Allied's investors vote to buy Hanover

Photo / Brett Phibbs

Allied Farmers shareholders yesterday resoundingly endorsed their company's proposed acquisition of Hanover Finance's loan book, a transaction that bolsters the company's balance sheet at a crucial time and at negligible cost.

A special meeting at the rural services group's home base of Hawera saw the 50 per cent threshold for approval easily exceeded with a preliminary count putting the vote at more than 85 per cent in favour, a spokesman said.

Under the proposal, Allied will benefit from the acquisition of Hanover and United Finance assets including property loans and real estate valued at $396 million.

The injection of capital is timely for Allied as its balance sheet has taken a battering over the past year with substantial writedowns on its own finance subsidiary's property loan portfolio.

Although only a small proportion of Hanover's assets comprises well-performing loans, Allied's management says the capital injection will aid the company's efforts to gain a respectable credit rating and thereby qualify for the extended Crown Retail Deposit Guarantee which takes effect next year.

The reinvigorated balance sheet can also be leveraged to provide funds for Allied to scoop up further finance company assets as the sector undergoes a widely anticipated second wave of "consolidation" or failures.

Allied gains these benefits at little cost. It is paying for the acquisition through the issue of new shares.

Although existing shareholders will be hugely diluted, the transaction features a mechanism that partly reverses that dilution should the assets being acquired prove to be worth less than the theoretical purchase price.

However, the biggest challenge Allied faces is gaining the requisite 75 per cent approval from four different classes of Hanover and United investors in a vote to be held next Wednesday.

For debenture holders, who are by far the largest group of investors and currently hold first ranking security over the assets, the benefits of the transaction are far from certain.

They are being asked to forego their claim over Hanover's assets and the regular payout of proceeds from their realisation in exchange for the new Allied Farmers shares which will likely trade at a steep discount to their issue price for some time following the transaction.

Hanover and Allied have held meetings for investors to try to persuade them of the transaction's merits.

Meetings will be held today in Tauranga and Hamilton and tomorrow in Auckland.

Allied shares closed unchanged at 28c yesterday.