Share Investor

Wednesday, September 15, 2010

Ecoya Ltd: Trilogy Purchase Dumps on small shareholders

I seem to have developed an even more keen sense of moral outrage than I usually do and have expressed it over the last few months but there is just so much dodgy stuff out there when it comes to business, financial markets and investing in general.

The rushed purchase last week and subsequent capital raising of Trilogy Skincare by Ecoya Ltd [ECO.NZX] raises some questions about shareholder rights and the responsibility of the NZX as the regulator of the New Zealand stockmarket to protect those shareholder rights.

In a statement to the market yesterday Ecoya management gave the reasons why they "had to act swiftly" and applied and received a wavier from the NZX to make the purchase of Trilogy without obtaining shareholder approval:

"The Proposed Acquisition needs to be executed swiftly as ECO is part of a competitive bid process. If ECO is required to obtain a shareholder vote in respect of the Proposed Acquisition, there is very real likelihood that this would compromise ECO’s position in the competitive bid process, by making ECO’s proposed deal a less competitive option for the vendor."

All well and good but smaller shareholders in ECO didn't have the opportunity to say yey or nay to the deal and the NZX, once again, allowed ECO management and big shareholders in ECO to have rights above the small investor.

Ecoya management say the deal will be good for the company and provide a good platform for growth where Trilogy has markets and Ecoya doesn't but shouldn't it be put to a vote so the owners of this business can have their say?

I think so!

Why bother being a shareholder in a company if you don't feel you have some sort of ownership in the company, albeit a small one.

That is part of the rights of being a shareholder and half of the fun of owning a share in a public company.

If Ecoya management want to run the business in this way why the hell did they go public at all. Complete control of this public company would have been more appropriate if they didn't list.

I asked CEO Geoff Ross in a Share Investor Q & A in July 2010 why he listed such a small company instead of raising private capital and he gave the following reasons:

"We chose to list on the NZX because even though a small raise, it provided a good structure for our capital requirements – a fair valuation and the warrants to raise further capital as our business grows. Being a listed company also gives a credibility when operating in international markets. You are taken with a degree of seriousness when dealing with large clients such as department stores and also your key suppliers".

All credible reasons but how about looking after the shareholder by adhering to NZX shareholder rights?

Ecoya Ltd @ Share Investor

Share Investor Q & A: Ecoya's Geoff Ross
Share Investor Q & A: Questions for Ecoya's Geoff Ross
Ecoya 2010 Full Year Profit: More of the same to come?
Ecoya IPO lights only one end of the candle
Ecoya IPO: A Closer Look
Ecoya Prospectus Requires free registration
Ecoya.co.nz

Discuss ECO @ Share Investor Forum

From Fishpond.co.nz

Buy Every Bastard Says No - The 42 Below Story, by Geoff Ross & Justine Troy & more @ Fishpond.co.nz

c Share Investor 2010

Monday, September 13, 2010

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?