I'm at the special meeting of Hanover Finance and United Finance investors at the Ellerslie convention centre in Auckland where they will vote on Allied Farmers' debt for equity swap proposal. Here's what the experts have said investors should do. Here's what I've written previously about the choices investors face. The Allied Farmers Proposal is dependent on 75% of Hanover and United Finance investors voting in favour of the Proposal. Meeting chairman and Hanover Chairman David Henry has opened the meeting with a presentation of the proposal, including noting that the volume weighted average share price for Allied Farmers shares for the deal is likely to be around 20.7 cents a share, meaning the debt for equity swap would be 3.4 shares worth 72 cents for each dollar invested by Hanover Finance investors. The original value mentioned was 35 cents a share. The chairman has also banned the use of video cameras at the meeting, which is different from earlier roadshow meetings. Alloway presents proposals Allied Farmers Managing Director Rob Alloway is now talking about the proposal to the meeting. The mood is restless. There are complaints about the sound system. A video of Allied Chairman John Loughlin is played, although the sound didn't work at the first attempt. There are grumpy murmurs. Most of the audience are elderly. It is a sea of white hair and they are much grumpier than this same meeting a year ago when they voted for a moratorium for Hanover Finance. There appears to be between 800 and 1,000 investors in attendance. "That's what they told us last time," says one tanned and elderly man, when the chairman talks about a positive outlook for the future under the Allied Farmers deal.
Rob Alloway is now running through the history of Allied Farmers and its base in Taranaki's rural industries, including the stock and station agent supplies business, and rural real estate agency business. "It's a great service business and we believe there's a great opportunity to grow throughout New Zealand," Alloway says. He says there is still a strong future in the real estate business, despite the recent downturn. Alloway is now talking about the quality of Allied Nationwide Finance's loan book, which has 61% of its loans in plant and equipment finance and only 15% in property finance. Alloway says Allied Farmers' performance is linked partly to the Fonterra payout, which is improving again. "In the finance sector we're starting to see margins improve. Moving from the 34th largest to the sixth largest is starting to provide opportunities," he says, adding that there will be consolidation in the industry. Alloway sees no need to cut prices. "If we get into price wars and discounting then we do ourselves out of business and we have to leave on a different plane," he says. Allied Farmers wants a transformational event that reinvigorates the company, he says, pointing to Allied's big losses last year after bad loan writedowns last year. Allied Farmers wants to lead consolidation in the finance company sector with a business centred around equity rather than debt. "This is a strategic opportunity for all of us. This is all about you standing alongside us as shareholders and creating something good from something troublesome," he says. "I believe this will turn Allied Farmers into an icon company in the New Zealand business community." Alloway has finished his speech. The applause is tentative and polite. The chairman has taken back the meeting. There are calls from the floor for Hotchin to talk. "The DRP will continue, however the independent directors consider that if the DRP continues there is a real potential for a future breach of the trust deeds," the chairman says. "We have forecast we can no longer achieve full recovery under the DRP and Grant Samuel says the proposal is superior to the status quo," he says. Question time begins "What has happened to the NZ$20 million top-up from Hotchin and Watson?," says Glen Stanton, a debenture holder in Hanover and United and representing his family trust. Hotchin responds, explaining that the NZ$20 million guarantee would only be triggered if payments were missed and they haven't been missed yet. He also said the clause forcing the investment would not be triggered if Hanover was put into receivership. "The board of directors of Allied say they are strong. Could they explain how they could lose NZ$74 million and see the share price fall from NZ$2.20 down to 20 cents and still think they're good," Hanover investor Denis Chignall asks. "If I had my own money I would not even dream of investing in Allied Farmers," he says, to widespread applause. Alloway responds, saying he has only been a director since July and Allied Farmers has had to cope with the worst financial crisis in decades. He points to the poorer performance of other listed finance companies. PGG Wrightson's shares had also fallen sharply. "The business is strong and has positioned itself into the