Saturday, April 01, 2006

Editorial: Credibility is price of selling story

The Ministry of Foreign Affairs and Trade will have reflected this week on a lapse of judgment made by one (or more) of its officials when word of Harmeet Sooden's release by hostage-takers in Iraq was conveyed to his family in Auckland. Family members wanted financial assistance to go to the Middle East to greet 33-year-old Mr Sooden when he emerged from his ordeal. Someone in the ministry relayed that request to TVNZ and TV3.

Inevitably one of the television news services took the bait. TVNZ reportedly paid about $14,000 in air fares and accommodation for Mr Sooden's father, Dalip, and his brother-in-law, Mark Brewer, to accompany its reporter and film crew to Dubai, where the Canadian Air Force was to put Mr Sooden on a flight to Auckland.

It is not known precisely what undertakings the family members gave TVNZ in return, and Foreign Affairs probably didn't want to know. Agreeing the ministry made an "error of judgment", Deputy Prime Minister Michael Cullen told Parliament the officials had advised the family against making such a request. Nevertheless, they passed it on.

In the event. TVNZ got nothing in Dubai. The Canadian Air Force allowed Dalip Sooden an hour alone with his son before duly putting their charge on a plane to New Zealand. When Harmeet Sooden arrived in Auckland on Monday, his father, brother-in-law and the TVNZ crew were still in Dubai with flight problems.

Whatever the details of their deal with TVNZ, Harmeet Sooden is said not to be bound by it. He offered little comment to reporters on his return and asked for time and space to recover quietly with his family and friends. That he received. He discussed his traumatic experience for the first time in public yesterday, at a press conference open to all media. If Mr Sooden is wise, he will maintain an open-handed attitude and ensure there can be no suggestion he is turning his cause to profit.

He will be aware now, if he was not before, that public sympathy for his cause is tenuous at best. "Who cares about this so-called New Zealander Harmeet Sooden and his idiotic pacifist group?" wrote Ritchie Rutherford of Pukekohe in a letter typical of many to the Herald. "People such as this get themselves into trouble and prove they are a burden on the rest of us. They should be presented with the bill for the rescue and banned from sojourns again into hellholes like Iraq."

Another, from Eric Richards of Newmarket, declared: "I have lost all sympathy with people taken as hostages and their grieving families now that one lot has sold out to one group of the news media."

Mr Sooden has an important story to tell. Foolhardy as his Iraqi visit may have been, it is as close as any New Zealand resident has come to the worst of the terror reigning in Iraq. He went there as an opponent of the Western military occupation, indeed of all military action, and was seized by an Iraqi group who murdered one of his fellow captives. That experience would be enough to challenge the preconceptions of most people.

He can give an insight to the attitudes of those creating so much havoc and prolonging the occupation. It would be a pity if he withheld some of those insights for fear that they might be useful to the occupying forces or out of sheer gratitude to captors who spared his life.

Equally, it would be a pity if he decided to talk for a financial consideration. His credibility would suffer, as credibility usually does, when a story has to justify a price. The Foreign Ministry should have reminded Mr Sooden's relatives that the public paid for its efforts for him and it would be better not to leave the public with a sour taste.

John Armstrong: Working for middle class

It sounded like an April Fool's Day joke: an MP flush on the backbencher's salary of $118,000 qualifying for a Government-paid income top-up of $22 a week to help her pay the bills.

It was something of an April Fool's prank on the part of Heather Roy, the other Act MP.

With five children, she would qualify for such "family income assistance" from today. But her husband works, so she clearly does not qualify.

Still, she made her point. The facts did not get in the way of a good story.

Labour's targeted tax relief now reaches into ever higher income brackets, ostensibly to help large families struggling to balance household budgets.

However, Act and National argue that the welfare state has been turned from a safety net into a drift net ensnaring the middle classes.

Roy's close-to-home example was evidence enough that Labour's flagship Working for Families policy would be better titled "Welfare for Families".

The architects of Working for Families never envisaged an Act MP becoming eligible for an income top-up when they began the overhaul of income assistance policy more than four years ago.

But then they did not envisage the scheme they developed - which targeted low-to-middle income families - getting a subsequent election-driven, Auckland Harbour Bridge-style clip-on which makes some well-off families eligible.

