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Heartland Bank moves to combat low ball bidders making millions out of trading its shares

Heartland Bank moves to combat low ball bidders making millions out of trading its shares

By Gareth Vaughan

Heartland Bank, which has issued six warnings on low ball offers for its shares since June 2012, estimates two of the bidders have probably made a combined $1.5 million.

Heartland yesterday took the fight to low ball bidders by offering investors holding up to 10,000 shares the opportunity to sell at market price. Heartland's share sale plan will see small shareholders who want to sell - the plan is voluntary - sell through brokers First NZ Capital and Craigs Investment Partners. Heartland will cover the cost of brokerage, which will be charged at wholesale rates.

The move comes after three warnings from Heartland about low ball offers since the former building society received bank registration from the Reserve Bank last December, and three previous warnings last year about unsolicited approaches to shareholders offering to buy their shares at below market price.

Craig Stephen, Heartland's head of treasury and strategy, told that he estimated Australian John Armour, whose companies Washington Securities and Stock & Share Trading Company have made low ball offers for Heartland shares, and the Christchurch-based Bernard Whimp, had probably made about $500,000 and $1 million, respectively.

"It's important for us to keep being proactive on this in the absence of a regulatory response," Stephen said.

He said Armour had secured about 1.1 million Heartland shares on the cheap and Whimp, who courted the ire of the Securities Commission in 2011, about 2 million. Whimp appeared to have sold in May or June.

"I'd argue they've made a fair bit of money. Armour's probably made half a million (dollars), Whimp has probably made a million," said Stephen. "They (the low ball offers) have been quite lucrative for these guys."

Driving up their costs

Stephen emphasised that he didn't know what the low ball bidders cost base was, but said Heartland's efforts should have increased it.

"We've done things like when they've requested the share register, (Heartland is required to provide it), we've done things like print it on yellow paper with a watermark through it so they can't just scan and copy it and map it across into a spread sheet and away it goes. This has made it very, very difficult for them to use. It means it has become a manual process and increased their costs," said Stephen.

"So hopefully we have reduced the likelihood of these types of things occurring."

New rules designed to rein in low ball bids were introduced last December requiring greater disclosure from a bidder, and introducing stronger rights and remedies for shareholders. The rules include setting minimum information requirements including stating the market price or a fair estimate of the value of the shares, and specifying a minimum offer period and a cancellation period. See the regulations here.

Announcing the new rules Commerce Minister Craig Foss said anyone who doesn't comply with an order made by the Financial Markets Authority commits an offence and is liable on summary conviction to a fine of up to $30,000.

About 10% uptake seen

Stephen said about 4.6% of Heartland's share register have 10,000 shares or less. He expects only about 10% of eligible shareholders to take up Heartland's offer. Heartland says a key objective of its share sale plan is to provide an alternative to low ball offers at fair and current market price. See Heartland's share sale plan document here and the share sale plan notice here.

Heartland, which was created through the merger of Marac Finance with building societies CBS Canterbury and Southern Cross Building Society in January 2011, hasn't been alone as a recipient of low ball offers. Shareholders in Tower, Vector, PGG Wrightson, Rural Equities, Fletcher Building, Dorchester Pacific, Contact Energy, Telecom and Nuplex are among others to have received them in recent years.

Heartland's general counsel Michael Jonas told the NZ Herald in July he'd like the regulatory notice required to accompany low ball offers to present key information more simply, and for offers to be required to reveal who the principals behind them are.

The warnings

1) On July 18 Heartland warned that Washington Securities Pty Limited planned to make unsolicited offers at 55 cents per Heartland share when the market price was 87c.

"Despite views on the ethics of these unsolicited offers, regulation to date has stopped short of an outright ban," Heartland said. "Should any shareholder receive an unsolicited offer, Heartland strongly recommends seeking independent financial advice and checking the current market price."

The bank also referred shareholders to the FMA article Low Ball Offers - Guidance for Investors.

2) On June 18 Heartland said Washington Securities, whose sole director and shareholder is John Armour, intended to make unsolicited offers to buy Heartland shares for 55c each compared with their market value of 83c. Heartland said Washington had also indicated it may make other offers to targeted groups of shareholders over the next six months.

3) On May 27 Heartland said it was aware new unsolicited offers were being made to shareholders of listed companies to buy their shares for much less than market value. Heartland's board was concerned to ensure "that you are not misled by these unsolicited 'low ball' offers."

"If you receive an offer to buy your shares, your board strongly urges you to carefully read and understand any accompanying disclosure document. You are not obliged to accept any offer."

4) On July 24 last year Heartland said its board was concerned some shareholders were continuing to receive unsolicited offers to buy their shares for much less than market value.

"These unsolicited offers are not in themselves against the law, so your board cannot prevent these repeated approaches."

5) On June 28, 2012 Heartland said it understood Stock & Share Trading Company Pty Limited, which also has Armour as its sole director and shareholder, had written to some Heartland shareholders offering to buy their shares for 30c each versus the market price of 53c.

6) And on March 27 last year Heartland said Stock & Share Trading Company was offering 40c per share, versus the market price of 48c.

Heartland shares closed at 85c yesterday.

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