Wednesday, August 25, 2010

Hill Family makes Claytons Takeover bid for Michael Hill International

The announcement today that the Hill family, the largest shareholder of the publicly listed Michael Hill International [MHI.NZX] is looking to consolidate and increase its family shareholding in the company from 48% to 50.1% of the company is a significant move by the family and ditto has significance for shareholders, for a number of reasons.

At 50.1 % the family would have majority control as a voting block to look after themselves rather than other shareholders. I am not saying the will put that in practice but majority holding will mean they can if they wish to do so.

The possible move to a 50.1% shareholding would also require an exemption to the Takeovers Act that normally requires offers for additional shares at this shareholding level be made to all shareholders.

This move is also contrary to the move made by the company to split the shares at the end of 2007 to increase liquidity in the trading of the shares on the stockmarket.

You can look at this move in two ways.

Firstly that it is a positive move by the family that they see value in the company at current share prices and are willing to stump up some cash to buy a bigger stake in the company. A good move when the company is under some pressure from a retail slump and the shares are trading at a good discount to the long-term outlook for the company.

Secondly, and a view that I tend to lean towards, is that the move is a rather cynical one because it is going to impact negatively on minority shareholders because the family will have more control over the company without having to make an offer to all shareholders for full control and they are seeking an exemption through the NZX and a vote put to shareholders at the November 5 annual meeting to achieve their purpose.

Michael Hill International has thus far proven a good corporate citizen and has treated MHI shareholders in a fair and balanced manner in terms of business operations and has been a good long-term investment for shareholders.

Should this claytons move to take over the company by the Hill family and its interests be accepted by the NZX and its operations and then voted approval by shareholders (it must be kept in mind that the family already has a 48% voting block and it wont take too many minority shareholders to vote in their favour or opt not to vote at all for their plan to realise gold) without a full offer made to take the company over, then the small shareholder is going to get shafted again.

I will be voting against the Hill's proposal and I urge other MHI shareholders to do the same.

Disc I own MHI shares in the Share Investor Portfolio

Michael Hill International @ Share Investor

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