By Gareth Vaughan
Question; How much does it cost to wind up an investment company?
Answer; About NZ$197 million if it's the Ron Brierley-founded Guinness Peat Group (GPG), according to Goldman Sachs analyst Adrian Allbon.
Allbon says his figure comes from using GPG's 2011 operating costs and advisory fees of £35 million as the most relevant proxy and assuming the break up is a three year project. Based on current exchange rates, that leaves the total cost of winding-up the London domiciled GPG near NZ$200 million.
The £35 million figure comprises £9.3 million in one-off advisors’ fees relating to GPG's strategic review and return of capital, £2.1 million in redundancy costs, £6 million of "other staff incentives" representing the cost of staff retention and reward programmes and future redundancies, and £18.2 million of operating costs.
Allbon's own firm, Goldman Sachs, is among the firms benefiting, acting as a financial advisor to GPG and to Turners & Growers, in which GPG is selling a 63.5% stake to Germany's BayWa for about NZ$137.4 million, pending Overseas Investment Office approval. See GPG's annual results announcement here.
GPG realised a net £165 million from complete or partial sales of 48 investments between January 1 last year and February 17 this year. Including the proposed sale of the Turners & Growers stake, net proceeds since January 2011 including dividends and other cash distributions are about £238 million, GPG says. The proceeds include those from the full realisation of investments in CSR, Capilano Honey, Farm Pride, Tasmanian Pure Foods and Autologic and represents about 35.2% percent of GPG's portfolio as at January last year, excluding thread maker Coats, which has a book value of £150 million, and £200 million in cash.
Capital notes to be redeemed
Meanwhile, Allbon says shareholders are unlikely to receive meaningful capital returns in year two of the wind up with cash proceeds more likely to be used to redeem GPG's capital notes.
GPG has two two capital notes issues outstanding. Notice of early repayment of notes with an initial election date of December 15, 2013 was given last September. This issue, with a principal value of NZ$77 million will be purchased on March 15 this year. The company's remaining capital notes have an initial election date of November 15 this year and a principal value of NZ$350 million. No notice of early repurchase will be given for this issue, says GPG.
Meanwhile, GPG also revealed the deficits of its Coats UK Pension Plan, and two GPG pension schemes - Brunel and Staveley - ballooned to £226 million at December 31 from just £25 million a year earlier. GPG blamed "unprecedentedly low corporate bond rates" for this.
"The current support provisions (for the pension schemes) effectively provide the Trustees of the GPG Pension Schemes with a contingent claim over the assets of GPG of approximately £130 million," says GPG. "This will likely mean that £130 million of asset realisation proceeds will be required to be retained by the GPG group and will not be available for distribution to shareholders in the medium-term."
As of February 17, GPG’s investment portfolio excluding Coats, but including subsidiaries, associated undertakings and joint ventures, was valued at £491 million, representing the mark to market value of its listed investments and the current book value of its non-listed investments. Assets GPG still holds include a 34% stake in insurer Tower valued at £66 million.
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