Trevor Janes is looking weary as he sits in the Abano Healthcare boardroom, 16 floors above downtown Auckland. It's little wonder.
Over the past few weeks the healthcare firm's chairman has been at the centre of a nasty, rather unusual corporate stoush.
In one corner are Peter Hutson and James Reeves, the dissident investors who own about 19 per cent of the NZX-listed firm that operates the Lumino the Dentists chain and other health-related businesses. They are highly critical of the company's financial performance, especially in its dental division, and want big changes, including the dumping of Janes and changing the board.
On the other side of the ring are Janes and his fellow Abano directors, the Shareholders Association and institutional investors including Fisher Funds and Milford Asset Management.
Hutson and Reeves claim their attack on Janes isn't personal, but the chairman says it doesn't feel that way.
"I'm not enjoying it," he says. "It's awfully tempting to start firing back but I'm not going to lower myself to that."
Abano chief executive Alan Clarke says the dispute with Hutson, the firm's biggest shareholder with about 14 per cent, has been damaging.
"This airing of everything in public is destructive," Clarke says.
The animosity goes back to a takeover bid for Abano by Australian private equity firm Archer Capital last year.
Hutson and Reeves supported the bid -- made via a highly conditional scheme of arrangement, meaning it required only 75 per cent support rather than the usual 90 per cent -- which the board rejected.
The pair remain sour that Archer's $7.80 a share offer wasn't presented to shareholders except "in passing" at last year's annual meeting, when Reeves says it was swiftly dismissed with an "erroneous" Grant Samuel valuation of $8.30 to $10.05.
"That was probably the day I became an activist," Reeves says.
Abano shares closed at $7 last night and have gained 9.9 per cent since the start of the year.
The takeover proposal would have given Abano's 50 per cent share in its audiology business, Bay International, to Hutson for a "nominal sum".
Bay, a joint venture between Hutson and Abano, has been losing money for years and Abano has poured around $33 million of shareholders' money into it.
The Shareholders Association came out in support of Janes this week, when it expressed concern about the Bay International arrangement in last year's takeover bid. Association chairman John Hawkins says the deal would have effectively handed Hutson the $33 million of shareholders' cash that Abano had put into Bay International.
"NZSA cannot imagine how this could be considered to be in the interests of all shareholders and it raised serious questions over the credibility of the offer."
Hutson and Reeves' criticism of Abano goes beyond financial performance into corporate governance. They say Janes' role as deputy chairman of ACC, a 6 per cent shareholder in the healthcare business, calls into question his independence as a director.
As well, the pair say, Abano investors haven't been properly informed, at annual meetings, of Janes' former position as a director of Capital + Merchant Finance, which collapsed in 2007 owing investors $167 million.
His history with the finance firm -- he left the company a year before its collapse -- was included in the prospectus for the listing of Mighty River Power, of which he was a director until last year.
Janes says annual reports, which are presented at annual meetings, are very different to prospectuses.
"I didn't do anything wrong in the Capital + Merchant situation, otherwise you could absolutely bet money on the fact that somebody would have charged me with something."
The rebel shareholders have requested a special meeting that will take place on Black Friday next month, June 13, and give investors a vote on whether Janes stays. As things stand, Hutson and Reeves don't appear to have a lot of support, other than that of fund manager SuperLife.
Brian Gaynor, executive director of Milford Asset Management, which holds a roughly 3 per cent stake in Abano, says his firm will be voting in support of the chairman.
"He [Hutson] is very disruptive," Gaynor says. "If he is to gain control of the board it will be to the benefit of one person -- Peter Hutson -- rather than to all the shareholders."
ACC investment manager Nicholas Bagnall says his organisation will base its vote on the advice of Institutional Shareholder Services, a provider of proxy voting recommendations.
"The reason we are voting this way is to alleviate any perception that our voting might be influenced by the fact of Trevor Janes being on ACC's board and chair of the board's investment committee," Bagnall says.
Murray Brown, senior portfolio manager with Fisher Funds, which holds around 8 per cent of Abano's shares, says his firm supports Janes.
"If Peter Hutson and James Reeves want to exert control over the board and company, they should make a full code-compliant takeover offer for the company which includes a control premium," Brown says.
Retail shareholders are understood to own around 35 per cent of the company and will play a key role in deciding Janes' future with Abano.
The Shareholders Association says it will vote undirected proxies against the proposal to remove him.
Hutson, an audiologist by trade, became involved with Abano when it bought a 70 per cent stake in his Bay Audiology business in 2006.
The audiology business was a great success and its New Zealand assets were sold to National Hearing Care in 2010 for $157.8 million.
Bay International, the audiology business in Australia and Asia, was not part of deal -- hence its continued status as a joint venture between Abano and Hutson.
Hutson says Abano is heading for a "hard stop" unless it gets its debt -- forecast by the company in March to be "less than $80 million" by May 31 -- under control. "At a certain point that debt burden makes the company very vulnerable to unexpected events. It's starting to get very highly leveraged."
Clarke says Abano's debt is prudently managed. "We can write a cheque today for about $50 million, with the complete support of our bank."
Hutson says the board needs more "operational experience", especially in dealing with the clinicians who run Abano's businesses.
Clarke rejects this, saying the board -- which also includes The Warehouse Group chairman Ted van Arkel and former pharmacy operator Susan Paterson -- has plenty of operational expertise.
A major bone of contention is Abano's dental division -- Lumino the Dentists in New Zealand and Dental Partners in Australia -- which makes about 69 per cent of gross revenue.
The company made 16 dental acquisitions during the first nine months of its current financial year and now has more than 150 practices in New Zealand and Australia.
Hutson and Reeves say the earnings before interest, tax, depreciation and amortisation (ebitda) margin -- a measure of a company's operating profitability -- in Abano's dental practices leaves a lot to be desired and is inferior to that of other corporate dental operators.
"They acquire dental businesses with a 20 per cent ebitda margin and when they consolidate it into the Abano business it's 10 per cent," Reeves says.
Clarke says the criticism of the dental division is based on incorrect information.
"They've compared us against other companies that are at a different stage of growth or are static organisations that aren't growing."
Hutson says the 60 per cent rise in net profit Abano has forecast for the current financial year is coming from a turnaround in the audiology business, which is masking declines in other divisions, such as dental.
But Clarke says Hutson was in charge of the audiology businesses while the worst losses were being incurred and the turnaround is the result of a new management team appointed in the past 18 months.
Craigs Investment Partners, which recently upgraded its recommendation on Abano stock to "buy", is forecasting the company's dental ebitda margins to grow from 11.7 per cent in the last financial year to 13.4 per cent by the 2017 financial year.
Clarke says it is correct that owner-operated dental practices have an ebitda margin of around 20 per cent. But consolidating the acquired dental practices into one company -- and all the costs such as branding and marketing that come with it -- is a costly process that puts pressure on margins, he says.
Clarke says Abano's dental ebitda margins are expected to "migrate" towards 15 per cent over time.
Hutson and Reeves yesterday called for "public debates" before audiences to be held between Hutson and Janes in Auckland and Wellington before next month's special meeting. Clarke says the request is "bizarre" and the company won't respond to it.