That extension comes into effect today, along with a suite of measures, including interest-free student loans and four weeks' annual leave. These items are being heavily promoted by Labour in a propaganda blitz designed to show the party is still addressing the fundamentals of people's lives and still true to its social democratic roots.

For the governing party, the communications offensive is also an opportunity to focus back on Labour basics after a difficult start to the year where the Government's agenda has been derailed by a series of distractions.

A flurry of photo-opportunities during the week culminated today in the Prime Minister visiting the Otara market - true Labour heartland.

MPs have been given special "April 1" information packs which offer them "key lines" to rebut critics.

Their laptop computers have been programmed with a Working for Families calculator enabling them to instantly work out a constituent's entitlement.

Labour's strategy is to link the April 1 measures with other social policy initiatives, such as cheaper doctor visits.

The party is trying to establish a simple equation in voters' minds. Labour equals income assistance plus investment in social infrastructure. National equals tax cuts for the rich and cuts in social services for everyone else.

However, the extension of Working for Families to large families whom many people would deem to be well-off at least in terms of salary carries political risks as well as bringing a potential political dividend in votes.

Labour was naturally uncomfortable defending an Act MP's entitlement to money she did not need. It was furious when it discovered she had not been eligible in the first place.

However, such quirks were bound to arise as Working for Families has progressively clawed its way up the income brackets.

From today, another 60,000 families potentially come under the scheme's umbrella, adding to the 288,000 families which already qualified. All up, nearly three-quarters of all New Zealand families are now eligible.

Labour's difficulty is that Working for Families is trying to meet two political goals.

A policy that had a primary focus on alleviating poverty and getting people off benefits and into work has become a de facto tax cut policy.

The switch is evident in the way the Government's language has shifted from "income assistance" to "tax relief" and now "tax credits" as Labour tries to neutralise National's simple "tax cuts".

National has sought to counter this by painting Labour's tax relief as welfarism in drag.

However, while the debate about tax will continue, the implementation of the latest phase of Working for Families shifts the dynamics more in Labour's favour.

Many of those newly eligible for assistance will take the money in the form of an annual tax rebate and are unlikely to see the payment as some kind of welfare benefit.

Labour also expects that by the time National gets the chance to cut taxes - 2009 at the earliest - the payments will have become a fixture in family budgeting. Labour's hope is that people will consequently hanker less for a simple tax cut.

But a tax cut is money in the pocket immediately. National will also point to those wage and salary earners who simply miss out from Labour's targeting of assistance to families only.

National also doubts people will complain about it axing the Working for Families extension as long as that scheme is replaced by something which delivers the same or better financially.

Much of this battle for the crucial election-tipping middle-income voter hinges on families signing up to Labour's entitlements - something which is automatic with universal tax cuts.

Labour has had to endure jibes about Michael Joseph Savage rolling in his grave after TVNZ's Agenda revealed the advertisement promoting Working for Families was filmed in the leafy Auckland suburb of Epsom in a house with a capital value of more than $700,000.

However, the advertisement featuring a white, nuclear family in upmarket abode, the daughter complete with iPod and cellphone, was deliberate. It was designed to jolt higher income earners who expect nothing from Working for Families that there may be something for them.

So far, actual take-up figures do not appear to have matched expectations. Last year, the Government was talking of 260,000 families having signed up by now. The latest figures have the number still below 200,000, but that does not include families which will take the money at the end of the financial year. The figures reflect the relatively low take-up rates for such assistance. Hence the saturation advertising.

There is some irony that while Labour has been pilloried for raiding parliamentary funds of close to $450,000 to pay for the production and distribution of its election pledge card, the blanket promotion of Working for Families entitlements has gone largely unremarked.

The difference is that this taxpayer-funded advertising campaign is done at arm's length from the Beehive by Inland Revenue and the Ministry of Social Development under guidelines stipulated by the Auditor-General.

But the net effect is the same - the advertising is highly political. And with a $13 million budget promoting Working for Families over three years, it is no joke, April Fool's or otherwise.

Paul Thomas: Beware fishy claims of white coat brigade

One of the defining features of contemporary life is the never-ending search for things that taste good and also happen to be good for us or, failing that, don't take years off our lives or sap our vital bodily fluids.

Salmon was one of the few things that fell into this category. It was so good for us, according to the medical establishment, that we couldn't have enough of it.

