent. The D.F.C. issue, with its attractive rate for what is virtually call money, is also likely to take some money out of the sharemarket. The suspension of Carter! Holt shares by the Stock exchange was bound to take some steam out of the market. This matter is now before the High COUrt and therefore sub judice, and comment will have to be restrained. However, the stock exchange is not a party in the proceedings, and it may be said that it has handled the matter correctly and promptly. It cduld dO nothing else but suspend Carter Holt, since that Company’s defensive measure in allocating unissued shares to a friendly company was plainly a breach of both listing

requirements arid the- stock exchange take-over code. Carter Holt. Holdings, Ltd, wSs obviously prepared for the suspension. Its more of a share ■■ exchange with, friendly interests— presumably other companies which also feel threatened —■ is reminiscent Of the setting up to Androcles Corporation by Lion Breweries, which in-

fluenced the present listing rules arid take-over code. During the Androcles debate the publicly expressed opinion of the Stock Exchange was that directors must not take defensive ac-

tion to thwart unless they honestly believe that a highler offer is “reasonably in prospect,” and that the target board must not issue unallocated shares without the - sanction of a general meeting Of shareholders. Carter Holt were on Wednesday granted an injunction —•’ presumably exparte — to prevent Fletchers from sending Out the take-over Offer. This is a remedy available to a party which convinces the Court that the balance of convenience lies in having, at least for the time being, the status quo preserved. The other party, of course, may argue the Opposite case; this is being done by Flet-

chits, by moving to hive the injunction sftt aside. . Because of the temporary nature of the injunction, an ■ action has to be brought at l a later date asking for a permanent injunction or fei lief by way of damages. : This, presumably, is the writ, i of summons, taken out by a ■ Carter Holt shareholder which- Cites all parties to

appear before the High Court. Although the writ was reportedly taken out by Mr David Clark on behalf of other shareholders and himself, it would seem that it is

not a so-called class action, which in any case are hardly ever allowed in British law. To succeed in that Mr Clark would presumably have to prove that his interest is absolutely identical to that of every other shareholder. In this care, one assumes that all Mr Clark would have to show is that he is entitled to relief, because he stands to Suffer damage because of the events surrounding the take-over, or that he is a member of a minority being oppressed by a majority. The crisri is obviously going to be important for its effect on the future of takeover law in New Zealand.