Mark Hotchin Comes Out Swinging

I have been writing about the takeover of the defunct Hanover Finance Company by Allied Farmers Ltd [ALF.NZX] run by Rob Alloway for over a year now. This merger has turned into a disaster for Allied and Rob as he and his fellow directors failed to do due diligence on the assets Hanover had on its books.

Mark Hotchin ran Hanover into the ground by removing a good portion of its cash as dividends for his own pocket, investing in poor quality assets and hocus pocus interrelated lending.

As big a failure Rob and the deal he did with Hotchin was - and it was a whopper - it comes as more than a jaw-dropper to find out that Hotchin has decided yesterday to come out with his gloves off and take an almighty swing at Rob and the way he is managing the assets that were subsumed from Hanover into Allied.

Please keep in mind that most of these so-called assets are of very low quality and are being sold into a market not this depressed since, well, the Great Depression.

Mark let rip yesterday in a letter posted on Hanover.co.nz:

Over the past 12 months, the Board of Hanover Finance Ltd (Hanover) and United Finance Ltd (United) has been alarmed at the decline and continuing erosion in the value of the assets that were transferred to Allied Farmers (Allied) in the debt for equity swap in December 2009. Increasingly we are being contacted by investors who share this view and are asking what action, if any, we are prepared to take.

Apparently investors in assets that Hanover used to operate and own and lost all their money in are now coming to the very same man who lost that money for advice?

The letter goes on to say that former Hanover assets are being flogged off in "fire sale" and that Alloway has been misrepresenting the financial state of the company to investors before the 2009 merger and defaming Hotchin though the media. This is of course true but Mark has a track record with this sort of stuff himself so can clearly spot this bird even without its feathers.

You can stop laughing now if you like but this might get you going again:

We are no longer prepared to sit aside and allow this to happen and will actively campaign on behalf of shareholders, including seeking to have Rob Alloway removed from the Board of Allied.

So Mark is going to bat for investors in Allied, most of them former Hanover investors. Isn't that like putting Bernie Madoff in charge of the prison accounts?

I am absolutely stunned by the gall of this man in the face of what he has done to thousands of investors in Hanover.

By the way, he will be updating us on his Hanover website as this saga develops.

I cant wait.

Allied Farmers @ Share Investor

Allied Farmers Ltd: You said what Rob?
Allied Farmers: Hanover & Allied close mates
Long Term View: Allied Farmers Ltd
Allied Farmers: Rights Issue Decision
Allied Farmers: Prosecutions should be on the cards
Allied Farmers Fraud passes with little fanfare
Allied Farmers: What's it Worth?
Hanover, Allied Farmers deal more of the same

Discuss ALF @ Share Investor Forum
Download ALF Company Reports

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Hanover's "White Knights" are really daylight robbers
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Allied Farmers Ltd: You said what Rob?

CEO of Allied Farmers Ltd [ALF.NZX] Rob Alloway, has decided, now that the shite has hit the fan again with another "asset" inherited from the Hanover purchase going tits up, that the blame for the parlous position he and his company and its long suffering investors find themselves in is because Messrs Hotchin and Watson from Hanover overvalued the assets that the company had on its books at the time of the merger of Allied Farmers and Hanover back in late 2009:

Mr Alloway said the value of Matarangi provided in the 30 June 2009 accounts, used by investors to inform the eventually successful vote to merge, was "unrealistic".

Mr Alloway didn't pull any punches in his statement, and said the state of Matarangi was symptomatic of many former Hanover assets:

“This is an unfortunate trend we have seen with most of the property and loan assets that were acquired, and further calls into question the real value of the shareholder support package contributed by Messrs Hotchin and Watson at the time of the Hanover moratorium. The investment community should have expected far better oversight of the moratorium from Hanovers directors, valuers, trustees and auditors.” NBR, 18 November 2010

Back in November 2009 (almost 1 year to this day) though Mr Alloway was singing from a different song sheet with the will of a man who had crossed all his Is, dotted his Ts and had the champagne on ice:

"We've left behind all the problems ... this is goodbye Hanover, Mark and Eric.

We've got all the assets and anything that's worth anything and said goodbye to the rest, they can deal with the problems. Any litigation or exposure they have is theirs." NZ Herald November 21 2009.

Alloway was also confident that Allied was more able to recover Hanover's bad loans than they were and we all know that was about as successful as Bernie Madoff would be at making a comeback as an investment adviser.

I posed this question back in April and then June, why are Alloway and his fellow directors at Allied not being prosecuted for a fraudulent prospectus? Fraudulent because the prospectus contained overvalued assets on the balance sheet that Hanover and Allied investors based their decision on to vote for the two companies to merge.

Mr Alloway clearly admitted today that Hanover's assets were overvalued (what most people including me said back in 2009 and earlier.) or what he calls an "unfortunate trend", and that these overvaluations were what investors based their vote on.

An unfortunate choice of words.

What the ***k is he now saying?

He knows now what he should have known back in 2009 but is blaming Hanover for the mess Allied is now in?

It is called due diligence Rob, you didn't do it properly pre-merger and now you are trying to cop out of the blame that lies on you and your fellow directors at Allied.

At the very least put your hand up and do the right thing and take some responsibility.