Possessing the twin virtues of being expensive and resoundingly PC, the slab of (often slightly undercooked) salmon became the trendy middle-class dinner party dish of choice.

Those who expressed a primitive yearning for hearty red meat stews or a good old-fashioned roast risked being sent outside to join the smokers and anti-anti-Americans.

However, Britain's Independent newspaper reports that scientists who reviewed 89 studies of omega 3 fats, the constituent in oily fish such as salmon that supposedly confers a panoply of health benefits, have concluded there's not a skerrick of evidence to support the propaganda we've been bombarded with for the past 20 years.

If propaganda seems too strong a word, consider the claims that have been made on behalf of oily fish:

* It prevents cancer and heart disease.

* Eating it once or twice a week reduces the risk of strokes and averts premature births.

* It cures asthma and inflamed bowels, prevents skin cancer, halves the risk of prostate cancer, keeps wrinkles at bay, minimises the prospects of getting Alzheimer's disease and soothes psoriasis.

The good that oily fish did was so diverse and far-reaching one had to wonder whether it should be classified as a mere food; it was more like nature's wonder drug.

In 2003 researchers in Mauritius concluded that children who eat lots of oily fish were 64 per cent less likely to have a criminal record by the time they reached 23. In other words, if salmon farmers really got their arses into gear, it would be safe to walk the streets at night and we'd be spared this apparent plague of lawyers.

The high priest of the salmon cult was Professor Michael Crawford of the Queen Elizabeth Hospital in London, who warned that mothers who didn't eat oily fish were hindering their unborn babies' brain and eye development.

Parents used to tell their little ones they'd get a visit from the boogie man if they didn't eat their greens. Being an eminent scientist, Professor Crawford wouldn't stoop to such mumbo-jumbo; instead he pointed out that if we didn't eat enough oily fish we'd send evolution into reverse.

Apparently the only reason homo sapiens is master of all he surveys, while monkeys sit around in trees all day worrying about deforestation, is that our ancestors lived on oily fish, thereby developing big brains, while the other primates stuck to bananas, which are good for blood pressure and bowel movements but don't do much for the grey matter.

Any commercial organisation making these sorts of claims on behalf of its products in a marketing campaign would be hauled before the Advertising Standards Authority. But whenever a group of researchers reports some half-baked finding on the health implications of what we eat and drink, it flashes around the world with all the authority and finality of a sports result or the Dow-Jones close.

These scientific surveys are our enlightened age's equivalent of old wives' tales. Undue respect for the wisdom of elders has been replaced by undue respect for men and women in white coats with a few letters after their names.

Generations of children grew up believing:

* Feed a cold, starve a fever.

* Coffee stunts your growth.

* After a meal you should wait an hour before swimming to avoid the risk of cramps.

* Chocolate causes acne.

* Spicy foods cause ulcers.

* Reading in dim light damages your eyesight.

* If you go outside with wet hair you'll catch a cold.

* Eating carrots enhances eyesight.

No doubt many people still believe some of the above but they're all old wives' tales or their modern equivalent, urban legends.

(According to something I stumbled across on the internet, the carrots/eyesight connection was dreamed up by British Intelligence during World War II in an attempt to conceal the role that radar was playing in the air war: RAF pilots had good night vision because they ate lots of carrots. As with so much that supposedly emanates from the intelligence community, it's indistinguishable from absurdist comedy.)

The difference between old wives' tales and scientific surveys is that the former tended to be underpinned by personal experience; the error lay in extrapolation.

I'd always thought there was something in the wet hair business because I came down with a shocking cold after walking home from the gym one cold European night without bothering to dry my hair.

And I firmly believe a spoonful of vinegar stops the hiccups. It's always worked for me and it worked for our 12-year-old the other night.

John Roughan: Why pacifism is either dangerous or dishonest

Suppose, just suppose, you had been brave, mad, messianic or narcissistic enough to believe you could bring some peace to Iraq by presenting yourself there as an opponent of the Western occupation, protected only by your Christian pacifism.

And suppose that having ventured beyond the "green zone" of central Baghdad, the only part of Iraq the occupiers really control, you had fairly quickly fallen into the clutches of hoods who called themselves something like the Sword of Righteousness, and they held you smocked and shackled, another pawn for some wildly forlorn demand on the Western powers.

