KEY POINTS:
The Aussie bid for our leading tourism company, Tourism Holdings, looks set to fail in ignominy, with a new deal sweetener unlikely to be enough to get it over the line.
And a tit-for-tat letter writing campaign with the Shareholders Association does not help either. The lobby group challenges success bonuses being promised to THL executives and a controversial "break fee".
Australian company MFS said on Friday it had acquired only 22 per cent of THL's shares, far short of the 90 per cent it needs to compulsorily acquire all shares and de-list the company. It has now waived one takeover condition and will allow THL to pay a final dividend for the 2007 financial year.
MFS chief executive Marshall Vann said THL asked about the dividend and MFS had agreed. "We believe $2.80 is a very good price and we are excited about building on THL's strong reputation in New Zealand."
The THL share price has stayed below $2.80 since the takeover was announced, showing the market has little confidence in the bid's success.
"The offer price of $2.80 is the best opportunity for shareholders to realise value in THL shares, which have not traded above the offer price in seven years," Vann said.
Bruce Sheppard, chairman of the Shareholders Association, in a letter to THL shareholders, said the group "deplores the use of incentive payments by proposed shareholders to executives of target companies".
"The target company statement and the offer documents reveal that senior executives in Tourism Holdings will benefit from special incentives to be paid for completing the takeover of the company which employs them," the letter said. "These are cash incentives to the executives who supply information to the independent directors and independent advisers about prospects for the company."
The amount - between $600,000 and $800,000 - showed "an obvious conflict of interest", the letter said, and the practice should be outlawed.
Executives, since they do not own the company's shares, "cannot say they have any rights to enter into contracts regarding the rights of shareholders, to the shareholders property [the shares]. Executives are agents of the company. But they are not agents of the shareholder".
The $3.5 million break fee - payable to MFS should the deal not be recommended by directors or be superseded by a better offer is another bone of contention for the group.
The association said THL executives had no authority to pledge the company's assets against the failure of a proposed transaction for the purchase of shares owned by others.
THL chairman Keith Smith, in a written reply, said the group's letter contained a number of "blatantly false accusations". Bonus payments were not for the "successful completion of the takeover" as claimed.
"The bonus payments were set as a short-term incentive to increase the value of THL by disposing of the Tourism Leisure Group assets at a price that would have significantly increased shareholder wealth."
Smith's letter said the association had not contacted THL to check its claims.
"The board of THL is very concerned about the misrepresentation running through your letter, and the potential for damage to the interests of the company and its shareholders.
His letter asked the association to "retract its letter by writing to all THL shareholders within three days".
In a letter published by MFS, Vann said he was disappointed at the association's actions.
"Break-fee arrangements are common practice in Australia, the United Kingdom and the United States and the Shareholders Association should know that," he said.
"These arrangements have been previously used in New Zealand. What MFS Living and Leisure entered into is well within the bounds of normal business practice and well within the rules."
Sheppard, in his response, pointed out that the target company statement said that the payment for top executives - up to $800,000 - was "for work done in respect of the offer and in respect of an earlier proposal".
This bonus was payable once the offer became unconditional. Sheppard asked THL to explain why these executives should be paid extra for work they had done that related to the activities, and for the benefit of, a "proposed future shareholder".
He is then asked to advise how these executives had enough time to "address such activities, detracting (as it must have) from the continuing activities of the company (for and from which they are currently remunerated), and therefore from their existing duties to the current shareholders of the company."
Sheppard asked how the existing shareholders would be compensated for this "diversion of attention from the affairs of the company".
"In any given case this represents a significant risk to the board members, as it appears to tilt the field in favour of the proposed purchase. The extent to which an arrangement like this could influence the information a board relies upon, is an issue."
He said the association was well aware that break fees were common internationally. But these tended to be when a target company agreed to compensate a potential buyer should the deal fall over.
"What you've got here is the company, with the company's money, paying a break fee for a transaction between the shareholders and a third party - so how does this break fee correlate to the operating activity of the company?"
The shareholders, not the directors selling the company were what made the break fee different from other cases, Sheppard said.
