New Zealand Rugby has invited Forsyth Barr to discuss its proposal for a public flotation of part of its commercial revenues, after US private equity giant Silver Lake waived its right to block talks.
However the union has sent David Kirk - who is chairman of both Forsyth Barr and the New Zealand Rugby Players Association - a lengthy explanation of why it does not believe its proposal met the objectives of its proposed sale.
On Friday the Herald revealed that Forsyth Barr had made an alternative capital raising proposal at the request of the NZRPA, which would involve selling 5 per cent stake by way of an initial public offering on the NZX.
The proposal suggested the stake could be sold to investors for $170m-$190m, valuing NZ Rugby at between $3.4 billion and $3.8b, above the $3.1b valuation implied by NZ Rugby's proposed deal with Silver Lake, which is seeking to buy a 12.5 per cent stake in its commercial revenues for $387.5m.
On Monday evening NZ Rugby chief executive Mark Robinson sent a lengthy response to Kirk, and later to provincial rugby unions, responding to the proposal.
"Silver Lake have consented to waive their exclusivity agreement to the effect of enabling NZR to examine and understand the NZRPA/Forsyth Barr proposal," Robinson wrote, inviting Kirk for a meeting with its project steering group on Friday.
"Despite our concerns and questions ... our initial view is that it is unlikely to meet all of our strategic objectives, we would welcome the good-faith exploration of this NZRPA / Forsyth Barr IPO alternative, as part of considering all of our stakeholders' interests."
Robinson has also shared the response with the provincial rugby unions, saying that NZRPA had, with NZ Rugby, entered into an exclusivity arrangement with Silver Lake to work on the deal.
"Therefore, it's fair to say this new proposal with a new party came as a surprise and [it] was disappointing to have it sent directly to media in the first instance," Robinson said.
"That said, whilst we believe we have robustly and diligently looked at this option (as well as a wide range of others) and established that it won't meet all our objectives in creating our future, we are happy to talk through their proposal in case there is something new that we have missed and hopefully we can do this, this week."
NZ Rugby's concerns
Robinson's letter explained that not only did it view Silver Lake as an ideal investment partner to help it grow internationally, a public float had a number of drawbacks.
"NZR is focused on raising capital from a strategically aligned investor to assist NZR in driving growth and fully realising our global potential," Robinson wrote, with Silver Lake having deep experience with international sports teams and technology investment.
"We see this capability enhancement to the game in New Zealand, through revenue growth flowing back into the game and by way of improved expertise that would support improved engagement with our fans and the over 150,000 participants we have here at home."
Even if NZ Rugby was to seek investment from passive investors "then an IPO would likely be evaluated as an inferior option to other forms of passive, private capital investment in common equity".
Other forms of investment would reduce compliance costs, reporting obligations, enable direct control of its shareholder register and who was commercially involved and retain flexibility.
"A public IPO may be potentially attractive at a point in time, however while NZR is in a growth investment phase of our strategy, we are not interested in simply raising capital from passive public market investors."
Growth companies were "typically better able to execute their strategic growth agendas in a non-public environment" Robinson wrote as flexibility and capital and risk management "typically favour a private status".
Robinson said it saw risks to Forsyth Barr's valuation of the company, from market volatility to Covid-19 impacting the commercial contracts which would underpin the valuation.
"We understand Forsyth Barr are offering to fully underwrite the proposed valuation, is that a guaranteed position today?," Robinson asked.
The letter said public investors might be attracted to the deal, but may respond unfavourably if the share price fell or if results were bad, while the Silver Lake deal was designed to look through short-term problems.
"What happens if there is little to no liquidity and or the price trends down significantly? How would NZRPA/Forsyth Barr suggest this would be handled as the 'retail New Zealand buyers' suggested as part of this IPO proposal, potentially lose money in the years following an IPO, if the pricing valuation is over-cooked or negative occurrences affect the share price?"