Imagine you spent every minute of every sleepless hour of the next 118 days wondering if this minute would be your last.

Try now to dispel the frightful image of a beheading that probably came to your mind the first time you heard that militants in Iraq favoured that form of execution. Then try to imagine trying to dispel that image if you were captive in a hot room in Iraq.

Think of the blessed relief of a few minutes in which your tired mind drifted on to another subject - any other subject.

Think of the moment they took one of your companions away, and the hours and days that he didn't return.

And then suppose that one fine day, after nearly four months of mental torture, the Sword suddenly was not there and the next armed men you saw were saving you. Do you think that when you got home you would sit down and write this?

"During my captivity, I sometimes entertained myself by imagining this day. Sometimes I despaired of ever seeing it. Always I ached for it. And so here we are ...

"It was a terrifying, profound, powerful, transformative and excruciatingly boring experience. Since my release from captivity, I have been in a constant state of wonder, bewilderment and surprise as I slowly discover the magnitude of the effort to secure our lives and our freedom ... "

So began Canadian Jim Loney in a statement posted on the Christian Peacemaker Teams' website on Monday. His fellow survivors, Norman Kember in Britain and Harmeet Sooden here, confined themselves to brief formal statements of relief and pleaded for time to get their thoughts together.

Sooden gave a press conference in Auckland yesterday. Painfully quiet and occasionally faltering he read a prepared statement.

"The primary reason for my participation in the Christian peacemaker Team Iraq delegation was to bear witness to the suffering of Iraqi people living under a harsh military occupation, and to provide an alternative narrative, based on humanitarian principles, to the people of New Zealand."

Many at the press conference would want to ask about his captivity, he said. "I choose to ask a more important question: what are the consequences of an illegal Anglo-American occupation, with the complicity of a host of Western institutions, including the New Zealand Government, on ordinary human beings living in Iraq?"

Then he answered real questions. Was he frightened? For the first week, yes. Then again when an incident happened around the house sometime later.

What were their guards like? One was a farmer and fed them well. The youngest, whose family had been killed, was very volatile. The other one he didn't think had done this sort of thing before.

These people are strangely serene. After an experience like theirs I would be making no sense. I'd be spinning between shock and ecstasy, sombre one moment, jabbering the next.

I'd be delirious with relief, shaken at the indignities done by captivity, intoxicated with life and freedom and indescribably grateful to those who had saved me.

But these people are pacifists. Ever since we started getting grainy pictures of the group in Baghdad I've been asking myself the question, what is it about pacifism that gets up our nose? I know it does. Newspapers are attuned to these things and Sooden's plight did not strike a chord of unequivocal sympathy.

This might be surprising in a society whose proudest defence policy is unabashedly pacifist. The anti-nuclear position, as promulgated by David Lange in speeches at the time, and most popularly in the much acclaimed Oxford Union debate, declared that New Zealand does not wish to be defended by nuclear weapons.

That means, in theory at least, that if ever we face a nuclear threat we have renounced the protection of a reciprocal threat. Quite what we would do, our defence policy doesn't say. Fortunately, any nuclear-armed adversary would assume, quite rightly, that we would ditch pacifism at the first whiff of serious trouble and appeal for the Anzus umbrella.

Pacifism gets up the nose because it is either dangerous or fundamentally dishonest. It is dangerous if so many citizens seriously subscribe to it that collective security cannot be underpinned, as it has to be, by military power. It is not so dangerous if, like Nuclear Free New Zealand, it is fundamentally dishonest.

The Christian Peacemaker organisation declares that if its members get into trouble in war zones it does not want them rescued with violence. But when Sooden and friends were taken by the Sword of Righteousness, an apt title as it turned out, the Christian Peacemakers were sensible about it.

They accepted the help of the occupying forces and did not protest at all when their members were rescued by soldiers bearing the means of meeting danger with deadly weapons.

Pacifism is a perfectly good and practical policy up to a point. Most people adopt it in response to a personal threat. But for the same reason, most people do not deliberately put themselves in harm's way.

Sooden said yesterday: "My experience in Iraq has reinforced my belief that the true impediment to peace is violence, regardless of whether it be the violence of an occupying army or the violence of an insurgent group which uses kidnapping to finance its resistance.

