After the Hanover debacle, Eric Watson might have hoped for a big win with his latest venture in the US. So far, it isn't working out that way, reports Denise McNabb.
Eric Watson might have escaped the Hanover Finance collapse with his business reputation tarnished, but now his latest venture in the United States is threatening to leave it in tatters.
Writs are flying and financial institutions have refused to come to the party with development funding for the US$400 million ($543.9 million) project - a dairy and beef farming operation in the state of Georgia, using Kiwi-style farm management practices.
Even Watson's considerable wealth - estimated at more than $450 million - is not enough to convince financial institutions, which consider it too risky to help him build his agricultural empire. A group of disgruntled United States investors has also lodged a class action to get back their share of US$539 million invested with Watson and long-time US investment partner John Ledecky in their Triplecrown Acquisition.
Triplecrown is what the Americans call a special purpose acquisition company, or Spac. Often known as "blank-cheque companies", Spacs are pools of investor money, raised on the promise that they will buy or merge with an existing business.
The unhappy investors claim Watson and Cullen Agricultural Holding - the name of the farm scheme - "breached their fiduciary duties and their duty of disclosure" in the deal that merged Triplecrown into the farming operation.
While it had amassed about 1250ha of land by the middle of this year, Watson - chairman and chief executive of Cullen Agricultural Holding - warned shareholders last month that there was considerable doubt about the company's ability to continue as a going concern. This, he said, was because the economic downturn and the performance of other farms in the southeastern US meant financial institutions were reluctant to lend.
In the meantime Cullen Agricultural, listed on the American Stock Exchange, had cut costs while it tried to obtain finance.
In New Zealand, there is unlikely to be much sympathy for Watson's plight.
Hanover Finance's 17,000 investors are still smarting over the $45.5 million Watson and fellow Hanover owner and business partner Mark Hotchin took in dividends for the year to the end of June 2008, three weeks before the company shut up shop with about $527 million of funds hanging in the balance. The previous year they took a dividend of $41 million.
A Hanover spokesman has said some of the 2008 dividend was reinvested in the company, to reduce related party borrowing.
Some Hanover investors are baying for the pair's blood over other aspects of the failed finance company.
It is nearly two years since investors voted in favour of a rescue plan for Hanover Finance, which changed tack when Allied Farmers took over its assets. Watson and Hotchin had promised to put a mix of cash and assets worth $96 million into the complex scheme for the investors.
It transpires that as well as dealing with the fallout from Hanover, though, Watson might have been thinking ahead.
New Zealand Companies Office records show that on December 11, 2008, just two days after the rescue plan was approved, Watson transferred all but a handful of shares in his Cullen and Logan private companies to subsidiaries whose ownership can be traced to Novatrust Ltd, a company registered in the tax haven and protective trust jurisdiction of Jersey in the Channel Islands.
Watson has been busy. At first there were 587.53 million shares in Novatrust. By April this year the amount had risen to a staggering 728.42 million shares. Why he parked these shares - presumably, the value of his private assets - in Jersey is a matter of conjecture.
Last month he told the US Securities and Exchange Commission the future of Cullen Agricultural Holding looked uncertain without development funding from the institutions.
The rationale for the agriculture venture lies in research showing grass-fed herds produce better-quality milk and meat, commanding higher prices. Pasture is also a cheaper food source than grain, which American farmers typically feed to their stock, usually housed in confined spaces. Some of the land bought for the project has already been sold to defray costs and to repay seed money to Watson, who is still owed about US$2 million. The company is not past the start-up phase and has yet to turn a profit.
Taking the chairman and chief executive roles is unusual for Watson, typically a company acquirer rather than hands-on manager.
Watson - who could not be contacted for comment for this article - is a business enigma who draws as much awe as ire.
The flipside to the wrath over Hanover, for example, is the loyal bunch of Warriors fans who see Watson as a saviour for rescuing the financially strapped league team from almost certain oblivion by taking a 75 per cent stake a decade ago.
Watson said often in the 1990s that he had no intention of leaving New Zealand because it was a good place to do business. But by September 2002, with his short-lived marriage to model Nicky Watson over, he made his permanent home in London.
The move coincided with the arrival of right-hand man Phil Newland to run his private New Zealand ship, Cullen Investments.
Watson had headhunted Newland, a lawyer and investment company manager, from New York in 2000 to manage his real estate portfolio, but after the tech wreck he appointed Newland in 2001 to run Cullen, the umbrella company for his many investments. Among Newland's tasks was improving the governance of Watson's companies, which had earned something of a wild west tag.
Watson had surrounded himself with young business apprentices with a penchant for deals who had been riding the dotcom wave, but the tech wreck brought many of those companies to an end.
From a London base it would not only be easier for him to pursue global interests, but he could make a clean break from the New Zealand managers of those tech businesses he had appointed with mixed success. Or so the story went at the time.
Newland's appointment at Cullen pushed aside Watson's former manager Maurice Kidd, but when Newland quit suddenly two years later, Kidd returned to his old job.
Newland still declines to elaborate on the circumstances surrounding his departure from Cullen. Today he is a successful private investor involved in developing a litigation fund.