Allied Farmers @ Share Investor

Allied Farmers: Hanover & Allied close mates
Long Term View: Allied Farmers Ltd
Allied Farmers: Rights Issue Decision
Allied Farmers: Prosecutions should be on the cards
Allied Farmers Fraud passes with little fanfare
Allied Farmers: What's it Worth?
Hanover, Allied Farmers deal more of the same

Discuss ALF @ Share Investor Forum
Download ALF Company Reports


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Allied Farmers: Hanover & Allied close mates

It is funny what you find when you are googling. While searching Allied Farmers Ltd [ALF.NZX] after their late night profit announcement for 2010 out last Friday, I came across this little gem published in April 2007 on the IRG website:

Allied Farmers (ALF) is being transformed from a livestock and rural services company into a major player in finance. Initially its finance arm aimed to service farmers requiring finance in their farming activity. But with the agreement this week to acquire 100% of the shares in Nationwide Finance for $33m, Allied becomes a major player in the field. Nationwide Finance Limited, part of the Hanover Group, is a diversified finance company providing property and commercial finance. It has total assets of approximately $160m, which will be added to Allied’s current finance subsidiary, Allied Prime Finance to give it scale needed to operate successfully in the finance industry. Finance should offset some of the risks inherent in livestock trading and other rural activities.

The thing is, after the receivership of Allied Nationwide Finance (it changed it name to this after the 2007 purchase and its folding into Allied Prime, Allied's own finance company) on the 23 August 2010, it doesn't appear that many knew that Nationwide had a previous connection to Hanover. The much written about purchase of the failed Hanover Groups assets late in 2009 by Allied Farmers seem to have swallowed all the detail in its wake.

Allied Farmers soon retiring CEO Rob Alloway seems to have had a cosy relationship with directors at Hanover over a number of years and you cant tell me that the fate of Nationwide wasn't obvious before Rob and his fellow directors at Allied Farmers bought Hanover's whole kit and caboodle last December.

In 2004 Deborah Hill Cone wrote a very good piece on Hanover as a whole. In it she describes not only the dubious nature of the majority of Hanover's financial health (it had a credit rating below BBB, junk bond status) lending (inter-party stuff) but specifically on Nationwide Finance:

"... related party transactions and Nationwide Finance's reveal a further $13.8 million.

I initially understood that the December purchase (and the previous months of negotiation) was the first connection to Hanover with Allied Farmers but to find that their relationship goes back almost 3 years before that gets me thinking about all the back slapping and secret deals that must have gone on over the years.

Mr Alloway has mislead Hanover investors (and has done so subsequently several times) and his own Allied Farmers investors pre Hanover over the value of Hanover assets and his long term involvement with Hanover makes the December purchase look even murkier.

Is it a case of mates helping out mates?

Allied Farmers @ Share Investor

Long Term View: Allied Farmers Ltd
Allied Farmers: Rights Issue Decision
Allied Farmers: Prosecutions should be on the cards
Allied Farmers Fraud passes with little fanfare
Allied Farmers: What's it Worth?
Hanover, Allied Farmers deal more of the same

Discuss ALF @ Share Investor Forum
Download ALF Company Reports


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Buy The Intelligent Investor & more @ Fishpond.co.nz




c Share Investor 2010

Allied Farmers: Rights Issue Decision

News that Allied Farmers Ltd [ALF.NZ] is asking shareholders to dip into their pockets to keep the company from being flushed down the financial toilet (I use this analogy for obvious reasons) is surely going to be a dilemna for them.

If they do put more money into the company they are risking more losses at a time they probably cant afford it but if they don't what is left of their current investment will be further diluted by a 1:3 rights issue at a 50% discount to yesterdays closing price of 4.2c per share. This must be put into the context though that Hanover investors who not only lost most of their dough while involved with that company then lost more than 80% of what remained when they decided to let Allied take over the assets of Hanover.

The company has a market capitalisation of almost $82 million as of close of market yesterday and this rights issue will add nearly 700 million shares to the current nearly 2 billion outstanding.

The market value of the company is less than 20% of what Allied management valued Hanover assets at in the latter part of 2009.

Investors in Allied must decide whether they are going to put good money after bad and this decision shouldn't be hard given the track record of CEO Rob Alloway and his company thus far.

The risk of investment dilution is far outweighed by the risk of losing even more money and investors, most of whom are 50 plus, should not feel pressured by the company or others to risk more of their money in this pig swill of a company.

The only hope you have of getting a return is for you to either sell now or hang on for a recovery at a undermined point somewhere in the future.

This will not be the last request for more money from shareholders as the company is cashflow poor and will need to bolster its balance sheet again least the banks decide to liquidate.

You must of course make your own decision of you are a ALF shareholder but if you are and have read this, please make the wise decision.

Allied @ Share Investor

Allied Farmers: Prosecutions should be on the cards
Allied Farmers Fraud passes with little fanfare
Allied Farmers: What's it Worth?
Hanover, Allied Farmers deal more of the same


Related Share Investor reading

Hanover's "White Knights" are really daylight robbers
Hanover collapse: It was just a matter of time
Money Managers Saga: 3 Story wrap
Money Managers gives First Step investors the middle finger
Greed is bad: Geneva Finance Folds
Financial 101: Learn before you leap
Kevin's Blog

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c Share Investor 2010