By Gareth Vaughan
The Shareholders' Association says it will probably vote against PGG Wrightson's plan to sell its finance company to Heartland New Zealand in what it labels "another related party transaction."
John Hawkins, Shareholders' Association chairman, says there was some merit in moving rural lender PGG Wrightson Finance to Heartland, created through the merger of Marac Finance, CBS Canterbury and the Southern Cross Building Society, but the proposed deal wasn't the best way to achieve it.
"This is another related party transaction of the type which has almost knee-capped our leading rural servicing business over the past five years at a time when NZ agriculture is enjoying record returns," said Hawkins.
The deal would see PGG Wrightson lending up to NZ$100 million of the up to NZ$110 million received for selling its finance company subsidiary to Heartland NZ to a newly established subsidiary that will buy the dud loans bank wannabe Heartland NZ doesn't want to inherit, and will use another NZ$10 million to subscribe for shares in the capital raising Heartland NZ plans to use to help fund the deal.
The deal also sees ASB wind up a risk sharing arrangement with PGG Wrightson Finance, which is buying loans in this back from ASB at book value. This is likely to amount to tens of millions of dollars, which PGG Wrightson will fund through a loan from Heartland NZ. See more on the proposed deal here.
PGG Wrightson will hold a special meeting tomorrow, June 28, for shareholders to vote on the deal.
Hawkins said he couldn't understand why a modestly profitable asset with a large pool of performing loans, market dominance and significant funding lines, failed to warrant any goodwill at all. PGG Wrightson says a sale at asset value only is the best deal it can get.
That seemed "extraordinarily pessimistic" when PGG Wrightson would transfer a loan book stripped of doubtful liabilities with 18 "really suspect" loans totalling NZ$90 million remaining with PGG Wrightson, which will also guarantee a further eight loans worth NZ$30 million.
"There seems to be a pretty significant transfer of assets while retaining most of the risk," Hawkins said.
PGG Wrightson shareholders ought to consider the implications for their own company very carefully before deciding whether or not to approve the deal, Hawkins added.
"The Shareholders' Association was likely to vote its proxies against the plan, and hoped to send the directors back to come up with a more realistic offer for PGG Wrightson shareholders to consider.
(Update adds date of special shareholder meeting).