KEY POINTS:
While they are paying a fraction of what they sold the business for little more than a year ago, Strategic Finance's management and former owners are hardly making a killing on their repurchase of the company, chief executive Kerry Finnigan says.
Strategic's board yesterday said they had signed a sales and purchase agreement which will see a consortium of senior management, former owners and the Bank of Scotland International acquire the troubled finance company from Australian investment company Allco HIT.
The consortium, Clarence Investments, will pay $25 million in cash plus transfer eight million Allco HIT shares currently held by various Strategic Finance executives.
Strategic's executives and former owners, including current New Zealand Rugby Union chairman Jock Hobbs, acquired the shares, with some in parent Allco Finance, when Allco HIT bought the finance company in two instalments, completing the transaction early last year.
The overall purchase price has never been disclosed but has been estimated to be as much as $300 million.
But the value of Allco's shares and those of its subsidiary have been hammered in the fallout from the credit crisis. Most of the shares have remained in escrow preventing Strategic's management and former owners from selling them before they tanked.
When the shares were issued, said Finnigan, Allco HIT shares were attributed A$4 ($4.89) each in value while the Allco Finance shares were attributed A$10.80.
Both were now "penny dreadfuls".
Asked what he stood to make on the deal Finnigan said: "It's a big fat donut from my perspective, and there are plenty that share that position within the management."
Meanwhile, Clarence will contribute a further $15 million to Strategic, with those funds being subordinated to those of debenture, subordinated note and perpetual preference share holders .
BOS International will increase its existing debt facility to the company from $100 million to $150 million and may extend its stake in Clarence from just under 20 per cent to just under 50 per cent to reflect its financial commitment.
On Friday Strategic reported a $15.7 million loss in the year to June 30, compared with a profit of $29.4 million a year ago.
Yesterday, Finnigan confirmed that much of that loss was due to a big increase in provisioning to provide a buffer against mounting bad loans.
With those provisions and the additional BOS International funding in place, "there's enough freeboard to weather the market as we see it", said Finnigan.
"Certainly we wouldn't be putting our money in a rush if that wasn't the case.
"The outlook is clearly for a bit more consolidation but we think that by mid to late next year the market's going to show good signs of recovery and we'll be away again, and we'll be well positioned to handle it if it isn't."
The Strategic deal still requires the approval of a number of parties including the company's trustee, and 15,000 debenture investors who are owed $325 million.
Under the plan 30 per cent of debenture holders' principal will be repaid in three equal instalments over 18 months starting in March next year, with the balance being converted into three, four and five-year bonds.
Finnigan said investors would probably get to vote on the proposal in the middle of next month.
