Southern Capital lifts on Hirequip news

By KEVIN TAYLOR and NZPA

Southern Capital shares spiked as much as 6 per cent yesterday after it announced plans to move to full ownership of the equipment hire company Hirequip.

The deal marks a switch in focus for the Wellington-based investment company, which already owns half of Dunedin-based Hirequip, and is designed to broaden its shareholder appeal.

"The shares have been trading for 12 months now at a discount to what we see as the net asset value," Southern Capital executive chairman Graeme Wong said.

"What we're doing here is constructive. It's providing a firm basis under which a broader range of shareholders could be attracted to the business.

"Not only is Hirequip a good business, but there are other opportunities to expand and grow it."

Investors appeared to share that sentiment, sending Southern Capital shares up as much as 4c, or 6.45 per cent, to 66c.

They closed up a cent at 63c against a year-high of 75c and a low of 51c.

Under the deal - which still needs the approval of Southern Capital shareholders - Hirequip founder Stuart McKinlay will hand over his 50 per cent holding in return for a stake in Southern Capital.

Southern Capital will issue 29.77 million shares to the McKinlay Family Trust at 60c each, making it the single largest shareholder at 26.7 per cent.

The deal values the McKinlay stake at $17.86 million - similar to the price Southern Capital paid GS Private Equity for its initial half share of Hirequip last year.

Wong said he hoped to hold an extraordinary general meeting of shareholders next month to seek approval for the deal.

In addition to the share transaction - which will dilute existing holdings - approval will be sought for Stuart McKinlay and Dunedin-based company director Trevor Scott to join the board.

Shareholders will also be asked to change Southern Capital's name to Hirequip and to waive a Takeovers Code requirement for the McKinlay Trust to make a full bid.

The targeted date for completing the deal is May 16. The company plans to move its head office to Dunedin thereafter.

Hirequip, which became the country's largest hire company with its purchase of Projex in late 2000, has an annual turnover of more than $50 million.

It has 320 employees in 37 New Zealand locations and hires equipment ranging from front-end loaders and trucks to marquees, crockery and toilets.

Wong said Southern Capital was still negotiating with Owens Group to buy Hirepool, another hire company.

"There is a price at which buying Hirepool makes sense, but if we don't win the bid for that company, then there are plenty of other opportunities in the hire equipment industry that we can and will pursue."

Southern Capital last week got Commerce Commission approval to buy 100 per cent of the shares in Hirepool.

Hirepool operates from 14 locations, mainly in the Auckland, Waikato and Wellington.

Asked if Hirequip and Hirepool would be merged if Hirepool was bought, Wong said if the bid was successful the firm would have to look at how a merger would work.

"There's quite some merits in running separate organisations in terms of branding."

Southern Capital's assets include a 117ha subdivision at Omaha Beach north of Auckland as well as the 338ha new town site of Pegasus Bay and the 7.7ha Canterbury Supa Centa, both north of Christchurch.

It also has a portfolio of biotechnology stocks, including a 10.47 per cent stake in Blis Technologies, and 21.75 per cent of Tasmanian dairy farmer Tasman Farms.

Wong said that since its formation in late 1997, Southern Capital's assets had matured to the point where the company was now asset rich. He said the purchase of Hirepool could be financed without raising more equity.