future," Alloways says. Financial adviser and proxy holder Murray Weatherstone asks if Grant Samuel's independent report can be trusted given its disclaimers are so widespread. "It appears the independent report is a bit like the way a drunk reviews a lamp post," Weatherstone says. He questions why a receivership would be so bad, given a receivership would not necessarily lead to a fire sale. He questions how much Allied Farmers shares will be worth. He is widely applauded. My gut feel from the tone of the meeting and the questions so far is that investors are likely to vote against the proposal because it involves taking shares in a company and a stock exchange they don't trust. Wayne Purvis, a man with a burns bandage covering most of his face, says he is owed NZ$260,000 and asks about how much Allied Farmers shares are worth and the likely dividends. Alloway responds that Purvis would receive 936,000 shares. He says he can't forecast the timing or amount on dividends. "We will be a wee way off paying a dividend. This is not a healthy loan book. Just like you, I have a lot invested in Allied Farmers. I want earnings on my investment too. Our drivers are exactly the same," he says. Another investor says he invested NZ$260,000 two weeks before Hanover stopped repayments and dividend payments in July last year. He asked if Allied Farmers would return cash to shareholders once they realised all the Hanover loans. "You're going to have 98% of new shareholdings (in the form of Hanover investors). Your original stock and station business is going to be like a pimple on the back of this new finance," he says. "How can such a small business make use of such a large amount of cash and is it going to be strong enough to provide support for a failing finance company that is so much bigger than you," he says. He is applauded. Alloway says Allied Farmers is interested in either reinvesting cash in its business or acquiring other finance companies. If it can't find decent opportunties, it would return cash. He says right now 'that little pimple' (the Allied Farmers business) is now producing a number of times more earnings than the Hanover loan book. Alloway says the combined business is more likely to get a stronger credit rating and has a stronger future together. He is applauded for the first time in answering a question. Another investor 'Gus' asks if internet sales would affect the stock sales agency business. Rob Alloway says Allied has launched www.mylivestock.co.nz website and is a leader in the business. He referred to the sale of a dairy herd in Southland via the website. Allied has no operations in Southland, he says. Alloway is getting smatterings of applause now. "Many of us invested in Hanover because we thought it was a respected company with a strong history. Now we're being asked to invest in a respected company with a strong history. Like others, when the cash starts rolling in we don't want it invested in Eric Watson houses or flash houses. I want to know how many Rich Listers are on the board of Allied Farmers and how do they make their money," Francis Coventry asks. Alloway doesn't answer the question, saying his private finances are his business, but then goes on to tell a folksy story about how he lost money once for a boss and lay down on the floor of his office. His boss said:'That's the most expensive corporate training you'll ever get." He gets a bit of murmur of laughter. "We believe we're a safe set of hands and we're asking you to trust us to look after your investments," he says. Richard Holiday asks who bought Allied Farmers shares last week when GPG sold its stake. Alloway says he hasn't seen a formal report about who the buyer was, although he knows who the seller was. 'Some silly bugger on the Telly' Alfred Batchelor, 84, asks how he'll get his money back. "Some silly bugger on the telly told me Hanover was as safe as the rock of Gibraltor." Alloway says there is no option for Hanover investors to get their money back now under the moratorium, but the Allied Farmers offer provided an option to sell the shares quickly if people wanted their money out for Christmas. Karen asks on behalf of her dad living overseas if shares can be transferred to relatives, and if Allied will use cash raised from Hanover's loans to invest in its stock and station agents or give it back to shareholders. Alloway responds: "It is not part of Allied Farmers to grow its commercial property financing book. It's about prudent investing in low risk enterprises that generate enterprise value. We see opportunties to grow stock and station agencies and in the finance business," he says. Proxy holder Tom Watson asks Mark Hotchin "I asking him: pay up the NZ$20 million now!" He is applauded. Hotchin responds: "We went into this expecting it to work. The NZ$76 million is a lot of money. The NZ$20 million as a guarantee. We never expected to get called on it. When the market was better we thought it was