MMG hits back over DNZ

A finance boss has hit back at DNZ independent director Simon Botherway's criticism of the structure of the original business.

David van Schaardenburg, a director of MMG Advisory Partners whose clients are DNZ shareholders, attacked Botherway for criticising DNZ 's structure which he said had left shareholders in an invidious position.

Botherway was wrong to say the existing structure would be improved and to use that to defend the deal to issue new shares, raise $130 million and list on NZX this month, van Schaardenburg said.

"At the end of the day two wrongs don't make a right. Simon is supporting the second of those two wrongs," said van Schaardenburg, who has predicted shareholders would suffer a 40 per cent drop when new shares are issued - a point Botherway questions.

Botherway on Monday told the Business Herald that the original DNZ structure was established by Money Managers, now MMG, the same business which is now criticising DNZ.

Botherway said he would never have advocated investors buy into the old structure but things would improve after the float, which will internalise the expensive management contract.

Van Schaardenburg said Botherway was a DNZ director appointed by the manager of the fund so "it is therefore inaccurate for him to presently call himself as independent".

"Any analyst would agree the current constitution is unfair. That is why MMG sought to have it changed at the first DNZ annual meeting in September.

"The two primary beneficiaries of the proposed transactions are Paul Duffy, who has been chief executive since 2001, and Alastair Hasell, who has been a director since setting it up over 10 years ago." van Schaardenburg said.

Doug Somers-Edgar, Money Managers' founder, was a DNZ director until resigning last year, he said.

"No MMG person, present or past, designed or was involved in the latest form of the company constitution and amalgamation which was done in October 2008. This was promoted by Duffy around New Zealand to DNZ investors and advisers in August and September last year.

"It is therefore disingenuous for any DNZ person to point the finger at MMG as being architects of the existing fund's design. The primary designers and beneficiaries of this are still at the helm. The reason for the capital issue is to reduce debt.

"That debt was acquired by the present management. Why should they benefit from the fix to the problem they created?"

Mike Daniel, former chairman of the Northland Port Corporation and a Pan Pacific Petroleum director, was scathing about DNZ.

He questioned why NZX would allow it, why Goldman Sachs JBWere had fully underwritten the offer and why anyone would buy in.

"This is just another smack in the face for New Zealand investors and it's no wonder no one wants to invest in the New Zealand sharemarket. NZX and Goldman Sachs must be really desperate," he said.

He had examined DNZ closely after a group approached him considering buying into it. But his findings left him disillusioned.

He was also scathing about the high fees Duffy and Hasell have extracted from the business and about Northington Partners' valuation of the management contract.

"Why is no one questioning that valuation? Where's the scrutiny of that? New Zealand investors are gun- shy because of this behaviour by DNZ and it just goes on and on," Daniel said.

"Any incoming directors should have demanded the whole thing was changed before they joined."

DNZ DEAL
* Consolidated shares last month.
* Issued two new shares for every five existing.
* Completed that deal on November 17.
* Cut shares on issue from 471.2m to 188.5m.
* All part of lead-up to December 17 NZX listing.
* DNZ plans to issue new shares and raise $130m.
* Opponents say existing shareholders will suffer.
* A 40pc value drop for investors has been forecast.