Asked last week why he had joined the boards of all of Watson's companies except Hanover Finance, he said people could draw their own conclusions.
It is widely rumoured that Newland and Hotchin did not see eye to eye, but again, Newland won't be drawn.
Watson's worst business decision was the $47.2 million purchase of British retail chain PowerHouse from receivers in 2003. The ill-fated foray sucked almost $300 million out of the Watson-controlled PRG (formerly Pacific Retail Group). The decision to buy PowerHouse was widely rumoured to have been Watson's alone, but PRG acting chief executive Steve Smith said at the time that it was a unanimous board decision, though he was guarded when asked if they had been railroaded into it.
PRG's former New Zealand boss, Peter Halkett (now running clothing retailer Kathmandu), was dispatched to Britain to run PowerHouse. In the end, Powerhouse creditors faced a $47 million loss, $30 million of which was owed to Watson. He never recouped the money and in a scheme of arrangement to liquidate PowerHouse and take PRG private, Watson ended up paying GE Finance and Insurance $18.5 million because it had overpaid for the assets of PRG's finance arm.
About the time of the PowerHouse deal there was much chat about the "Watson factor" - a label implying that investing in Watson-controlled companies was likely to be high-risk. That was a contrast from the early days, when Watson was feted as the "man with the Midas touch", with shareholders pouncing on his every investment decision.
His popularity came at a price: followers would push up the share price of companies he was trying to get for a bargain.
People who have brushed up against Watson are these days loath to talk on the record or say much about him at all, other than that he had a reputation for not turning up to meetings of companies where he had board seats. They argue that he left the country a long time ago and his focus is no longer on New Zealand, except for lingerie manufacturer Bendon, some bloodstock interests and property bought with loans from Hanover and now in a private company. He is in the process of selling his 37ha property at Karaka, south of Auckland.
At the time of his London move, Watson said it would allow him to be closer to son Sam (now 16), from an earlier relationship, who lived there with his mother.
In 2005 Watson moved into an apartment block at the tony address of 199 Knightsbridge Rd, a stone's throw from Harrod's. He used to live at apartment 10.02, but Companies Office records show he recently changed his address to 10.03.
The address change coincides with a report in London society pages last year that Israeli software tycoon Teddy Sagi (whose supermodel girlfriend Bar Refaeli split from Leonardo DiCaprio) paid £26 million ($56.4 million) for Watson's four-bedroom, 10th-floor pad, twice the £13 million he bought it for.
If, as records show, he has moved next door to Sagi, they would make fitting neighbours; Watson, 51, is renowned for his playboy lifestyle, lavish parties, racehorse ownership and being seen with beautiful women, particularly models, at prime holiday resorts. He has a young son with present partner, Swedish model Lisa Henrekson. His 50th birthday bash, costing an estimated $1.6 million in Turkey last year, was well documented.
He has also earned some notoriety. There was the punch-up in the toilets of a London restaurant with actor Russell Crowe, and a ticking-off from the NZ and US regulatory authorities for share trades in McCollam Print in 1996 and 1997.
In 2003 Watson had a very public fight with Auckland businesswoman Josephine Grierson over Bendon. She took him to court, and the Court of Appeal eventually agreed with her claim for a $1 million fee (including court costs and interest) for bringing Bendon to the table. She had asked Watson's Cullen Investments to inject $10 million but said he pulled the rug from under her feet by taking over the company himself. Cullen had planned an appeal to the Privy Council, but in the end the dispute was settled for an undisclosed sum.
In 2004 one of Watson and Hotchin's companies, Australian Finance Direct, was in the gun with Australian authorities - accused of misleading consumers in relation to its lending to people dealing with the disgraced get-rich-quick property hawker Henry Kaye. It faced a fine of up to A$2 million ($2.5 million) but in the end, said Consumer Affairs Victoria, the penalty was A$100,000.
Watson's wealth and acquisitive track record is a far cry from his work as butcher's apprentice after leaving school at 16 in Christchurch. He branched into office products and got his big break when US stationery giant US Office Products bought his Blue Star stationery and office business in 1996 for a net $150 million.
It is estimated Watson has made at least 400 business buys since the early 1990s.
His business model is simple: acquire, aggregate then get out.
He was in the spotlight last month when US clothing chain American Apparel announced a second-quarter loss of US$7.3 million, forcing it to weigh up its future as a going concern. Watson and his partner Ledecky put in US$130 million and took on US$110 million in debt in a reverse takeover in 2007, with funds raised from another Spac, Endeavour Acquisition.
Speculation surfaced last month that Watson had taken a bath on the investment after initially making millions in fees and on paper, benefiting from the rising share price before the fall. It transpired he had quietly got out of American Apparel some time in the past year, but it is not known if this was before or after the company's reversal of fortune.
Some of his forays might appear brazen, but the man comes across as suave and articulate. He is well spoken, dresses immaculately and is obsessed with fitness.
Those who have dealt with him in the past have said his shrewdness in spotting a good deal should never be under-estimated
One financial commentator once called Watson the mercurial merger/takeover maestro. He will no doubt be hoping some of that magic is left in him, to pull the Georgia dairy venture out of the mire.
