Watchdog set to oppose share registry buy-out
Sydney Morning Herald
Wednesday February 10, 2010
A PRE-EMPTIVE strike by the competition watchdog has put a potential kink in the $2 billion float plans for the share registry group Link Market Services and the profit ambitions of its stockbroker, Austock.The Australian Competition and Consumer Commission indicated it planned to oppose Link's $40 million buy-out of the third-ranked operator in the local market, Registries Ltd.The commission is concerned that the deal would create a duopoly between Link and Computershare."The proposed acquisition is likely to have the effect of substantially lessening competition," the commission said in a paper sent to industry participants for comment."[The acquisition] would remove a significant third player, that has the potential to disrupt co-ordinated behaviour . . . The competitive threat from the remaining small firms will likely be weak and there is limited prospect of new entry."Such a market structure is conducive to co-ordinated conduct ... Link and Computershare would each have little to gain from aggressively pursuing market share."It is believed Link and its leveraged buy-out owner, Pacific Equity Partners, are outraged by the commission's stance and will contest it.Share registrars maintain lists of a company's investors and organise mail-outs and meetings, in effect controlling the communications channels with shareholders.The costs of the computer technology involved are high, which the ACCC says acts as a barrier for companies wanting to "switch" registrars.Registries Ltd, the operating arm of the company Newreg Pty Ltd, is seen as an aggressive operator in the market and has plum corporate customers including Harvey Norman, the Seven Network and the poker machine giant Aristocrat.While Newreg generated only $14 million in revenue last financial year, it made an after-tax profit of almost $2 million €” a return of 15 per cent. It also has no debt.By comparison, the parent of Link, Link Administration Holdings, turned over almost $300 million and produced earnings before interest, tax, depreciation and amortisation of close to $50 million.Despite speculation that Link is preparing for a listing, it is believed that PEP has not begun appointing bankers and that October is now the earliest they could go to market.
© 2010 Sydney Morning Herald