Finding Sharp Knives In The NZX Haystack

Not quite there yet.....



Quality Senior business reporter Jenni McManus has had a first crack at unraveling the mystery that is the NZX buy-in to rural publications.

Max Bowden, from Trans-Tasman et al has launched a Commerce Commission complaint regarding the proposed purchase by NZX of publisher Country-Wide. While there is limited chance of success with a bunch of head-nodders that work at the Comm-Comm, it highlights broader issues of the stock market regulator participating in the market to this extent. As McManus notes:

At issue: whether an organisation calling itself a regulator should be cornering the market in anything, let alone a commercial enterprise, by acting as both a player and the market enforcer.

Of contrast to McManus' reporting is this interview with current owner of Country-Wide from TVNZ's Business show. This must be one of the most pathetic attempts at questioning a guest I have seen in recent memory. This weak excuse for a pretty-boy interviewer Corin Dann needs to just disappear back to the make-up room. There is no point to his existence if he allows guests on to his show to ramble their party lines for 4 minutes. He interrupts for a grand total of 3 questions in the full four minutes. Is that even allowed in the TVNZ Charter?

The "Great Man" himself answered the criticism in the bold, bullying style we have become accustomed to from someone who hides behind accusations of "tall poppy syndrome" suggesting everyone is mad for making up conflicts and it's all the work of his competitors.

NZX chief executive Mark Weldon described the criticism as "bonkers". "It is desperate balderdash to suggest there is any conflict of interest," he said.

"I don't think the question is a starter. It sounds like the usual suspects who like to find a sharp knife. It sounds like typical responses from competitors."

Since when do men in their early 40's use the term "balderdash"? It was a most unusual answer from the usually far more polished Weldon. But once again he fails or refuses point blank to see the difference in role between a regulator and a market participant.

When a regulator enters a market of course the market participants are going to complain. Joe Blow from the street doesn't launch a CommComm complaint do they? This isn't a smaller company complaining about a larger one. This is a company complaining about a regulator entering a supposed fair market. That is the refined difference.

Mr Bowden said he was particularly worried about an internal memo sent to staff on Tuesday by NZX business acquisitions manager Rachael Cross.

"The acquisition," Ms Cross said, "will enable us to corner the market as the provider of agri information, news and media on NZ agri sector for farmers and corporates alike".

NZX is not as concerned so much with the free market and providing a level playing field as a regulator than it is building up its own asset stocks for sale from a position of natural market dominance. But lets put the whole of NZX into perspective sizewise:

The New Zealand Rugby Union earns 3 times NZX's operating revenue and has almost 2 times its net assets. New Zealand Cricket has the same operating revenue, Telecom has a whopping 171 times NZX's revenue and 76 times it's net assets.

The wide coverage Weldon's opinions and media comment earn are not commensurate with the size of NZX as a business, or Weldon's comparatively large remuneration package but that NZX is a market regulator. That is why his opinion holds sway because the regulatory arm is the primary purpose of the company.

If it is not then the regulatory arm should be split off and given to a proper independent regulator and Weldon can continue to run the market business any way he likes and good luck to him, he can buy as many publications as he likes. But from a fair position in the marketplace.

I am still in disbelief that New Zealand can have a regulator that has to participate in the market to return profits to shareholders. Any offshore jurisdiction that I deal with that had such a set-up would be chastised by the OECD and FATF for such a conflict, New Zealand must be getting away with it for its perceived "first world" status. It would be the equivalent of the newly heavily regulated and reviewed Cook Islands Financial Services Commission setting up their own trust company to compete against the six licensed companies. Banana republic time indeed and of course the six licensed companies would complain, with good reason.

Weldon should be less worried about knives in his haystack and more focused on providing regulatory and core business objectives from the operational trenches and leave large company CEO's to mooch from the throne of a true free market that NZX is in a large part in charge of creating.

Postscript - NBR has had a go on the "chinese walls" issue and already the comment from Peter Fowler, head of Newsroom has been discredited.

Mr Fowler insisted NZX owning media outlets was the equivalent of Fairfax investing in Trade Me. No it is not. As "Pete" rightly points out, Fairfax isn't a market regulator. Fowler then has another crack comparing it to the Government owning Radio NZ. "Pete" correctly points out not only is Radio NZ a non-profit station (frequently politically slanted as well) there is a separate market regulator for radio.

While NZX doesn't regulate the publications industry, Weldon admits that a business purpose of NZX is to provide information for market participants that it regulates. What better way to do this than through controlling publishing outlets to a large market you wish in the future to include as a capital market participant (agriculture, Fonterra)? If agriculture is not on the wish-list for listings then there is no point of this acquisition at all.