FlyingPig's dysfunctional family

By KARYN SCHERER associate business editor

It will be tempting for those who have taken any interest in the dotcom phenomenon to write off the demise of internet retailer FlyingPig with a sage "I told you so".

As the plug was pulled on New Zealand's answer to Amazon on Wednesday, many wondered aloud how it had lasted so long. Pigs might fly, indeed.

But for those who have stuck by the prostrate porker long after it became unfashionable to do so, many questions remain unanswered.

Matthew Darby, chief executive of FlyingPig's largest creditor, Christchurch-based technology company EStarOnline, believes the business had "reasonably substantial" turnover.

"I'm at a loss as to where the money has gone," he says.

FlyingPig's ultimate owner, Wilson Neill, has fired a few shots of its own back at Mr Darby.

But he is not the only one who believes it is high time someone gave Wilson Neill a serve.

Frustratingly, few of its critics are prepared to be named.

One said he was afraid of upsetting FlyingPig's original backers, Eric Watson and his business associates. "You've just got to be so careful. Once you're in that family in New Zealand it's very difficult to get out."

Another described his experiences as "a bizarre, surreal, comedy of errors - like some sort of Tom Sharpe comedy".

Former FlyingPig finance officer Mark Battles was one of the few who would talk, but he would say little.

Mr Battles, who now lives in London, is blamed by many in the company for encouraging Wilson Neill to buy internet company Yippee before he resigned as a director in May.

Yippee went under before the transaction was completed, and the receiver is threatening to sue.

Wilson Neill says it is confident it will win the legal battle.

"All I can say is FlyingPig was, and still is, a strong business model with healthy margins but since the recent changeover [to Wilson Neill], there has been a lack of investment," Mr Battles said.

Last November FlyingPig was sold to IT Media, a publishing company run by one of Mr Watson's friends, 38-year-old entrepreneur Tim Connell.

The company's titles include Rugby World, Fishing World, New Zealand Business Times and teen magazine Creme.

A company linked to Mr Watson, Orion Ventures, ended up with a 10 per cent stake in IT Media in the convoluted deal.

IT Media is in the same building as Mr Watson's investment company, Cullen Investments, and his finance company, Elders Finance, which has a $600,000 debenture over IT Media.

Wilson Neill's general manager, Phil Vosper, denied speculation that the publisher was losing money.

"We're quite happy with the way IT Media is going," he said.

While he might be happy, several creditors are not.

"If everything's fine, then I want to know why they're having so much trouble paying us," said one.

Mr Connell sold IT Media to Wilson Neill in March, yet the transaction is not included in unaudited accounts to the end of March.

IT Media shareholders, including Hamilton property developer Simon Perry and Orion Ventures, received around 250 million Wilson Neill shares, said to be worth $15 million, in the deal.

Mr Connell became Wilson Neill's managing director but lasted only four months before being replaced by Mr Vosper.

Those associated with the company have no doubt that Dunedin hotelier Colin Herbert continues to pull the strings, although he is not a director or an employee.

Mr Herbert was at the helm of the company in the late 1980s, when it set out to become a brewing, hotels and property conglomerate.

He fell from grace in 1991 after allegations of insider trading, which were settled out of court in 1993.

The company collapsed soon afterwards.

When it was reborn four years ago, Mr Herbert was instrumental in bringing on board former Bayleys estate agent and Manukau Car Fair king Paul Hyslop.

Mr Hyslop brokered a deal in which Wilson Neill bought wireless technology company Radionet.

In September last year, Mr Hyslop publicly described Mr Herbert as a "great mentor".

Two months later, the Herald revealed Mr Hyslop had been investigated for insider trading of Fletcher Challenge shares. He subsequently admitted in court that he had been "motivated by greed".

He is now trying to negotiate with Fletcher, which he says is suing him for legal, management and investigation costs of $113,000. Fletcher also wants the profit he made from the share transactions, believed to be about $40,000 before brokerage.

Although Mr Hyslop resigned as a director after the revelations, he has kept his links with Wilson Neill.

