Allied Farmers boss says Hanover vote will be close

Allied Farmers chairman John Loughlin. Photo Dean Purcell.

Allied Farmers, seeking to paint itself as a poster-boy suitor for Hanover Finance's investors, is down to the wire on its deal to acquire the financial assets for $400 million in stock.

This week's vote by Hanover and United Finance investors may decide whether they're looking at receivership or a bunch of shares in Allied of uncertain value. Shareholders of Allied have already approved the proposal, which Grant Samuel described in a report to the equally supportive Hanover's board as "a backdoor listing of Hanover."

"It's Hobson's choice - there are no winners in this thing," said Alan Moore, who helps manage about $350 million at Milford Asset Management. "I actually think receivership might be a better bet. They get some money back."

The deal would transform Allied into a finance company of vastly more equity paper, with 97 per cent held by the new investors and shows the willingness of Allied's existing shareholders to accept a deal where they're watered down to less than 5 per cent.

The shares fell 5 per cent to a record 19 cents on Friday, with about 1 million shares changing hands, their biggest ever daily volume. They traded above $1.50 in January 2008.

PricewaterhouseCoopers gave an unqualified audit of Allied's 2009 financial statements though it did add an explanatory paragraph on the "inherent uncertainties" around Allied meeting its financial obligations, including compliance with debt covenants and its funding facility.

Allied chairman John Loughlin signed off on the statements, which said the company continued to be in compliance with covenants based on its forecasts through June 2010.

Borrowings were $35.4 million in the year ended June 30, little changed from a year earlier.Investment Research Group director Brent King said Allied is in "a perilous state, highly geared and with questionable asset quality," the Dominion Post reported.

He said Allied had $38 of debt for every $1 of shareholder equity, according to the report.

Loughlin says Allied's offer is the best thing on the table. "We're asking people to swap a secured debt security for an equity position," he told BusinessWire. "The reality of all that is their economic position is effectively an equity position now."

The NZX on Friday referred unusual trading in Allied shares to the Securities Commission after a jump in volumes at a record low price."Clearly someone sees value at that level and is buying them," Loughlin said. "I'm not sure how many sellers we've had."

In a rare opinion piece on an active transaction, Securities Commission chair Jane Diplock wrote in the NZ Herald that Allied was offering "paper value" which was "very different from being offered 30c, 72c, or 84c in cash."

She also noted that shares were a longer-term investment and Hanover's investors had to decide for themselves when they'd need the cash.

Hanover and United investors will vote in Auckland on Wednesday and Loughlin said on Friday it would be "close."

"There are a number of investors who do not wish to be convinced, some with an open mind and some who think anything is better than the status quo," he said.