"If one is serious about peace one should be prepared to take the same risks for peace as for war. I continue to hold this conviction" - dangerous and costly as it may be for those who must try to save him.

Paul McIntyre: Hybrid broadcast wins gold

The Commonwealth Games in Melbourne was not quite the blistering TV ratings success the Nine Network had hoped for over the past two weeks but what the sporting festival has proved for Australian telecommunications companies and online and newspaper publishers covering the event is a truckload of promise for them becoming hybrid TV broadcasters.

Telstra, for instance, held the online and mobile phone video streaming rights to the Commonwealth Games and although it was the first time the telco served up mainstream TV-style content simultaneously across the two platforms, the results were good enough for the company to claim this week it would be doing a lot more of the stuff in the future.

Certainly the consumer boom which emerged last year for online publishers in internet video streaming is continuing in 2006 with some players reporting increases of 600 per cent over the first few months of last year.

Broadband internet is starting to bite.

The relatively new joint venture between Network Seven and Yahoo!, Yahoo!7, for instance, has seen a huge surge in internet video feeds this year.

"Last month we had over 2.3 million streams across the Yahoo!7 network including movies, music and news," said the company's interim chief executive Rohan Lund.

"This month we're on track to hit 2.7 million. Video is definitely the new battleground." The Yahoo!7 figures are up more than 608 per cent on last year when Yahoo! did not have a tie-up with Seven. One of the biggest growth areas in streaming video for Yahoo!7 is news and TV - the latter being clips streamed from Seven's hit TV shows such as Lost, Desperate Housewives and Dancing with the Stars.

Arch rival ninemsn - the online portal jointly owned by the Packer-controlled Nine Network and Microsoft - says it is consistently seeing two million video streams a month this year.

Ninemsn has been way out in front in video streaming although its figures indicate a levelling off in growth for the number of videos being watched on the portal.

The company says it has seen a 300 per cent increase in the number of people using videos this year but the overall number of streams has not jumped as sharply as Yahoo!7.

The numbers suggest that as the novelty effect wears off for internet video, users are pulling back on their video consumption to their core areas of online interest.

Fairfax Digital - the online unit of newspaper publisher John Fairfax - streamed 8.4 million video feeds last year, an increase of 60 per cent on 2004, and that growth is continuing in 2006. In March Fairfax Digital will top one million video streams.

"It's generally coming from news and sport," says commercial director Nic Cola. "But if there's a big event like Fashion Week there's a lot of interest. And we have quite a sticky business audience. That rates consistently. In business we've got an online audience of some 800,000 unique browsers across all Fairfax Business properties."

Cola also says Fairfax dramatically exceeded its online visitor numbers for the Commonwealth Games although it was unable to deliver competition video because Telstra owned the online rights to the event.

Cola says and doubled the number of "unique users" forecast for their games coverage, reaching nearly 700,000 individuals. Most, he says, logged in from work.

"We're in the process of increasing our existing resources devoted to video productions," Cola says. "We see this as a key driver not only in what people want but also advertising demand for that content.

"We're looking to double the size of the team producing video content and supplementing that with overseas press agencies. That's happening right now."

Big Pond managing director Justin Milne says the lessons for the telco from its Commonwealth Games effort is that it will do more branded content across its broadband and 3G networks.

He would not divulge user statistics for its big investment in the Commonwealth Games but when asked if it matched the Fairfax figure of 700,000 accumulated users for the games period, he said: "Our numbers compare very favourably with that. Very favourably indeed. The statistics were extremely positive and beyond our expectations but I'm not going to release them.

"The Commonwealth Games was the best showcase of what we've done so far for content on two platforms and we'll be doing more of that in the future."

Christopher Niesche: Tide running against Port Otago's play

Port Otago's attempt to muscle its way into the deal between rival Lyttelton Port and global port giant Hutchison Port Holdings has backfired.

Common wisdom is that Port Otago has bought itself a seat at the negotiating table, but it does look like Lyttelton and Hutchison will still be able to join forces and keep the Dunedin port locked out.

The original deal between Hutchison and Lyttelton Port's majority-owner Christchurch City Holdings would have seen Hong Kong-based Hutchison put its expertise into the underperforming Lyttelton Port. It would also have used the power it gets from owning 40 ports around the world to negotiate better deals with shipping lines for Lyttelton.

But before the deal could proceed, Christchurch City Holdings - the investment arm of the local council - had to complete a full takeover of Lyttelton and then sell a 49 per cent stake to Hutchison.

That's where Port Otago came in. New Zealand has too much port capacity and consolidation has been long expected and, when that happens, some ports will be marginalised.

In an attempt to ensure it wasn't locked out of the deal and left behind in any rationalisation, Port Otago made a $24 million swoop on Lyttelton's share register for a 10.1 per cent stake.

This was enough to block Christchurch's takeover and kill the deal between Hutchison and Lyttelton - or so it seemed on first glance.

Indeed, this week Hutchison withdrew from its plan to take a half stake in Lyttelton.

But it is worth noting that neither party said the deal was off and Hutchison said it was still interested in Lyttelton. There may still be a way.

If Christchurch City can get control of 75 per cent of Lyttelton Port, then that gives it enough votes on the share register to push through material transactions.

Hutchison and Lyttelton Port could then form a joint venture similar to the original plan. Christchurch City could retain the port's assets and Hutchison take control of its operations.

Such a deal isn't possible now because, by engaging in talks with Christchurch City, Hutchison became a related party. This means Christchurch City wouldn't be able to use its shares to vote in favour of any deal with Hutchison.

But if Hutchison walks away, it ceases to be a related party in six months and a deal could go through.

Of course, there are risks. Any such deal could be open to challenge by regulators or by Otago Port - this week's takeover of Waste Management by Transpacific using a similar structure has thrown the spotlight on to these sorts of deals.

Nonetheless, such a plan would explain a couple of things that happened this week.

It would explain why Christchurch City Holdings chief executive Bob Lineham could be so trenchant in his criticism of Port Otago.

"We are not allowing Otago's maverick blocking mechanism to let us waver from our main objective," Lineham said after the deal collapsed.

Second, it would explain why Christchurch City is persisting with the takeover, even after saying the deal is off. Indeed, Christchurch raised its bid by 10c a share to $2.20 and made its bid unconditional even as it announced the deal was over.

Its offer might look a bit mean when you consider Port Otago paid $2.35-a-share for its 10.1 per cent stake.

However, Christchurch City already owns 69 per cent of Lyttelton, so needs only a handful of shares to take it to the 75 per cent it is probably seeking. And if the steady stream of bad economic news over the past few weeks continues and the sharemarket comes off its record highs, that price may not look so bad after all.

It could be that Otago might end up with little to show for its $24 million stake in Lyttelton.

Still, its not all bad news for the southern port.

If Lyttelton Port gets what it hopes to out of the deal with Hutchison, Otago's 10 per cent stake in its Christchurch rival could prove to be a very good investment in its own right.

Brian Gaynor: Merger process neglects shareholders

The proposed Waste Management/Transpacific Industries deal raises a number of important questions about the decision-making of our company directors, particularly as it comes hot on the heels of the Contact Energy/Origin Energy merger announcement.

The Waste Management story began at 9.48am on Monday when the company told the NZX it had agreed to merge with Brisbane-based Transpacific, subject to shareholder approval. Waste Management shareholders will receive $8.642 a share, representing the agreed price of $8.80 less the 15.8c dividend paid on Thursday.

The term merger was used 13 times in the NZX release, yet it is not a merger in normal conventional terms, such as with the proposed Contact/Origin deal in which all shareholders will continue to have an economic interest and the two shareholder bodies have to approve the deal.

The merger structure being used by Waste Management and Transpacific means that Transpacific will require only 75 per cent approval at a Waste Management shareholders meeting to gain full control, whereas under the Takeover Code it would have to receive 90 per cent acceptance to achieve the same goal.

As the 75 per cent approval threshold only applies to shareholders who vote, the actual threshold level will be well below 75 per cent.

There are three main ways that an acquirer can gain control of a target company.

* Through a takeover offer under the Takeovers Code.

* Through a scheme of arrangement under Part XV of the Companies Act 1993.

* Through an amalgamation under Part XIII of the Companies Act 1993.

A takeover offer is clearly the best process as far as the target company shareholders are concerned because the bidder can only move to compulsory acquisition once it reaches 90 per cent. It also allows some shareholders to accept and others to hold on to their shares.

It is easier to block a takeover offer under the code, as a spoiler only has to purchase 10.1 per cent to achieve this aim.

