Gaynor on Wednesday: Heatley faces challenge at eVentures

By BRIAN GAYNOR

A war of words has broken out between Miami and New Zealand, with Craig Heatley at one end and Dr Roderick Deane at the other.

At the centre of the dispute is an arrangement by Mr Heatley to buy 160 million eVentures shares from eVentures Partnership for 14 cents a share. This would have given Mr Heatley 200 million shares or 80 per cent of the company at an average price of 14.2 cents a share.

The remaining 50 million shares were sold to the public (35 million) and Telecom, Todd Capital and The Warehouse (5 million each) last year at 60 cents a share.

At the time of the announcement, the company's three New Zealand-based directors, Dr Deane, Stephen Tindall and Robert Bryden (Steven McCollam is overseas), were working on a proposal to wind up eVentures. The company was going nowhere and eVentures Partnership had opposed a number of promising investments because it had decided to sell out.

Under the liquidation proposal, eVentures Partnership and Mr Heatley would have received between 13 and 15 cents a share and the remaining shareholders between 40 and 60 cents. If the two controlling shareholders were paid 14 cents a share the others could have received about 47 cents a share.

Based on this proposal, the two main shareholders and the minorities would have lost $2 million and $6.5 million respectively but the minorities would have got out well above recent sharemarket values.

Mr Heatley was totally opposed to the liquidation process because he saw a long-term future for eVentures and did not want to sell his 40 million shares below cost.

The Miami-based former chairman negotiated to buy 160 million shares from eVentures Partnership and at the same time entered discussions with the New Zealand-based directors to sell these shares to the company. Mr Heatley may have used these shares as a lever to terminate the liquidation discussions.

Based on the early stock exchange announcements, dated May 21, it appeared that Mr Heatley would become the beneficial owner of the 160 million shares, but two days later he announced that he would on-sell them to eVentures at his purchase price plus cost.

Mr Heatley argues that the 160 million share cancellation is in the best interests of minority shareholders because the company's cash asset backing goes from about 21 to 34 cents. But Mr Heatley also benefits from the transaction because his shareholding increases from 16 to 44.4 per cent and his 40 million shares also have a cash asset backing of 35 cents compared with a purchase price of just 15 cents.

On the other hand, Dr Deane takes the view that the liquidation proposal would have given minority shareholders about 47 cents a share, whereas the current outcome is more beneficial to Mr Heatley than any other shareholder.

Dr Deane has now resigned from the eVentures board and Mr Heatley is expected to be reappointed as chairman.

As the new chairman was the main opponent to liquidation he has a big responsibility to ensure that eVentures gathers momentum. His indication that he will stay away from New Zealand for a further two years, that staff will be let go and its office lease terminated is not a positive step in that direction.

Telecom

Telecom announced this month that Microsoft would make a $300 million investment in New Zealand's largest listed company. The investment will be in the form of convertible notes, with a seven-year maturity, that may be converted into Telecom ordinary shares.

The announcement received relatively little attention because it was included in the third-quarter profit release which also contained details of Telecom's 3G (third generation) joint venture with Hutchison in Australia.

The press release put a very positive spin on Microsoft's investment. It said it was part of an agreement that would unite the Xtra and MSN (Microsoft) internet portals in New Zealand.

The release went on to say: "Under the XtraMSN agreement, Xtra will manage the operation, development and marketing of the new consumer portal. World-leading MSN services including MSN Hotmail, MSN Messenger, MSN Communities and MSN Search will combine with Xtra's popular news and information channels to form XtraMSN." It sounds like a win-win situation for Telecom, but Microsoft is a tough corporate cookie, as the antitrust case has shown.

It has been criticised for extracting value from companies it has invested in by convincing these companies to use Microsoft services or by getting access to their customer base and bombarding them with Microsoft products.

A number of questions need to be answered about the Microsoft internet deal:

* How will Telecom and Microsoft share revenue?

* How much will Telecom pay Microsoft in annual licensing fees?

* Will Microsoft have full access to Xtra's database?

* What impact does the Microsoft deal have on Xtra's valuation?

Telecom shareholders deserve a far more comprehensive outline of the Microsoft investment.

After all, it is not too long ago since two other United States companies, Ameritech and Bell Atlantic, sold out of Telecom after extracting full value for their investment.

* bgaynor@xtra.co.nz