a fall-back. It's not due. It falls away under receivership and if this deal doesn't go ahead then we go back to the DRP and we carry on." "Nobody wants to be here. Certainly I don't," Hotchin says. "Your partner doesn't either..." someone calls out from the audience. " We've gone through a very, very hard year. The management team has worked incredibly hard. There is a lot of people owing a lot of money and as Hanover's reputation gets more and more smashed, it's much easier to run to the media with a story or a lawyer." "They (Allied Farmers) don't have that same history. They have a cleaner sheet of paper and some capital. It's taken a while to work out how good it is. It's about the platform. We are in a shrinking business that is just doing collections and fighting fights. This is a company is going forward and they don't have to collect the same as we do. "These guys don't. They've got an operating finance business. They're going to have NZ$400 million in capital. They're going to have a strong balance sheet and a strong finance company be able to raise money and move forward. This is significantly business." Watson's lack of baubles Tom Brosnahan asks why the directors recommended the Allied deal so quickly and if there was any collusion involving the directors. He also comments on Eric Watson's absence from the meeting. "Your shyster mate in the UK hasn't even got the baubles to appear." He is applauded. "Is it because the quicker you can do the deal the quicker you can get rid of us and avoid any liability as directors?" Hotchin responds: "We had a proposal put to us in August and it took a long One of the conditions is they wanted our audit finished. Until the audit was finished, the independent directors couldn't make their assessment and Allied couldn't formalise their offer. " The chairman says enough questions have been put and it's now time for statements. Dr Bryan Earnshaw, who invested NZ$70,000, says he feels as if he has been manoevered into a corner with two poor choices. Watson 'chicken livered' "What I have to say to Eric Watson couldn't be said in a public place, suffice to say he is too chicken livered to show up. But Mark Hotchin should be applauded for at least having the guts to front up," he says. He is applauded widely. Alan Grieve argues the Allied Farmers deal is weak, given Allied's own precarious position. "This is a a bungled buyout by a burglar chasing a bankrupt. The only answer is receivership. People are frightened by firesales, but there have been successful receiverships," he says. "I urge the meeting to let the moratorium run because before long the trustees will put it into receivership," he says. He gets the biggest applause of the day. "I'm Kirkpatrick" says he wouldn't invest in Allied Farmers if it was his own money. "There's a queue of sharks out there waiting to buy those shares at a bargain price from those who are old enough to need the money." "Will the receivers give me more? I don't know, but I'm prepared to give them a chance. There'll be no kissing by favour and no higgletey pigglety deals on the side. It's even possible that receivers will find some way to get their hands on a property worth NZ$30,000 on Paritai drive," he says to widespread applause. Another questioner says he doesn't believe Hotchin and turns his back on him. "I don't believe a damned word you say. I had NZ$100k with Hanover. This proposal is a disaster. We have a company in Allied Farmers that is very rich in liabilities and very poor in assets. The cheek of it: Why should we exchange NZ$396 million in assets for NZ$10 million in equity." "We need to stick where we are and stay with the moratorium. If we can wait for a little while longer we might get our money back." "I want out of this mob." Statements are finished. My feel from the tone of the meeting, the questions, the answers and the applause for various speakers is that Hanover Finance investors will vote against the Allied Farmers proposal. The meeting has now adjourned for the vote. The results are likely before 2.30pm, vote organisers say. The organisers now say the result is due at 4pm. Just talking now to a lady who had NZ$165,500 invested in Hanover Finance and Hanover Capital. Margaret Hills started investing with Elders Finance in the 1970s with Elders and continued through with Hanover. She was told less than a week before Hanover froze investments in July last year by the Hanover call centre that she had nothing to worry about. She had told them about my article about the 5 Survivability Factors in June. Margaret also had NZ$33,000 invested in Dominion Finance and money in MFS Pacific and Bridgecorp. She was advised to put money into ING's Diversified Yield Fund (DYF) and finance companies MFS Pacific and Bridgecorp (both of which have failed) by Tauranga financial adviser Stephen Parr, who runs Harmer Parr. The result: 75.45% of Hanover investors voted for the proposal, just above the 75% threshold.