Gaynor on Wednesday: Sale discount spells trouble at Pacific Retail

A revolt is simmering at Pacific Retail.

Next Wednesday, shareholders will be asked to approve the sale of the company's Wellington and Christchurch Computer City stores to Orion Ventures. Orion is 89 per cent owned by Pacific Retail and 11 per cent by Stefan Preston and Adam Keller. Mr Preston is a former chief executive and present director of Pacific Retail.

The sale price is $1.48 million compared with PricewaterhouseCoopers' assessed value of $5.6 million. In other words, Orion will pay $4.1 million less than the assessed value, representing a transfer of $450,000 to Mr Preston and Mr Keller based on their 11 per cent Orion holding.

The sale is tax driven and according to the PricewaterhouseCoopers report Pacific Retail has a non-written agreement with Mr Preston and Mr Keller that their 11 per cent holding will be acquired "in the future at some nominal value."

The report goes on to say: "Nevertheless, the absence of a written agreement leaves Pacific Retail with a risk that the minority shareholders may seek to recover 'fair value' for their shares at some time in the future."

This raises several questions.

Why is Pacific Retail selling these assets at a 73 per cent discount to assessed value?

Why didn't the company sign a binding agreement with Mr Preston and Mr Keller over their Orion shareholding before the agreement was struck?

Why has the deal not been announced to the Stock Exchange?

Tasman Agriculture

Excuse the pun but Tasman Agriculture, which is 66 per cent owned by Brierley Investments, is rapidly becoming the sharemarket's biggest cash cow.

Over the past six months the South Island-based dairy company has sold 55 per cent of its New Zealand milking area for $125.9 million, 21 per cent above book value. On June 1 it will receive settlement of $121.3 million and $4.6 million a year later.

The group is unique for two reasons. It is probably the first New Zealand organisation in an eon to sell assets into a rising market and is one of BIL's few recent successes.

Tasman Agriculture has an estimated net asset backing of $1.78 per share, more than half of it in cash after the June settlement. This makes it a good defensive investment in a weak market environment.

eVentures It finally arrived. Just minutes before the Stock Exchange's March 16 deadline, chief executive Cindy Mitchener released eVentures' result for the 2000 year. There was little reason for shareholders to pop champagne corks after the $4.6 million loss.

eVentures was launched in a blaze of cyber hype last year. The company issued 160 million shares to overseas interests and 40 million to parties associated with Craig Heatley. These 200 million shares were issued at 15 cents each.

The remaining 50 million shares, which cost 60 cents each, were issued as follows: 35 million to the public and 5 million each to Telecom, Todd Capital and The Warehouse.

eVentures has been a big dud. The net asset backing is a mere 22 cents and falling compared with the public's original subscription price of 60 cents a share.

Why does Tasman Agriculture sell at a 17 per cent discount to net asset backing whereas eVentures trades at a 32 per cent premium to NTA? It just goes to show that the sharemarket isn't always rational.

* bgaynor@xtra.co.nz