Winery owners fighting over share sale

Peregrine Winery in central Otago. Photo / Supplied.

The owner of a Central Otago winery is appealing a High Court decision requiring it to buy out a fellow shareholder for $1 million more than it originally offered.

Lindsay McLachlan and Greg Hay are both directors of Peregrine Wines, a South Island winery whose architecture has attracted international attention.

Peregrine Wines produced its first vintage in 1998 and says on its website that during "its short history it has been an impressive high achiever, with its wines winning numerous prestigious awards and trophies around the world".

Hay's family trust owns a 25.14 per cent stake of Peregrine Wines while another firm directed by McLachlan - Peregrine Estate - owns the rest.

In March 2013, according to a recent High Court decision, Hay approached McLachlan and advised that his family trust wished to sell its shares and invited Peregrine Estate to make an offer for them.

McLachlan, on behalf of Peregrine Estate, offered $1.57m.

This was not acceptable to Hay and his co-trustee so they decided to invoke a clause of Peregrine Wines' constitution that provided a procedure for the sale of shares by one shareholder to another.

McLachlan was not prepared to pay the trust's nominated selling price of $3.25m but confirmed that Peregrine Estate would buy the shares at "fair value", to be fixed in keeping with the winery's constitution.

A valuer, Julie Millar of BDO in Christchurch, was appointed and set this "fair value" at $2.62m.

Peregrine Estate did not buy the shares at this price and hired its own adviser to assess fair value.

That adviser came up with a value of $1.275m.

Hay and his fellow trustee then went to the Invercargill High Court, seeking summary judgment on Peregrine Estate's contractual obligation to buy the shares at the "fair value" that was fixed under the constitution.

Associate Judge John Matthews, in a decision released publicly last week, said that both sides focused not on what fair value amounted to, but on whether or not Peregrine Estate was bound by Millar's valuation.

The trustees' lawyer, Nic Soper, argued that Peregrine Wines' constitution and the Companies Act required a transfer of shares from the trustees to Peregrine Estate to take place at "fair value".

Peregrine Wines' constitution provided a contractually binding method for establishing fair value which both parties were required to follow, he said.

Both sides engaged in that process, fair value was established and that is binding on the parties, Soper argued.

However, the Queen's Counsel for Peregrine Estate, Trevor Shiels, said the valuation was "flawed and unenforceable".

He argued that the Millar did not make a decision on minority discount, which was a key element of the valuation.

A minority discount is a reduction made to the value of a shareholding when it does not provide any control of the entity in question.

Associate Judge Matthews, in his decision, said that it was not arguable that Millar's $2.62m figure was "other than the fair value" required under Peregrine Wines' constitution.

The judge also found that the trustees had established that Millar's valuation binds both sides for the purposes of the company's constitution.

He entered judgment in favour of the trustees, entitling them to enforce the transfer of shares for the payment of $2.62m.

Shiels told the Herald this morning that an appeal had been filed but no date had been set.

See the full decision here: