Hanover's winners, losers and whingers

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Wednesday, November 25th 2009, 1:10PM 4 Comments

by Philip Macalister

Boy, the initial reaction to the Hanover/Allied deal was hostile from some quarters. I have to say I have been surprised by some of the comments aired over the deal. Yes it should be no surprise to see some negative reaction, particularly as in some quarters it was portrayed as a get out of jail free card for Eric Watson and Mark Hotchin – and some tried to make a story that they personally were going to benefit. It is good to see a range of comments, but please, no one listen to Bruce Shepherd. He made it clear last year what his views were on Hanover and it seems he is emotionally involved and not particularly objective. Some of the things he has said are blatantly incorrect and designed to mislead. I said in a Blog ages ago that maybe it is time there was a change of leadership at the Shareholders’ Association, and recent events have reinforced that view. After reading Paul Holmes’ piece on Sunday my eyes weren’t just rolling round in my head they had popped out of their sockets. This guy is someone people look up to and listen to. Surely he could have got his facts right first. He proudly admits to being totally ignorant about investment finance so maybe he should have steered clear of the subject or done some proper research. Coming back to the Allied/Hanover deal. In days subsequent to the announcement the attitude and commentary has changed. I note Brian Gaynor’s piece in the Saturday Herald as one example. That is good, as investors need to make intelligent informed decisions, not emotional ones. This is even more important as trying to make sense of whether it is a good deal or not is difficult because it is so complex and we are still to see the details and fine print of the deal. I’ve been leaning on the positive side  of it and if the story today, that another competing bid may emerge, suggests that the deal has some merit and may be the catalyst for a better one. When the moratorium proposal was being discussed it seemed to me sensible that the Hanover loan book was managed by the company rather than receivers. However, that is partially wrong. All the good people in this area have left Hanover and the book probably isn’t being managed as well as it could be. Having a new bunch of managers at Allied running the book and trying to manage it to successful outcomes is a better idea. I prefer it to receivers. The view I expressed to someone recently was that if receivers got their hands on the book last year and tried to realise it investors would be lucky to get 20c in the dollar. The market’s been at rock bottom, there are no buyers, no finance and many of the Hanover loans are second mortgages which in this market are next to worthless. Markets go in cycles and if the book can be managed through the troughs then some much better outcomes are likely. Whether the deal will go through is a moot point as there are so many stakeholders. My guess is that getting it through the Allied vote could be the hardest. At this stage it seems there are some winners, particularly the likes of Hanover Capital investors. The Allied shareholders seem protected; Allied Nationwide investors get a stronger company and that leaves the biggest group: Hanover and United debenture holders. They have to decide whether becoming shareholders in Allied is better than having, frozen Hanover debentures being repaid on a long, slow, drip feed basis.

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