Fisher Funds Management committed an inadvertent technical breach of its banking terms with the ANZ when it agreed to buy Tower Investments for $79 million in February.
The deal wasn't settled till early April but Fisher says in its annual report for the year to March that because it was required to put a deposit down in February "the payment resulted in a technical breach of the limit on asset acquisitions within the loan agreement at that time".
Fisher said, however, that the ANZ was "fully informed" about the Tower acquisition and the deposit payable.
"The restriction in relation to the breach was subsequently waived by the ANZ Bank on April 15," Fisher said.
Because the breach occurred prior to the end of Fisher's March 31 financial year this meant that the entire borrowings from the ANZ - then $14.5 million - were treated as current despite not falling due till next year.
New agreement
However, on April 2 - the day the Tower deal was settled - Fisher entered into a new loan agreement with the ANZ, which now matures on April 2, 2016. There's no indication how much the new facility is for.
When the deal to acquire Tower Investments was announced on February 26, Fisher's managing director Carmel Fisher would not give any indication how much her company was borrowing from ANZ to help fund the acquisition but said: "It will be more, that’s all."
At the time TSB Bank was announced as new major shareholder of Fisher, but neither TSB nor Fisher would say how much it paid for its Fisher shares.
The amount was subsequently revealed by TSB in its June disclosure statement to be $32.8 million.
The Fisher annual report shows that 4798 new shares in the company were issued on April 2, with 3994 of these going to TSB.
Dividing TSB's purchase price of $32.8 million by that many shares gives a price per share of around $8210.
$40 million borrowed?
If all the other shares were issued at a similar price this would have given a total capital raising by Fisher in the region of $39 million - suggesting that the company may have borrowed up to $40 million to complete the Tower deal.
Fisher's annual report shows that the biggest component of the Tower Investments purchase price - which has now grown to nearly $80 million - was $73.2 million for "intangible management rights".
There was also $20 million worth of goodwill.
These hefty sums were somewhat offset by a credit of $22.2 million for "deferred tax liabilities".
A note to the accounts says that the deferred tax liability "arises on recognition of the acquired management rights as an intangible asset, and is calculated assuming recovery through use of the intangible asset".
Agreed to pay more
Fisher said it had agreed to pay more than $79 million for the Tower assets if the total net assets acquired ended up exceeding $5.8 million.
A "contingent consideration" of $914,000, potentially bringing the purchase price up to just under $80 million, has been included in the Fisher accounts.
Fisher said that if new information obtained within one year from the acquisition date about facts and circumstances that existed at the acquisition date identified adjustments to the amounts of identifiable assets acquired and liabilities assumed, or any additional provisions that existed at the acquisition date, then acquisition accounting would be revised.
Also included as an "other contingent consideration" is the sum of $22.769 million, which Fisher said related to amounts owed by the Tower parent company to Tower Investments at the time the assets were sold to Fisher.
Fisher said it was anticipated that all inter-company balances would be settled prior to the acquisition "but they were not".
"As a consequence of Tower Limited not settling the related party receivables prior to acquisition the net assets of the Tower Investment Group are $23 million higher than initially indicated and the purchase price has been adjusted accordingly," Fisher said.
Netting it off
"However, the company expects that Tower Limited will agree to net the receivable from Tower Limited off against the "other consideration amount of $23 million. [In fact, $22.769 million]."
The accounts show that for the year to March, Fisher Funds recorded an after-tax profit of $3.625 million, more than double the $1.765 million reported in 2012.
The increased profit stemmed from a substantial lift in fee income to $18.676 million from $13.422 million.
Included in fee income for the latest year was $13,259 million of management fees, $3.275 million of performance fees and $2.142 million of administration fees. This comparable figures in 2012 were $11.215 million, $375,000 and $1.832 million.
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