Mike Pero deal reveals Gould's canny leverage

By PAUL PANCKHURST

South Island investor George Gould's company, Gould Holdings, has secured a $13.5 million stake in the soon-to-be-floated Mike Pero Mortgages without shelling out a cent of its own money.

The small but high-profile mortgage broking business yesterday opened an initial public offering to raise $7 million to $10 million and float on the stock exchange.

The prospectus for the offer reveals founder Mike Pero sold the business to Gould Holdings for $15 million.

However, that does not mean that Gould's company shelled out that amount.

The purchaser was a Gould subsidiary called Mike Pero Mortgages, incorporated as a vehicle for the deal and the public share float.

Mike Pero Mortgages borrowed $9 million from Westpac and $4.5 million from a company associated with Mike Pero.

On top of the $13.5 million in debt, Pero bought back a 10 per cent stake in the company - 1.5 million shares - for $1.5 million.

Gould Holdings put up its balance sheet to guarantee the debt and pull off the deal that gave it a 90 per cent stake, or 13.5 million shares.

The money from the investors who buy into the float - and demand for the 7 million to 10 million $1 shares is high - will mainly be used to cut the bank debt.

After the debt is cut, Gould Holdings will stop guaranteeing the company's borrowings.

The bottom line: Gould's company will end up with up to 61 per cent of a company with an initial market capitalisation of at least $22 million.

It will hold a smaller stake of a bigger company if the offer raises more than $7 million.

The Gould camp says the outcome rewards the company's initiative and expertise and its role in guaranteeing the debt.

"What's that guarantee worth?" asked Gould.

"What is that worth, to put your balance sheet on the line?"

Gould also pointed out Gould Holdings and Mike Pero's vehicle, Mike Pero Securities, had agreed to restrictions on selling shares within a year of listing.

"It's not like we're just cutting and running - we've got to make sure the company then delivers."

The offer closes on May 19, with a listing expected five days later.

The company is projecting earnings before interest and tax of $2.7 million for the year to June 30, 2005, on revenue of $14 million.

The bottom-line profit is projected to be $1.5 million.

Based on a $7 million capital raising, the company projects earnings per share of 7.06c and a price to earnings ratio of 14.16.

With origins dating back to 1990, Mike Pero Mortgages is a mortgage broker which has helped to arrange an estimated 50,000 loans, totalling more than $5 billion.

The main lenders are the ASB, National Bank, ANZ and Westpac.

Quizzed on publicity about the BNZ cutting out mortgage brokers, Gould said the company was not affected because it had not dealt with the bank for a year.