Last week, Fletcher Building was one of those companies after being advised by Washington Securities Pty it would make unsolicited offers to some holders of the company's capital notes.
The price being offered by Washington Securities was 80c for each note, which had a principal value of $1 and a current market value of around $1.07. The offer price was 20% less than the face value and around 25% less than the current market value.
Forsyth Barr broker Peter Young said some companies specialised in those sorts of low-ball offers. Legally, those companies could request the shareholders' register of a listed company and make low-ball offers.
''They prey on the vulnerable - talking about no brokerage while not pointing out they are only willing to pay a lower price. Unfortunately, some people don't read the document in full and don't know what the current share price is,'' he said.
Heartland chairman Bruce Irvine said yesterday if Heartland shareholders received an offer to buy their shares, the board ''strongly urged'' them to read and understand any accompanying disclosure document.
''You are not obliged to accept any offer for your Heartland shares,'' Mr Irvine said.
The board recommended shareholders read the disclosure document to check exactly who was making the offer and they should not assume that any offer was being made by, or on behalf of, Heartland.
The current market price was available on the NZX website and in newspapers, Mr Irvine said. Shareholders should also make sure they understood when and how they would get paid. It might be that they would not get paid for some time after they had handed over their shares.
If that was the case, the true value of the offer might be much less than it appeared because they would have to wait for their money, Mr Irvine said.
There was also a risk the person making the offer could go out of business in the meantime and be unable to make promised payments, even though shareholders had handed over their shares, he said.
The Financial Markets Authority last year put out new rules regarding low-ball offers.
The authority said it was not illegal to make an unsolicited offer to buy someone's investments, or to offer to buy them at a price below their current market value.
However, the law required such offers must not be misleading or deceptive and that, in most cases, key information be disclosed, including a recent market price of the fair value of their investment.
If investors had accepted a low-ball offer, and then changed their mind, they had the right in most cases to cancel the resulting agreement provided they did so within 10 working days of acceptance, the FMA said.
At a glance
Low-ball offers are unsolicited approaches to shareholders offering to buy their shares or other securities. Offer letters put pressure on people to sell their shares quickly, often with little information and using unconventional business practices.
They prey on the vulnerable - talking about no brokerage while not pointing out they are only willing to pay a lower price
