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Hanover's winners, losers and whingers

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.
« Code Committee sackings unwarranted7 reasons why Allied's deal will succeed »

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Comments from our readers

On 26 November 2009 at 8:07 am Russell McKenzie said:
All I can say is "Congratulations" and "thankyou" to Allied Farmers!
The minute I read about Rob Alloway and his plans I felt a whole lot better...It seems to me that we now have a good solid Kiwi at the helm with both a passion for the job in hand and importantly, a compassion to achieve the best possible outcome for distressed Hanover investors.
Thanks Rob! And all the best for the future.
On 26 November 2009 at 1:45 pm adam smith said:
We should not overlook the fact that Allied Farmers is putting no cash up for this deal. All the details of the deal are not out yet but from what I can see, Allied are offering scrip for the deal. They are going to offer their own scrip for Hanover/United Debentures.
The benefit for Allied is that they increase their equity from say $12m valued at current market price to say $412 m if they pay $400 m for Hanover/United debentures (by issuing say 1.2 billion new shares).
First round all that happens is that the ownership of the H/U debentures changes hands from investors to Allied. There then has to be a deal whereby Allied gets its hands on the loans in return for its debentures in H/U.
Note that at this stage, no cash has changed hands.
Allied has grossed up its equity by $400m. They might have to write down these acquired loans at some stage but that doesn't really matter to the company as they never paid any cash for them anyway. If the loans turn out to be worth only $200m, they write their equity down by $200m but they still have $212 m left!
Arguably former H/U debenture holders end up the same as they would have been if they hadn't sold.
But the existing shareholders in Allied take a bath. Somehow there is some compensation mechanism for them going to be available. Exactly what? Are they going to be issued enough free scrip to try to bring the value of their new holding back to square 1?
H/U debenture holders who think they would be better off with ALF shares seem to me to be pretty deluded. A fair number will probably think they will be able to sell their new shares in ALF at or around the effective issue price. Dreamers. Shares on issue will grow by perhaps 35 times. Who is the buyer prepared to stand and hoover in the deluge of shares these sellers own? How low will teh ALF price drop after the deal?
If ALF staff are going to be miles better at collecting H/U loans than Hanover's staff, why not put H/U into receivership now and have the receiver hire ALF's collections team on a success based fee. That will give ALF some much needed revenue. Oh, but that won't inflate the ALF balance sheet.
I look forward to seeing the devil in the proposal.
Also I won't be surprised if Grant Samuel's Independent report on the deal, (based on numbers provided by H/U and/or ALF) doesn't give the deal a big tick. A Prize for the person who can tell us when was the third time Grant Samuel poured cold water over a proposal?
On 30 November 2009 at 8:55 am john graham said:
i'm an investor in HANOVER FINANCE ,and have no faith in any scheme agreed to by watson and hotchen ,i rather see receivers appointed and put this mess behind me ,i want no business dealings with these two sleeze bags ,i am annoyed with my self that i ever invested with this company ,but the assurances given to myself and other investors seemed sound ,a curse on their houses ,thousand of new zealanders ,trusted this company ,now many are left with very little ,while these crooks live the high life ,on the millions they drew from the company
On 10 October 2011 at 3:18 pm bruce sheppard said:
Funny looking at these things with hindsight.
Commenting is closed

 

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