In March, he and Mr Herbert received 10 million shares, said to be worth $300,000, as payment for "introducing and brokering" the IT Media deal. He is seen in the office most days.

Shareholder Ian Andrews' family trust once held a large stake of Wilson Neill. He remains a persistent critic of the company, and persuaded the Companies Office to lay charges against four of its directors last year for breaches of the Companies Act.

Three of the directors, Trevor Mason, Diane Giles and Paul Hyslop, were fined a total of $30,000.

Mr Andrews has also laid complaints about Mr Mason with the Institute of Chartered Accountants, which led to him being reprimanded and fined.

Like many small shareholders, Mr Andrews is keen to see the audited accounts, which are due at the end of this month.

He concedes that those who invest on the grey market are taking a risk. But in Wilson Neill's case, he says, the risks have been exaggerated by poor governance.

Certainly, its attempts to reinvent itself as a technology company have gone less than smoothly.

In May last year, it declared its intention to list Radionet on the Australian Stock Exchange through mining company Mount Conqueror. The deal did not go ahead.

By November, a company backed by Sir Michael Fay and David Richwhite, Jump Capital, was poised to invest when the Herald revealed Mr Hyslop's involvement in the Fletcher Challenge scandal.

Jump changed its mind about the deal, and Mr Hyslop and Mr Herbert were forced to find another suitor - a company called WeCU (pronounced we-see-you), said to be registered in Panama.

In February, it announced WeCU was prepared to pay $17.5 million for a 27 per cent stake of Radionet. Seven million shares, said to be worth $420,000, were issued to the Auckland-based managing director of WeCU, Russell Kerr, as commission on the sale.

In a letter to shareholders three weeks ago, the company admitted the deal had not yet been "completely settled".

Mr Vosper says "well over half" the money has been paid, but the value of the deal is unclear, as the agreement includes the purchase of WeCU technology.

Asked whether the two transactions cancelled each other out, Mr Vosper replied: "Not completely".

Asked how long Wilson Neill was prepared to wait before the deal was finalised, he replied: "I don't think there's any finite date on that."

Herald investigations have revealed WeCU tried to do a similar deal with a Florida company, AmeriNet, a year ago.

AmeriNet spokesman Charles Scimeca said the company gave up on WeCU after lengthy and ultimately fruitless talks.

Some shareholders believe WeCU has lost interest in the Radionet deal, and would rather take control of the parent company.

In June, a Hamilton-based charitable trust involving property developer Mark Dent and Alan Merrie contacted several of Wilson Neill's largest shareholders to say it was interested in buying their shares.

These offers are being made in the name of Transram, a joint venture between the trust and WeCU.

In July, Wilson Neill advised shareholders that Transram had indicated it was buying just over 50 per cent of the company. That deal has yet to be completed.

Transram is believed to have problems raising the money to buy the shares.

Rumours that it has had to pay an upfront fee to finance the deal, which it has all but written off, and that Wilson Neill provided some of the money are untrue, says Mr Vosper.

The deal was still "very much alive" and was coming "very close to fruition".

The company expected to announce "positive developments" in the next week or two.

It is unclear why Christchurch company Gold Band Finance placed a debenture over Wilson Neill four weeks ago.

The debenture has a priority amount of $1.2 million, but Mr Vosper says the loan is about a third of that.

Wilson Neill's commercial loan arrangements are no-one's business but its own, he says.

Christchurch lawyer Ben Barker is unsure why his name is on the debenture document, as he has not seen it.

He says he is not handling the Transram deal, but has been consulted by one of the parties who has an interest in the deal.

Mr Barker was listed as Wilson Neill's seventh-largest shareholder in its last annual return, but only because he was holding shares in escrow relating to Wilson Neill's purchase of Parnell restaurant Iguacu.

The saga would remain titillating, but private, gossip were it not for the fact that Wilson Neill has around 8500 shareholders - 1500 more than recorded in its last annual report.

Over the past 18 months, the company has issued hundreds of millions of shares, taking the total number on issue to around 900 million.

Most have been issued in payment for assets, but a substantial number have been issued to the public.

In September last year, their market value was said to be 10c each. They are now worth just over 1c.