Big groups’ arcane practice must cease

THE cloister-type existence of the ordinary shareholder, who has to depend on divine inspiration rather than raw data for investment insights, manifested itself again this week in the Arcon affair.

In short, big companies lack candour and tell small shareholders little or nothing. This arcane practice has to come to an end if investors are to have faith in equities in the long term.

The high priest of Irish business, Tony O’Reilly, is to divest himself of his troubling stake in Arcon International Resources plc. The sale of one of the world’s richest zinc mines at Galmoy in Co Kilkenny, comes when zinc prices are at a seven-year high and climbing.

Mr O’Reilly holds a controlling 65.17% of Arcon and this week decided to sell off Arcon to the Lundin Mining Corporation at a discount price of €48 million and a 14% stake in the Lundin.

It is expected the deal will bring in €31.3m in cash for Mr O’Reilly and give him a personal stake of close to 9% in Lundin.

Amazingly, Arcon is spinning the deal as a merger when, in reality, it is a takeover by Lundin.

This is not the only sleight of hand being experienced by the small shareholders who have invested their hard-earned cash in Arcon.

There are elements of the process of takeovers and mergers that defy ordinary logic. The Irish Takeover Panel (ITP) oversees this type of activity, but there is much that is arcane and quite simply baffling about the process. The ITP appears to be happy with the manner in which takeovers and mergers take place in this jurisdiction.

It is now almost certain that ordinary investors will not have the Arcon interim accounts for the year to the end of December 2004 to hand when they come to make their decision on the merger. They may as well be cloistered nuns for all the information they will have at their disposal when they make a crucial investment decision. This is simply not the way to do business. On September 28, 2004, Arcon released its interim results for the six months to the end of June 2004. That information is now out of date. Surely it is not beyond the competency of the board to arrange for the annual accounts to be released before investors decide on the Lundin offer, it does require 80% shareholder approval.

The boards of Arcon and Lundin have in effect agreed a merger and Mr O’Reilly has said he is happy to take the deal on offer.

Yet, Arcon’s statement announcing the “merger” stated: “An independent committee of the board of Arcon will be established for the purposes of considering the offer, if and, when it is made. Davy Corporate Finance Limited have been appointed to provide independent financial advice with respect to the offer, if and when it is made.”

The word independent appears twice in the Arcon statement and both references are in the above paragraph. The procedure outlined is the normal and totally accepted practice in takeover/merger situations.

However, it presents a conundrum: If the board of Arcon has agreed the merger in principle, then how can a subset of the board suddenly become independent of the main board on a decision that has already been made?

Limited is as fine a company as you could hope to have by your side in times of corporate strife.

Its sister company, Davy Stockbrokers, has been long-term brokers to Arcon. While there is absolutely no doubt that Davy Corporate Finance Limited will execute its duties as well, if not better, than any other advisers that could have been chosen, the optics could be improved.

Independence, like justice, has to be seen to be so.