Stephen Hurley and his Xylem Investment Funds will have a big influence on the controversial Fletcher Challenge Forests/Southeast Asia Wood deal, but he is giving no indication which way he will vote.
Xylem, which is based in Boston, was established in 1994. One of its first big moves was to buy
34.5 million new shares in CBS Forests (previously known as Carr Business) at $1.45 each. CBS used the money to buy Pouto Forest Farm in Northland for $36 million and reduce debt.
At the beginning of 1995 CBS Forests was acquired by Evergreen Forests on the basis of seven Evergreen shares for every four CBS shares. As a result Xylem ended up owning 60.3 million shares or 62 per cent of Evergreen at an effective cost of 83c a share.
Xylem now owns 65.3 million Evergreen shares, 45 per cent of the ordinary shares.
At the 1995 Fletcher Challenge annual meeting shareholders approved the placement of 54.4 million Fletcher Forests shares to Xylem at $2.07 each. In 2000 Xylem bought a further 12.2 million shares at 76c and took up its entitlement to the preference shares at 25c each.
Hurley's Fletcher Forests investment cost $157 million but at yesterday's closing prices it was worth only $49 million.
Xylem's other big New Zealand investment is a 38 per cent holding in the Mosgiel-based Wenita Forest Products (the remaining 62 per cent is owned by Chinese interests).
This company has reported large losses in recent years and as at December 31 had $15 million accrued interest outstanding on shareholder loans.
Hurley is out of the money on his three main New Zealand holdings. Some of his investments in Australia, Argentina and Britain are also reported to be struggling.
He owns 7.3 per cent of Fletcher Forests and has a huge incentive to vote in favour of the best long-term interests of the company or strike a deal where he can exit on the same terms as Rubicon.
Affco
What is going on at Affco?
Three months ago shareholders were asked to approve the sale of 28.5 million Affco shares by Hugh Green to Talleys Fisheries at 38c each. The approval was required under the Takeovers Code because the deal would have taken Talleys' shareholding to 30.4 per cent.
The resolution was defeated by 56.1 million to 42.5 million votes because Peter Spencer voted his 50.5 million shares against the transaction. Spencer's opposition made no sense because he had proposed the deal in the first place and Talleys was far more willing to put new money into Affco than Green.
Affco is now having a one-for-one rights issue at 10c a share, which will be underwritten by Talleys and Spencer.
Why is it necessary to underwrite an issue that is at a deep discount to the market price?
Was the underwriting proposal put out to tender and, if so, did Talleys and Spencer make the best offer?
Have the two parties, who own 38.6 per cent of Affco between them, had any discussions about a joint approach towards the stewardship of Affco?
The underwriting agreement requires an exemption from the Takeovers Panel and approval at a special meeting of shareholders. Shareholders should think carefully before approving the agreement.
Owens
Why were Owens directors paid $598,000 in the March 2002 year when they were authorised to receive only $285,000?
According to Stock Exchange Listing Rule 3.5: "No remuneration shall be paid to a director in his or her capacity as a director unless that remuneration has been authorised by an ordinary resolution of the issuer." The resolution is usually in the form of a maximum monetary sum per annum payable to all directors taken together.
There are three exceptions to this rule:
* If there is an increase in the number of directors then the total consideration may be raised so that the additional director is paid no more than the average of the other non-executive directors, other than the chairman.
* Directors may be paid for additional work outside their normal duties as a director.
* Directors may be paid a lump sum retirement fee not greater than the total remuneration received in any three years as a director.
Last year, Owens directors were paid total fees of $285,000. In addition, chairman Norman Geary received consulting fees of $70,000, Kerry McDonald a consulting fee of $33,000, two directors received retirement allowances of $90,000 each and another $30,000.
Geary's fee, which was for his role as acting chief executive between January and October last year, was justified but the others are highly questionable.
McDonald received his extra fees as a member of the group's Australian advisory board and two directors received the maximum retirement allowance even though the company's performance has been fairly dismal in recent years.
Owens shareholders should query these payments at the July 29 annual meeting as this was the third year in a row that directors received more than the authorised figure of $285,000.
Blis Technologies
New Zealand is supposed to have standardised accounting standards but companies can change these policies whenever it suits.
In the March 2001 year, Blis Technologies capitalised the cost of new developments. The company noted that capitalised costs were then written off over the life of the product. When these costs were no longer recoverable against future anticipated revenue they would be written off.
Shortly after the 2001 balance date Blis bought all of the University of Otago's strains of Blis-producing organisms for $9.4 million. The consideration was 12.9 million Blis shares at 73c each, representing 20 per cent of the company.
Blis indicated that this intangible would also be written off on an annual basis over the life of the product but there was no provision for this in the financial forecasts contained in the listing profile.
In the March 2002 year the company wrote off $12.5 million of intangibles to bring its reporting in line with normal industry practice for biotechnology companies.
As a result Blis reported a loss of $14.3 million for the year compared with its pre-listing forecast of a $400,000 loss.
The new policies are more conservative than the old but they raise some important questions:
* How can companies change accounting policies when these policies are supposed to be standardised?
* How can a company raise money with one set of forecasts, then change its accounting policies and report completely different figures?
* How can Blis pay $9.4 million for an asset and write it off less than 12 months later?
The good news for shareholders is that the Blis K12 Throat Guard has received widespread acceptance by pharmacies and it is reported to be selling well.
An updated report on the progress of K12 will be given at the annual meeting in Dunedin on July 29.
* Disclosure of interest: Brian Gaynor is a Fletcher Forests shareholder.
* bgaynor@xtra.co.nz
Dialogue on business
Stephen Hurley and his Xylem Investment Funds will have a big influence on the controversial Fletcher Challenge Forests/Southeast Asia Wood deal, but he is giving no indication which way he will vote.
Xylem, which is based in Boston, was established in 1994. One of its first big moves was to buy
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