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Hanover Finance - Source: ONE News -
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Listed rural services and finance company Allied Farmers has agreed to buy the finance assets of Hanover Finance and United Finance in a $400 million deal.
The company, which has been reviewing its structure, market presence and operations, says the deal will increase the size of its rural services and finance businesses.
"It's quite revolutionary and we haven't seen this kind of large deal done in New Zealand for a long, long time," says Brian Gaynor of Milford Asset Management.
The agreement is conditional upon approval from Allied Farmers shareholders and investors in Hanover and United.
In the deal, Hanover and United investors will receive shares Allied Farmers.
"So both they (Hanover and United investors) and Allied Farmers shareholders benefit by being the owners of a very significant well capitalised player in a sector that's been well rationalised," says John Loughlin of Allied Farmers.
Allied Farmers says most of the performing assets of the acquisition will be transferred to its Allied Nationwide Finance business.
The deal follows a $102 million loss posted by Hanover Finance on Tuesday, citing deterioration of the commercial property market.
Before write downs, Hanover posted an operating loss of $283 million.
Hanover was placed in a five-year moratorium in December last year as an alternative to receivership, owing over $500 million to its 16,400 secured depositors.
Last week it also announced that it will likely not be able to repay its investors in full, and expected to return 70 cents in every dollar invested.
Allied Farmers says a new subsidiary of will be created for "holding and managing difficult assets".
In a statement to the NZX, Allied Farmers says the deal will include an adjustment mechanism for existing shareholders "if the expected recoveries from the acquired assets do not meet expectations".
Shareholders on both sides will have to decide next month if they want to go through with the deal.
A lot to weigh up
John Cullen is one of 16,000 people who found out his $35,000 investment in Hanover is up for sale.
"It was a bit of a shock. It's almost like they want to wash their hands of the company and they've had this in the back of their mind from the get go," Cullen says.
What this new arrangement could mean for investors like Cullen is he could get more back, 78 cents and his money back earlier.
"This is obviously better than 70 cents, but it's easy to say that at this juncture, isn't' it?" asks Cullen.
Gaynor agrees that it is difficult to predict what the deal could mean.
"It does offer them an option, though it's difficult to say how
much it will actually deliver them (investors) in the long run," he
says.
Craigs Investment Partners analyst Jennie Moreton says the deal
appears to be complicated, and there will be a lot for Hanover
investors to digest.
"These are your relatively unsophisticated investors who thought they were doing the right thing investing their money with a finance company," she says.
"They lent their money to that finance company, and at the end of this deal they could potentially become owners of Allied Farmers, and for them the sharemarket is probably a bit of a risky place," she says.
On the other hand, Moreton says Hanover investors' decision last year to support the moratorium was also a vote to allow directors and managers to continue running the company.
Allied Farmers currently has about $13 million worth of shares on issue, around 37.5 million shares at 35 cents each, and is now proposing issuing 900 million shares to buy the $400 million of assets.
"Simple division says that's 44 cents a share, so there's obviously a little bit more detail to come out there," says Moreton.
Shareholders and investors are expected to vote on the deal in
mid-December.
