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MMG could scupper $140m DNZ float

UPDATED: MMG Advisory Partners has legal advice which could scupper DNZ Property Fund's up to $140 million capital raising and plans to list on the NZX.

Thursday, December 3rd 2009, 5:05AM 7 Comments

by Jenny Ruth

MMG director David van Schaardenburg says his advice is a vote by 75% both by value and by number of holders of DNZ's "A" shares would be legally binding on the company. DNZ has two classes of share with the investors owning the "A" shares and the manager owning all the "B" shares.

MMG's advice is at odds with information in DNZ's prospectus which says the "B" shares holder "control the composition of the board of the company and therefore its ultimate governance function and are able to block any shareholder resolution." The existing DNZ investors have had no opportunity to vote on the capital raising.

MMG has written to DNZ's more than 8,000 existing investors asking them to vote to remove three of DNZ's six directors, Edward Harvey, Mark Hopkinson and former Brook Asset Management chairman Simon Botherway, from the board and to replace them with van Schaardenburg and MMG chief executive Derek Young.

Harvey and Hopkinson are the DNZ investors' representatives on the board.

MMG has a very tight time frame and is asking investors to return their votes by December 9. Although the capital raising offer closes on December 4, new shares aren't scheduled to be allotted until December 16.

"The main thing we're trying to do here is to give them (the investors) the opportunity to vote," van Schaardenburg says.

The letter says MMG opposes the offer because "we believe the terms of the offer heavily favour the management company and new investors at the expense of existing shareholders (you)."

DNZ plans to use $43 million of the float proceeds to buy the management contract from chief executive Paul Duffy and former chairman Alastair Hasell.

DNZ has about 8,200 existing investors, mostly mums-and-dads retail investors who were advised to invest in the 32 Dominion Funds syndicates from which DNZ was formed on the advice of Money Managers, now MMG following a change of ownership last year.

The new shares are priced at 82 cents, a 56% discount on net tangible assets (NTA) after the termination of the management contract, and the value of most existing investors' holdings is expected to fall dramatically. They are also facing a big cut in dividends.

"Things like this are generally bad for our financial markets and the financial community as a whole, not just the affected investors, but the wider community," van Schaardenburg says.


Note: Money Managers founder Doug Somers-Edgar is not invovled in DNZ as previously reported.

« Independent definition a problem for advisersSovereign takes regulation bull by the horns »

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Comments from our readers

On 3 December 2009 at 8:19 am norman said:
Pistols for 2,coffee for 1.
On 3 December 2009 at 9:08 pm graeme pearce said:
there is a letter sent to all shareholders and signed by the then chairman Paul Duffy after this years AGM clearly spelling out what each investors shares were worth.In my view this could be treated as supplying misleading infomation to the shareholders.This could be a breach under the companies act.This was followed with another letter sent by the new chairman in Oct stating that no shareholders value be reduced.This could also be a breach under the companies act
On 4 December 2009 at 12:45 pm Graham said:
What a small victory for the existing shareholders - yes! While not against the share float itself - it was the way it was structered. The two main issues for me were the $43m buyout of the management contract (Duffy and Hasell have already received $16.5m in dividends)and the comtempt with which they have treated existing shareholders - failure to consult. Althought there was no legal obligation to consult, there was certainly a moral one. No wonder investment captial cannot be raised from mum and dad investors in this country. Roll on upcoming shareholder meetings.
On 4 December 2009 at 7:17 pm Graeme said:
Good to see this IPO withdrawn until existing shareholders can make a proper informed decision This had all the markings of yet another shoddy backroom deal that was going to be rammed through
Lets see if they front up now and do it properly We will be watching
On 4 December 2009 at 8:45 pm C & A Mcnabb said:
We agree entirely with the three previous entries but would add the hope that new directors can be found who will exercise some control over the management company. C & A
On 5 December 2009 at 11:32 am Malkeat said:
The statement at the end re Somers-Edgar not being involved in DNZ may well be correct, however, it is well known that he is still calling all the shots in MMG whilst hiding in the background. Investors beware!
On 5 December 2009 at 5:06 pm Michael Donovan said:
Malkeat ...you may have raised what may be the beginnings of much more comments, specifically in regard to the "involvement" of Doug Edgar (in DNZ)??

Maybe it is correct to claim that he has no 'involvement', however, can it be equally claimed that he has no 'involvement' via other attached entities such as trust/s or companies.
I agree with your suggestion "investors beware...!"
Commenting is closed

 

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