Under a scheme of arrangement, a transaction has to be approved by shareholders at a special meeting. This arrangement also has to be approved by the High Court and any dissenting shareholder has the right to appear before the court.

Schemes of arrangements are complicated because they can require a special resolution, which requires a 75 per cent majority when related parties can vote, plus an ordinary resolution, which requires a 50 per cent majority but related parties cannot vote.

The amalgamation provisions of the Companies Act have left a sour taste in investors' mouths because they were used in the GRD/Macraes merger in 1998. Approval is required from 75 per cent of votes cast, and at an acrimonious meeting in Dunedin, the merger was approved. However the proposal would not have been passed if GRD, which was a related party, had not voted its 35 per cent stake in favour.

The amalgamation provisions are particularly attractive to Australian companies because they don't operate under the Companies Act 1993 and don't have to hold a shareholders' meeting to approve the transaction.

This may seem like a technical issue but, in the GRD/Macraes situation, a number of institutions had shareholdings in both Macraes and GRD with a bigger stake in the former. They would have voted against the merger if GRD had been required to hold a special meeting because the terms of the agreement were seen to be extremely unfair to Macraes' minority shareholders. There was a strong possibility that GRD shareholders would have rejected the merger because there wasn't a large related party block vote that could effectively control the outcome.

Shareholders also have the right to appeal to the court against any of the provisions of an amalgamation proposal.

The Waste Management/Transpacific merger proposal got off to a dreadful start on Monday because the New Zealand company didn't hold a briefing for shareholders, analysts and the media and chairman Jim Syme was unavailable because of other director commitments.

The New Zealand company admits it made a botch of the situation as it focused on informing its employees and neglected the investment community.

The amalgamation process also annoyed a number of large shareholders because the compulsory acquisition threshold is lower and they have less chance of blocking the bid.

The two major shareholders, ING with 6.7 per cent and Fisher Funds Management with 6.2 per cent, have the ability to block the bid if there is a low voter turnout, but the important point is that they could definitely block an offer under the Takeovers Code if they wanted to.

Another aspect of the deal is that Transpacific has got around section 221(5) of the 1993 act, which requires both merging companies to have shareholder meetings, by forming a separate, fully owned New Zealand company and merging this company with Waste Management. The Australian parent owns all the shares in this new company and there is no requirement for Transpacific's public shareholders to vote on the amalgamation.

The amalgamation process is being used because Waste Management's directors believe they have negotiated a great price that reflects full control and Transpacific should be given every opportunity to reach 100 per cent.

This sounds like a reasonable argument, but this column has persistently argued that New Zealand directors are poor judges of long-term value and they consistently advise investors to sell their shares at below full value. In almost all the situations where shareholders have rejected directors' sell advice, the share price of the target company has appreciated after the bid lapsed.

The other point is that New Zealand directors don't seem to understand that most investors, particularly institutions, are portfolio investors rather than shareholders in a number of separate companies.

The objective of a large and prudent investor is to construct a portfolio of companies in diverse industries with different risk profiles. The New Zealand sharemarket won't be much use to these investors if most of our companies are taken over and there are only a few electricity, port and property groups left.

Waste Management is an important portfolio holding because it has strong defensive features, has an excellent profit record and has good growth prospects. It was ridiculous for Waste Management's chief executive director, Kim Ellis, to tell the Business Herald that investors "can go and buy a bach or invest in Transpacific or take a holiday" when most of them, particularly New Zealand-orientated retail and wholesale funds, will either have to, or want to, reinvest in NZX companies.

The problem with this is that many of the larger listed companies are trading on a higher P/E or EV/ebitda multiple than Waste Management at its takeover price. These include Pumpkin Patch, TrustPower, Ryman Healthcare, Vector, Infratil, Sky City, Sky TV, Fisher & Paykel Healthcare, Auckland International Airport, Port of Tauranga and Michael Hill International.

Our company directors don't seem to realise that portfolio investors have to look at the wider picture, including the diversification of their portfolio and the valuations of the companies they will have to reinvest the proceeds in.

On this basis, the offer for Waste Management does not look overly generous and there was no need for the company's directors to agree to an amalgamation process that reduces the rights of their shareholders.

* Disclosure of interest: Brian Gaynor is an investment strategist and analyst at Milford Asset Management.