Gaynor: Cash focuses the mind

By BRIAN GAYNOR

MAINFREIGHT

Act leader Richard Prebble has recently become a major shareholder of Mainfreight.

When the company was floated in 1996, founding shareholder Bruce Plested gave his fellow directors - Don Rowlands, Carl Howard-Smith, John Fernyhough and Mr Prebble - an option to buy 500,000 shares each from him at $1.20 a share. The initial public offering was $0.96 a share.

Mainfreight's recently released annual report revealed that Mr Rowlands, Mr Howard-Smith and Mr Prebble have exercised their option to buy 500,000 shares from Mr Plested.

Nothing focuses the mind like a strong financial commitment and Mainfreight executives, particularly in Australia, will be under increased pressure to meet the high standards Mr Prebble demands.

The $600,000 purchase is a big commitment by the Act leader but it should be remembered that he sold 100,000 rights at 60c each in 1997. This was his entitlement to a one for five rights issue on the 500,000 shares held on his behalf by Mr Plested.

Mainfreight shares last traded at $1.18 on July 9.

eVENTURES

eVentures' annual meeting was a fascinating insight into the contrasting views of shareholders and chairman Craig Heatley.

Several shareholders took the view that the original business plan had failed and that the e-Partners/Softbank partnership had done the honourable thing by selling back its 160 million shares to the company at 14.3c a share.

This compared with the partnership's original purchase price of 15c.

As Mr Heatley had brokered and promoted the original deal, and received 40 million shares at 15c each for this role, then he should follow suit and sell back his shares to eVentures at 15c. The company could then be liquidated and the remaining shareholders, who bought 50 million shares at 60c each, would receive about 42c a share in cash.

Mr Heatley wouldn't have a bar of this. He argued that there was no reason, either from a legal or moral perspective, why he should have to sell his shares at 15c. He said eVentures had a bright future even though the head office was closing down and he would remain overseas until 2003.

An institutional fund manager attempted to convince Mr Heatley that it was inappropriate for him to take shareholders' money and invest it in an area that was inconsistent with the original prospectus. If Mr Heatley wanted to invest in another area he should repay the cash to eVentures shareholders and raise new equity for this purpose through another prospectus issue.

This also fell on deaf ears and shareholders left the meeting with no idea where eVentures is heading. All they know is that it has nearly $30 million in cash, no head office, no chief executive, a controlling shareholder who is overseas until 2003 and that the next board meeting will be held in August.

FORCE CORPORATION

Peter Francis is an astute investor. He got out of Chase Corporation just before it collapsed and his Force exit was also well timed.

Back in March, Sky City made an offer to buy 100 per cent of Force at 25c a share. Grant Samuel concluded that the company was worth between 22 and 32c a share but Mike Daniel, chairman of the independent directors sub-committee, said he would not accept the Sky City offer.

Mr Francis accepted the offer in respect of his 50.2 per cent holding but no other shareholder sold into the market bid because there were other buyers at 26c and above.

Since then the company has gone extremely quiet. The only announcements have been a change in directors and the sale of the Harvey Norman Centre development in Mt Wellington for $14.7 million.

Grant Samuel's appraisal report indicated that the company has two major problems.

Force has a 25 per cent interest in highly geared Village Cinemas SA in Argentina and has a contingent liability over $47 million of the company's debt. The Argentine economy is ailing and Force has had to borrow $5.4 million from Sky City to help Village Cinemas meet its debt obligations.

It is also in dispute with MTM Entertainment Trust of Australia over the sale of its Entertainment Centre in downtown Auckland. The dispute has been complicated by the takeover offer for MTM and the financial problems of two tenants, IMAX and Planet Hollywood. The conflict could still be subject to lengthy court proceedings.

There is little doubt that Force should benefit from Sky City's more professional management style.

But in the short term, the cinema operator looks like it needs a rights issue to repair its weak balance sheet.

The prospects of this should continue to have a negative influence on its share price.

* bgaynor@xtra.co.nz