A touch of tartan for Fremantle

HOW curious it is that foreign raiders perceive value in Australian companies that we cannot see, even when it is under our noses.

In September, the Oslo-based Odim Hitec group launched a $44 million Viking kidnap of the Fremantle-based Nautronix marine technology concern. The directors, headed by executive chairman Alan Tribe, met to consider the 65 cents a share Odim takeover bid, and decided to recommend it. A reasonably attentive fly on the boardroom wall would have learned that it was a close run thing.

The clincher was that the market in Nautronix shares, which have been as low as 40 cents in the past year, is as thin as Oliver Twist’s gruel. There are only about 1000 holders. Mr Tribe has a 7 per cent stake, and Colonial First State and Rothschild each has a swag. It was reasoned that it would be risky to hold out the bowl for more. So the Norwegians got the nod, in the absence of a higher bid.

It turns out there was more … but not much. Ian Suttie, reputedly one of the richest men in Scotland, who made his pile in oilfield servicing, has come in over the top of with an offer of 67 cents a share. You might argue that is a tight counter, and Mr Suttie might have dug into his sporran for more. He would certainly retort that his cash is a good as Odim’s, and that Nautronix had already rolled over to the bid. The Fremantle company counts the Australian, American, Singapore and Spanish navies among customers for its submarine ranging and acoustic gear. It has a staff of 300 around the world. Recently, at an Aberdeen trade show, the management showcased its NasNet direction finding system for vehicles operating deep under water. Perhaps someone in the crowd liked what he saw. It could be that Nautronix would never have the funds to effectively develop its inventions, and the company would be better off as part of a larger group. That is a pity, and perhaps an indictment of short-sighted investors. Nautronix is about to step up from a pig’s ear profit of $512,000 last year into a silk purse forecast of $5.1 million this year. If that comes through, someone is going to walk off with the prize for a derisory nine times earnings – and another Aussie good thing is disappearing over the horizon.

Let’s hear it for the men from the fjords. They could at least up the ante.

Crisis as Hong Kong gets Shanghaied

IF you think the Australian economy might overheat and boil over into inflation, consider how that is a problem some of our Asian neighbours would love to have. Donald Tsang, chief secretary of the Hong Kong Special Administration Region of China, says the place is possibly facing its worst economic crisis since the Korean War.

Hong Kong has recorded three years of falling prices. Its unique problem is a currency pegged to the US dollar at a fixed rate of 7.80. That means business can only remain competitive by cutting prices. Retailers do not have the pricing power to pass higher costs on to customers, and shoppers are not about to buy, while goods are getting cheaper and unemployment is soaring. Clothes and footwear dropped in price 5.5 per cent last month. Before you catch a plane, do not run away with the idea it is a cheap place to be. Nowhere that essentially operates in greenbacks could be. The rent on a modest three-bedroom apartment has halved – but you still would get no change out of $A5,000 a month.

The deflation is structural and comes about as a result of the integration into China. Giant corporations as colonial as the Hong Kong and Shanghai Bank are exporting jobs across the border, goods are still cheaper in Shenzhen and 44 million people crossed the Lo Wu border last year to grab bargains.

There is no easy way out of the dilemma. The dollar peg has worked for 17 years.

To break the link now would almost certainly provoke a deeper crisis. Beijing says it is Hong Kong’s problem. It will not happen overnight, but Shanghai will inevitably take over the role of the pre-eminent financial centre in Asia.

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