Saturday, August 28, 2010

Michael Hill International: Tall Tales & Rumours

A little birdy told me something interesting this morning that got my mind in an overactive and speculative mood.

The move by the Hill family earlier this week to take a larger share of Michael Hill International [MHI.NZX] got me a bit hot under the collar but I put a question to an accountant client of mine this morning and asked him what he thought of the move.

He told me that when a large holder of such a stake in a business consolidates its shareholding and seeks to increase it, it is more likely an indication that the protagonist is trying to make the shareholding more attractive to a possible buyer, rather than wanting to take control of the company themselves.

My source told me when he was a director at Whitcoulls and Graehme Hart was running the show this was the approach Hart took before he sold the company to Blue Star Group.

Of course this is just more idyll speculation on my part but after thinking about the scenario it makes more sense than the reason the Emma Hill gave for wanting to take a mere 2.1% more in the company:

"...the family wants to take advantage of a depressed share price to take control. We've always wanted to buy a bigger stake in the company, and we think the stock is undervalued right now. It is just opportunistic with the right price coming at the right time."

If that is indeed the case why not pitch for a bigger stake than 2.1% more. Why not go for gold if the share price is such a bargain? (which it is I might add).

I am not saying that the Hill's are going to sell their stake any time soon but my accountant friend's thoughts should be considerd by the market because I think there is some merit in what he told me.

That is just between you and me though.

Disc I own MHI shares in the Share Investor Portfolio

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