The Stock Exchange clobbers the small fry

LIKE any institution, the Stock Exchange has rules and regulations which govern the behaviour of its members and those companies quoted on it. Unlike in the USA where the Market is governed by a statutory body, the Securities and Exchange Commission, markets in these islands are supervised by self-regulatory bodies like the Quotation's Committee and Takeover Panel. The decisions of these bodies sometimes seem arbitary and unfortunnately are not readily amenable to any judicial appeal machinery. And worse of all, it is sometimes the innocent small shareholder who is hurt by the very implementation of rules which were originally designed to protect, not damage.
Originally companies quoted on the Stock Exchange in Ireland had their market regulated by a committee of Irish stockbrokers based in Dublin. Seven years ago, however, the Irish Stock Exxchange agree to give up its autonomy and merge with all the other Stock Exchanges in the British Isles under The Federation of Stock Exchanges. This meant in pracctice that it was the London Stock Exchange which dictated.

Unfortunately what may be suitable for regulating the market in the shares of giant billion pound. companies like I.e. I., B.P., Unilever, and Shell is not likely to be also suitable for companies thousand times 'smaller like, say, the quoted Smyth & Co. out in Balbriggan or the Irish Aluminium Company down in Nenagh. As the majority of Irish companies are tiny compared to their British counterparts, what is appropriate in London may not be so in Dublin. Added to this, the physical and, probably more importantly, the physchoological gap between Dublin and London has not helped to smoothen out the working of the Stock Exchange in Ireland.

The most recent example of the way London sometimes handles Irish commpanies was when two months ago it decided to suspend the Green Group. It did this because a sale of assets had occurred for which the Stock Exchange demands a full disclosure to shareeholders. Unfortunately the buyer of the asset, (shares in Mills & Allen) was Hambros Bank Nominees, part of the London City establishment. Hambros refused to supply full details of the ultimate buyers and so made it imposssible for The Green Group to comply with Stock Exchange requirements. It so happens that Hambros were able to get Stock Exchange approval for their part of the deal despite the fact that inside tradding was involved something that is shortly to be made a criminal offence under the proposed new British Companies Act.

The London Stock Exchange have also been instrumental in suspending the shares of a number of other Irish companies. The most significant of these are Braids and J. c. Mooney. The effect of these latter two suspensions has been that no shareholder in either company can deal in the shares. They cannot buy or sell and additionally have absolutely no idea of how much their shares may be worth, if anything. The Stock Exchange simply seems to have wiped its hands clean of anything further to do with these despite the damage this has done leaving small shareholders locked into an investment they may now be desperately anxious to sell.

NOT all companies seem to get the same treatment and this applies on both sides of the water. The most recent case of an Irish company ignoring Stock Exchange regulations concerns the Ferrier Pollock Group. Earlier this year Ferrier reached agreement to buy the wholesale drapery division of Switzers, the company in which Waterford Glass has a controlling 60% stake. As this busiiness is almost as substantial as the whole Ferrier Pollock Group itself, Stock Exxchange regulations require that a Class One disclosure document be published.

So Ferrier Pollock has ignored issuing mandatory documents in this instance where the size of the transaction clearly demanded one. And even if Ferrier was able to get away with this, it is imposssible to see how it could have ignored the additional requirement where the directors concerned have a personal interest in the transaction. In this case, Paddy McGrath and Noel Griffin were intimately involved with both sides of the transaction. McGrath is chairman and the largest single shareholder in Waterrford Glass whose chief executive is Noel

Griffin, and the latter is also chairman of Ferrier Pollock as well as being its largest single shareholder along with Paddy McGrath through Kilbride Holdings which has 42.5 per cent stake in Ferrier.

This all brings back memories of Dermot Ryan who in recent years has really been messed about by the Stock Exchange. The most outrageous example of this was when one of R.T.D.'s subbsidiaries Motor Cycle Equipment, was selling a small warehouse on a sale and leaseback basis to one of the latter's directors. The deal involved about 51 per cent of R.T.D.'s assets and so was not really that significant.

As a director was involved it was fair enough that the Stock Exchange should demand that the terms of the deal be dissclosed. But this could have been done simply by releasing the terms to the press and then incorporating these with the next set of accounts to shareholders and possibly even demand that the deal should be approved by a special resoluution. As it was the Stock Exchange demanded that R.T.D. should circulate a Class Two disclosure document. This cost R.T.D. £30,000 by the time it had paid off its bankers, accountants, valuers, and other hangers on, something that R.T.D. could little afford at the time.

If Ferrier Pollock had actually dissclosed to the press the actual full details of the deals with Waterford Glass there would be nothing to complain about. If Griffin and McGrath were able to kick the Stock Exchange's Quotation Commmittee up the backside then it could only have done good. It might have taken the pressure off some of those less influential companies which have had to cross swords with the London Quotation Committee which has demanded dissclosure documents about even the simplest deals even if this does cost up to £50,000 a throw nowadays.

In the purchase of the Switzer/Todd wholesaling operation, Ferrier is selling Switzers some properties in Sth. William St. adjoining the rear of Switzers' Grafton St. store but this will do little to offset the cost. The goodwill' of Switzer/Todd is coming for £50,000 but its stock is going to cost £1.4 million, something that will more than double Ferrier's borrowings to £2.6 million and so force it back into a highly overgeared situation with a debt/equity ratio of over 200 per cent. The deal, of course, is only effective from the close of Ferrier's last accounts so is not incorporated in its last balance sheet. If the Stock Exchange were to force any company to comply with its disclosure regulations then Ferrier Pollock is clearly the sort of case I that does need this treatment. It seems I the Stock Exchange is avoiding battle l with big business in order to persue the smaller fry.

Jack Maloney