Gaynor on how mixed ownership can be a win-win

An excellent column by Brian Gaynor:

The writer expressed his strong opposition in the following way: “The [] represent asset stripping. They are publicly owned by everyone, including poor people. The dividends they produce will no longer be returned to the population as a whole but to a small, wealthy minority. There is no innovation or expansion, just a continuation of the rich getting richer, and the poor poorer”.

Gaynor first points out:

The first point is that the sale of 49 per cent of MRP to 300,000-plus New Zealanders is not asset stripping as none of the company’s assets will be sold for the benefit of the Crown or the new minority shareholders.

And in fact a mixed ownership model will allow the former SOEs to acquire more asset and expand, if they so wish.

The second point is that the Government will continue to receive 51 per cent of MRP’s dividends and the payout should increase in the years ahead.

is a good example of this.

The Mount Maunganui company listed on the NZX in March 1992 after the public acquired a 44.7 per cent shareholding. The Bay of Plenty Regional Council owned the remaining 55.3 per cent.

Port of Tauranga paid a total dividend of only $2.2 million in the year before its NZX listing and the Regional Council’s shareholding was worth just $44 million at the $1.05 a share IPO price.

Twenty years later the Bay of Plenty Regional Council’s economic interest in the port company has increased as follows:

The council’s shareholding has declined from 55.3 per cent to 54.9 per cent but the value of its holding has soared from $44 million to $1.015 billion.

The council now receives an annual dividend of $34.6 million from the port company compared with just $2.2 million when it owned 100 per cent.

This is the model that the unions and their allies have tried to destroy.

Everyone is a winner – the Bay of Plenty Regional Council and its ratepayers, Port of Tauranga’s minority shareholders and the company itself.

It is totally inappropriate to look at partial privatisation as a zero sum game, a game where there must be a loser for every winner. Partial privatisation can lead to a substantial increase in value and income for a regional council, or the government, if the listed company is well governed and managed.

Absolutely. There can be no argument that privately owned and managed companies do better overall than wholly owned public ones. By this I do not mean no private companies fail and no public companies succeed. Of course not. But if you look at decades of economic data across OECD countries, the difference is stark.

And Gaynor gives a local example:

In the following 12 years, before the company was taken over by its majority shareholder, the Auckland Regional Council’s economic interest increased as follows:

The council’s shareholding remained at 80 per cent but the value of its holding soared from $318 million to $678 million at the $8 a share takeover price

The council’s annual dividend from the port company jumped from $8.5 million to $34.3 million.

The company’s performance has been poor since it was fully acquired by the Regional Council, now Auckland City, in 2005.

Auckland City’s annual dividend has fallen from $34.3 million in 2005, when it owned 80 per cent of the company, to $20.1 million in the June 2012 year, even though it now has 100 per cent ownership.

When a company is 100% owned by the Government (or a Council), it will make sub-optimal decisions due to influence of the shareholder.

If they are listed on the NZX they have a legal duty to treat all shareholders equally and do what is best for the company as a whole. If the major shareholder wishes to influence their decisions they have to do so transparently through public shareholder resolutions.

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