More waiting for Waltus
Waltus' plans to merge 27 property syndicates into one company are on ice for at least a week or two yet, as it waits for a High Court decision following a substantive hearing yesterday.
Thursday, October 12th 2000, 7:06PM
by Paul McBeth
Waltus' plans to merge 27 property syndicates into one company are on ice for at least a week or two yet, as it waits for a High Court decision following a substantive hearing in Wellington yesterday (Thursday).
Most investors have already voted in favour of the scheme of arrangement, but Waltus hit a snag when it went to the High Court for final approval last month. Instead of giving its OK, the Court adjoined until yesterday to hear the objections of a group of investors headed by Auckland-based financial planner Murray Weatherston and Whangarei chartered accountant Brian Moyle.
Those investors say they didn't vote for the proposal, it changes the nature of their original investment and that Waltus should buy them out if it goes ahead.
Stephen Kos, counsel for the group, said yesterday that the arrangement was borne of convenience, not crisis. He said it wasn't compelling as to why the majority should be entitled to tyrannise the minority or why the dissenters should not be bought out.
Kos also pointed out that property conglomerates are currently trading at a substantial discount to net tangible asset backing, anywhere from 14 to 72 per cent on the local market. If dissenting investors simply sold out once the new company was formed, the concern is that they won't get a reasonable price for their holding.
Kos and co-counsel Hamish McIntosh argued that there were reasonable grounds for opposition to the Waltus arrangement. Although it's constituted under Part 15 of the Companies Act and not Part 13 (which has an automatic buy-out provision), they said it shouldn't be forced on dissenting investors and that their protection shouldn't be less than under Part 13.
Meanwhile, counsel for Waltus Property Investments Colin Carruthers QC said that the proposal had received a high level of support from investors. He said that distributions had been cut by a number of syndicates over the past couple of years to provide funds for leasing re-incentives and that had caused financial "inconvenience" for investors as well as lowering the potential sale price of their holding.
Carruthers said that the arrangement would specifically increase and then maintain distributions for all investors and would maximise price and liquidity in the secondary market.
Master Thomson, who heard the case, is expected to make a judgement within the next fortnight.
One of the key differences between the syndicates (which each invested in a specific property) and the new proposal that Kos highlighted yesterday was the right of any investor in the original syndicates to require the property's sale and a return of capital after ten years. He said that ten-year exit right was emphasised in syndicate prospectuses as late as 1996 and was also in the July 2000 Investment Statement for the arrangement.
However, he referred to a document Key Criticisms - Our Response issued before the recent shareholder meetings, in which directors said that right had gone as a result of changes made to the Companies Act 1993.
Another issue, argued in court by Hamish McIntosh, was that some $2.95 million worth of prepaid corporate management fees didn't appear to be accounted for or be considered when calculating conversion values from the syndicates to the new company. He said that investors had pre-paid management fees for ten years at three per cent of the property purchase price so the individual syndicates (which were set up at different times) had fee credits of anywhere between zero and $666,000.
Meanwhile, Carruthers stressed that the majority of shareholders had approved the Waltus proposal. He also gave a number of reasons for having no buy-out provision: one was that it was unnecessary as the resulting securities would be liquid compared with units in the existing syndicates while another was that there was no money to do so: if the Court ordered a buyout, the arrangement wouldn't go ahead.