Stock takes: Christmas is coming

The way critics of the deal would have it, Hanover and United debenture holders voting in favour of Allied Farmers' equity for debt proposal is akin to turkeys voting for Christmas.

Then again it could prove to be the best Christmas pressie ever.

Stock Takes doesn't know whether it's a good deal or not for debenture holders. But with devices such as the lower moratorium repayment forecast a couple of days before the deal was unveiled, it looks as though they're being deftly steered toward a particular outcome.

We know Grant Samuel has concluded the deal is "fair" to debenture holders, although they won't get the report until next week. We live in hope that its contents and additional material from the trustees will provide sufficient information for those with the requisite financial acumen, if not investors themselves, to gain some real clarity about the merits of the proposal.

Stock Takes is not, as one figure within the Allied camp suggested this week, "out to kill the deal".

That comment was made after we'd found the Grant Samuel report's conclusions had been prematurely issued by Allied Farmers this week and the previous day reported the possibility of a rival offer.

The report's finding were always going to be news, more so for having been leaked and particularly as the source was Allied. Allied's Rob Alloway told us the document containing the material had been proofed and checked by the company's lawyers Minter Ellison Rudd Watts and Hanover's hard-working legal advisers, Chapman Tripp - Doh!

Even as we were looking at Grant Samuel's conclusions in black and white, Hanover's spokeswoman was refusing to confirm the report had been completed. I dunno, maybe the conclusions were completed before the rest of the report.

NAUGHTY OR NICE?

As for the rival offer, it is entirely possible that we're being fed this stuff by someone who for whatever reason wants to disrupt Hanover and Allied's deal.

But yesterday, our source maintained there was still "a pretty good chance" of an alternative proposal. If the offer came, it would have some similarities to Allied's including a minimal cash component, and did not amount merely to an intention to buy up new shares in Allied Farmers dumped by Hanover and United investors once that deal is done.

We were told the key factor in whether another deal was tabled was whether Hanover allowed the potential suitor to conduct due diligence.

We are also aware this may be a case of one or perhaps more investment banks with ideas for a Hanover deal shopping their proposals around potential backers.

Hanover chairman David Henry, in the space of a few sentences, denied and then confirmed the company was aware of interest from other parties this week. Stock Takes reckons Senate Communications, which is riding shotgun for Hanover during this difficult time might have thought that apparent contradiction was worth tidying up before release.

IS SANTA REAL?

Another serious offer for Hanover's assets wouldn't be a bad thing. Competition for an asset generally sees the price go up and so long as that enriches Hanover and United investors rather than the company's present owners, who would have a problem with that? Our source suggests that if another bid doesn't eventuate, the likely reason would be that Hotchin and Watson, for whatever reason, have refused the interested party access to the necessary detailed information about their business.

Believe that or not, but our source does goes on to make a very sound point: "It's a bit of a bugger for the poor old bond holders here but pretty much every way it goes it continues to get worse for them unless some kind of Santa Claus comes along. But it is the Christmas season - almost."

Until something definite arises, we'll leave others to speculate over who fits that profile, but just because someone is "well known", avuncular and white-bearded doesn't necessarily mean they're Santa.

SPARCS FLY AGAIN

Australian authorities this week said they were deferring their public examination of failed investment banking and infrastructure outfit Babcock & Brown until early next year. Babcock had considerable interests in New Zealand but several local investors have reason to cheer.

Satellite vehicle Babcock & Brown Infrastructure has $270 million of bonds listed on the NZDX and with the problems at its parent undermining its capital positioning this year there was a threat of default that sent their yield skyrocketing.

BBI however successfully completed a $1.5 billion capital raising, paid off a truckload of more senior debt and its bondholders, those who kept their heads, are in a much better position, points out Hamilton Hindin Greene's James Smalley.

While BBI020 holders are in an improved position, Smalley says holders of the BBI010 or Sparcs are the real winners. Many of the holders elected to take these securities rather than cash when BBI bought out local lines company a few years back.

The Sparcs are almost certain to be redeemed at par next year whereas under the voluntary administration scenario looming a few months ago, investors might have got 10 to 20c in the dollar if they were lucky, he said.

"It's all turned out for the good for something associated with Babcock & Brown, which is quite unusual."

Yesterday the yield on BBI010s was 20 per cent against the - wait for it - 2050 per cent the NZDX tells us they hit this year. The Sparcs were at 16.1 per cent, down from 81 per cent.

PRIVATE EQUITY BOYS CASH UP ON BOTH SIDES OF THE TASMAN

Kathmandu's newly listed shares are now showing tentative signs of life.

They began trading unconditionally just over a week ago and their initial performance would probably have disappointed any would-be stags as they looked in danger of hitting their $2.13 issue price, sinking as low as $2.14 a couple of times. Yesterday, however, they were up 3c for the day at $2.20.

BIGGER SUCKER THEORY

As its private equity owners cashed up, Kathmandu's IPO drew some comparisons with another much bigger retail business float conducted at roughly the same time, also by private equity owners, that of department store chain Myer in Australia.

Anyone who has entertained the notion that New Zealand and its capital markets have suffered at the hands of fast-talking overseas private equity operators - and we're not talking about Kathmandu's former owners - might take heart from the fact that the Myer float has shown Australians are just as capable as us of being stiffed by these boys.

On completing the sale of Myer, TPG wasted no time jetting back home to the US and by the time the Australian Tax Office moved to cut themselves a slice of the A$1.5 billion the Texans had reportedly netted, the cash had disappeared overseas via what Dow Jones Newswires referred to as "a latticework of companies in the Netherlands, Luxembourg and the Cayman Islands". The Australian taxman is said be chasing TPG for A$620 million.

Unlike Kathmandu's, Myer shares promptly sank well below their issue price of A$4.10. Yesterday they were down 6c at A$3.74.