‘Low ball’ offers still find takers, despite regulation, says FMA
The Financial Market Authority said complaints about 'low ball' unsolicited offers for stocks and bonds have dropped since new regulations last year, but some investors are still accepting deals at discounted rates.
The new regulations to govern how unsolicited offers to investors can be made, including stricter disclosure requirements and imposing minimum offer and cancellation periods, came after a series of deeply discounted offers made by Bernard Whimp were deemed misleading and deceptive by the High Court in 2012.
It was only aware of two companies making unsolicited offers under the new regulations, which require companies to notify the issuer of the security about the approach. Washington Securities and Zero Commission New Zealand began approaching investors last year, said the regulator in its report.
Australia-based Washington has ceased operating in New Zealand, but appeared to have offers to "tens of thousands of investors" within a discounted range between 25 to 75 percent. Owner John Armour had previously drawn the regulator's ire when his Stock & Share Trading Company attracted a significant number of complaints for 'low ball' offers.
The FMA was aware of 521 acceptances of Washington offers, of which 125 acceptances, spread across a range of offers, was estimated at an average total discount of $1,154 on market value. The remaining 396 related to one investment and based on market price averaged a $225 discount per investor.
Since February last year Zero made offers to investors in nine companies, with 1,275 acceptances on offers that were at an average discount rate of 10 percent, or about $45 discounted on market value to each investor, the FMA said.
NZX-listed companies such as Property For Industry, Mainfreight, Heartland New Zealand and Tower have all had investors approached by Washington and Zero, and have warned investors not to accept their offers. Last year Heartland tried to head off low-ball offers to its investor base with a plan to pick up the broking fees for small shareholders who want to sell.
Complaints received by the FMA have dropped to six since the regulation was introduced in December, compared to 22 in the previous three months, the FMA said.
Typically investors are approached by post after the offering company acquires details of a company's share register from the securities issuer, which it is required to provide on request. Some issuers now put watermarks on their registers to make it more difficult for data to be extracted, FMA said.
The authority said it continues to receive complaints going back several years related to Bernard Whimp and associates.