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Agony Lance: Slice of the action

I’m violently against the asset sales, but I’m worried I’ll miss out. Should I buy shares in Mighty River Power and the others?
– Johnny Cash, Auckland

lance wiggs idealog agony lance business adviceI’m not a certified financial advisor, and most of all I am not your financial advisor. However, you should frame the question as a financial decision rather than a decision based on what you think about the asset sales policy.

It’s entirely consistent to be against the asset sales in principle, but first in the queue to buy them. The reasons to participate in the sale are the same as the reasons not to sell, namely that these are great assets with long-term potential, that majority ownership should be in Kiwi hands and that they should be run not just for profit, but to make sure that New Zealand itself is efficient. It’s in our best interest, for example, for Air New Zealand to maximise profit by selling more seats rather than becoming a business-class only airline. The more of Air New Zealand’s domestic travellers are shareholders, the greater the leverage to ensure it continues that strategy. A vast shareholding by ‘mums and dads’ will also help electricity companies focus on helping customers manage and reduce consumption, rather than on eking out the maximum margins possible. A company that invests in energy efficiency for customers will retain customers for longer, lower marketing requirements and also lower the power need to invest in new plants. When power companies do invest in new plants, and they should, a large retail shareholder group will help ensure that they should invest in renewable plants, endeavouring to move us towards emissions-free energy production.

So yes – in principle, you should invest, and help these companies stay smart, long-term focused and put Kiwi customers and society first.

The reason so many are so nervous about the asset sales is the cringing example of Bell South’s ownership of Telecom, which was arguably about extracting as much cash as possible in the shortest time, and customers were not so important. That resulted in underinvestment in infrastructure, the wrong technical choices and a legacy of shame. Ownership for only financial gain is something to avoid in all businesses, especially your own. The lesson with the asset sales of the past is to make sure that the business itself stays great, and to do so it should stay focused on a customer cause.

Enough ranting. They are great businesses, with solid long-term prospects that benefit New Zealand. There is little downside in buying into a company with mainly renewable sources of electricity, potentially dam-busting earthquakes notwithstanding.

It all comes down to the issue price, and I can’t really make a comment on that until we see all of the details, and am a certified advisor.