Dairy Brands shareholders should put on their crash helmets and prepare themselves for a roller coaster ride. They are now in the hands of Duncan Saville, one of the biggest risk-takers in Australasia.
Saville was born in South Africa and worked for Industrial Equity (Pacific), Brierley Investments' Hong Kong listed vehicle
in the 80s. He made his fortune in the UK in the early 90s by accumulating large holdings in undervalued water companies.
He bundled these together and sold them to the public through Foreign & Colonial Special Utilities Investment Trust. This is now called the Special Utilities Investment Trust and is listed on the New Zealand Stock Exchange.
Saville first appeared on the New Zealand scene in 1994 as a director of the newly established Infratil. He was not on the board of Infratil International (now called Utilico) when it listed in May 1997, but was appointed two years later. By this stage he had become a 10 per cent shareholder (subsequently increased to 30 per cent) in H.R.L. Morrison & Co, the manager of Infratil and Utilico.
He had also set up Australian Opportunities Investment Trust (AOIT), a London Stock Exchange listed entity, which invested in Australian and New Zealand securities.
Utilico failed to achieve its objectives and in 2000 its share price hit an all-time low of 24c, well below its issue price of 50c.
Saville began to accumulate Utilico shares through AOIT and some of his other companies, and by the end of 2000 he had a 48 per cent holding. Twelve months later Utilico had sold all its assets, mainly airport investments, returned $46 million to shareholders and cancelled 94 per cent of its shares.
The company now has only 5.6 million shares on issue, with parties associated with Saville holding 53.2 per cent.
Shortly after the November 2001 annual meeting, Saville replaced H.R.L. Morrison & Co as Utilico's manager and immediately invested $5.54 million, out of Utilico's total investable funds of $5.96 million, in ERG convertible notes.
ERG is a high-risk Western Australia-based telecommunications firm that specialises in smart card applications and automatic fare-collection systems.
The transfer of the management contract and the investment in ERG without shareholder approval were the subject of a Market Surveillance Panel inquiry, but the panel found in favour of Saville and the company.
ERG has subsequently announced huge losses, and Utilico wrote down the value of its investment from $5.54 million to $4.49 million as at June 30. ERG had a major capital restructuring at the end of last year and Utilico is now owed $A2.5 million ($2.7 million) by ERG, secured against ERG ordinary shares, and has a small number of convertible notes.
Saville received a bonus payment of $282,000 for the year ended June, in addition to his management fee, even though the value of Utilico's ERG investment fell 19 per cent.
On December 17, Utilico announced it would raise $5.6 million through a pro-rata renounceable convertible bond issue, a rather strange move for a company that was buying back its own shares through most of last year.
The buy-back helped boost Saville's bonus payment last year, as the fee was based on share price rather than the investment performance of the company.
Directors said: "The funds will be used to expand the portfolio of the company and, in the short term, to participate in the recently announced capital raising of ERG."
Utilico is now a proxy for ERG and it is difficult to predict the outcome of this investment.
The ERG investment is consistent with Saville's unconventional style. AOIT, which is managed by Saville, took a large holding in New Cap Reinsurance convertible notes in late 1998 and the insurance company went bust a few months later. This mainly accounted for AOIT's $6 million loss for the May 2000 year and its poor share-price performance.
AOIT has since changed its name to Stocks Convertible Trust and is now focusing on convertible stocks around the globe. Stocks Convertible is now trading at a 29 per cent discount to net asset backing, slightly less than Utilico's discount.
Saville first became involved with Dairy Brands when some of his companies, including AOIT, bought a 39.9 per cent stake in January 2000, at 25.5c a share.
At a special general meeting in February 2001 shareholders agreed to sell all of the company's farms and distribute the proceeds.
The asset sales were quickly achieved and in September 2001, the company cancelled 38.6 per cent of its capital after a share buyback at 70c each.
At last September's annual meeting shareholders approved an optional buy-back offer of remaining shares at 64c each, the transformation of Dairy Brands into an investment company and the transfer of the management contract to Saville. Saville now owns 78.5 per cent of Dairy Brands after 86 per cent of the public shareholding accepted the buy-back offer.
The company has a net asset backing of 68c a share in the form of cash or cash equivalent.
Remaining Dairy Brands shareholders are now in the hands of Duncan Saville and his unconventional investment style.
Saville is difficult to pin down, as he commutes between homes in Sydney and Southeast England. But one of his characteristics is set in concrete. The first entries in his diary every year are the world's major sporting events, particularly rugby union tests, and his companies' board meetings are usually arranged to coincide with these occasions.
The transformation of Dairy Brands and Utilico, two companies that were sold to the public with specific objectives into speculative investment companies, highlights the difficulties faced by Mark Weldon at the Stock Exchange.
Although original shareholders in both companies have had the opportunity to receive most of their money back, it would have been much better for the Stock Exchange if they had been hugely successful in their chosen area instead of becoming the personal playthings of a relatively unknown investor.
Listed Property Trusts
Speculation is mounting that there will be a major consolidation of the listed property trust sector, following the announcement that Colonial Mutual Life will buy an initial 7.4 per cent holding in Kiwi Income Property Trust on January 31.
The shares will be bought from FCMI Financial Corporation & Pan Atlantic Bank of Toronto, Canada.
Colonial Mutual already owns 58 per cent of Colonial First Property Trust and 16.7 per cent of The National Property Trust. Last year National made a takeover offer for Newmarket Property Trust, on the basis of six National units for every 10 Newmarket units, but received acceptances for only 87.2 per cent of the units and was unable to move to compulsory acquisition.
It makes sense to consolidate Kiwi, Colonial First Property, National and Newmarket as some of them are planning large and expensive projects.
* Email Brian Gaynor
Dairy Brands shareholders should put on their crash helmets and prepare themselves for a roller coaster ride. They are now in the hands of Duncan Saville, one of the biggest risk-takers in Australasia.
Saville was born in South Africa and worked for Industrial Equity (Pacific), Brierley Investments' Hong Kong listed vehicle
AdvertisementAdvertise with NZME.