Brian Gaynor: Let's get ready to rumble

Pinot 21 will be the place to be on Wednesday afternoon when four business personalities - Hugh Green, Brent King, Rod Petricevic and Bruce Sheppard - go toe-to-toe at the Dorchester Pacific annual meeting.

King, Petricevic and Sheppard have been nominated for the board, and Green, who owns 19.99 per cent of Dorchester, will have a big influence on the outcome.

Chairman Barry Graham is seeking re-election, and he and fellow directors Paul Byrnes, Bob Carter and Paul Drummond, don't support the election of King, Petricevic or Sheppard.

Dorchester doesn't have a prescribed number of directors, but the board believes five is appropriate.

It has employed a recruitment firm to identify a suitable candidate and doesn't want to endorse any new nominee until this process is completed.

The chairman is nervous about Wednesday's meeting and early this week sent a letter saying media attendance would be strictly by invitation. Journalists would be asked to refrain from asking questions, filming or recording during the meeting. The next day, the company's public relations advisers noted the media was welcome but should "allow the shareholders to take priority during the meeting".

What does this mean? Surely the PR people don't expect journalists to shout down King, Petricevic and Sheppard during formal proceedings?

The Dorchester Pacific saga began on August 13, 2004, when King, who was managing director at the time, sold 3.2 million shares or 15.1 per cent of the company to Petricevic's Bridgecorp for $4.04 a share - a 44.3 per cent premium over Dorchester's closing market price of $2.80 a share before the transaction.

Bridgecorp also bought 1 million shares or 4.9 per cent from parties associated with Grant Baker for $4 a share, Baker receiving $3.30 and King 70c. Baker is chairman of 42 Below and King is a director of the vodka company.

The King/Bridgecorp agreement provided for King's continued employment with Dorchester and a restraint of trade over his future activities. King is lucky that his offer to personally pay Bridgecorp $500,000 a month until a Bridgecorp representative was appointed to the Dorchester board was removed from the final agreement.

The Takeovers Panel investigated the King/Bridgecorp transaction and said it was not satisfied that the two parties had acted in compliance with the code. This was because Bridgecorp had obtained certain rights over a further 5.05 per cent held by King as well as the 19.99 per cent beneficially acquired.

The Dorchester board also disclosed that King had let Bridgecorp see the company's 2005 plan and abridged board papers without the consent of his fellow directors.

On April 5 last year, a special meeting was held at the request of Bridgecorp and Green to vote on the board appointment of Eric O'Sullivan, a Bridgecorp executive, and Bob Carter, a Green associate.

O'Sullivan, received only 21.9 per cent of the votes and was unsuccessful; Carter was elected after receiving 74.8 per cent of the votes.

Chairman Murray Radford and Sir William Birch stood for re-election at last year's annual meeting and Bridgecorp nominated Peter Drummond for the board. In a major surprise, Radford and Birch were dumped and Drummond was elected.

The voting figures showed that Green and Bridgecorp voted against Radford and Birch, but supported Drummond.

Radford and Birch were paid retirement allowances of $150,000 and $50,000 respectively.

Barry Graham was appointed acting chairman while the board considered a permanent appointment, and he and Drummond were deemed to be independent directors (Drummond was nominated by Bridgecorp, but is not a Bridgecorp associate).

The other directors were King, the managing director, and Carter and Paul Byrnes, both directors of Hugh Green Investments.

The Shareholders Association complained to the Takeovers Panel because Bridgecorp and Green seemed to be acting together at the annual meeting. The panel dismissed the allegation.

King resigned as managing director from February 28, and Byrnes was declared an independent director two months ago after leaving the Green group of companies.

These shareholder shenanigans have affected Dorchester Pacific's sharemarket performance.

In the past two years, its share price has fallen from $2.85 to $2.17 as the sharemarket and other listed finance companies have risen in value.

The root cause of the poor performance is the original deal between King and Petricevic. King places a high priority on his own interests, and Petricevic is not highly regarded by investors.

Bridgecorp, which is traded on the Unlisted facility, has a price/earnings ratio of 3.5 and a market capitalisation of only $17 million against total equity of $86 million.

Investor confidence in Dorchester will not be restored until Petricevic sells his stake or declares he is a passive investor and will not seek board representation.

Nominations for next week's meeting have been received from Viking Capital for King, from Bridgecorp for Petricevic and from Southern Hills Imperial Timber (1932) for Sheppard.

Viking Capital was listed on the NZX at the end of June after the issue of shares at 25c each. It now has 57.4 million shares on issue and a 5.6 per cent stake in Dorchester Pacific as well as interests in 42 Below and ICP Biotechnology. King is chairman of Viking Pacific and Baker and Birch are the other directors.

King and Baker obtained their combined 46 per cent interest in Viking Capital by selling shareholdings in Dorchester Pacific and 42 Below to the company and receiving shares in return.

It is highly unlikely that Green, or shareholders acting in the best interests of Dorchester Pacific, will vote for King next week.

King, who has moved on to Viking Capital, has tended to act in his own best interests, and he recently poached Dorchester's former chief financial officer for Viking Capital.

Green is not expected to vote for Petricevic because Dorchester Pacific won't attract institutional or other large shareholder interest while the Bridgecorp representative is a director. Dorchester's share-price performance is unlikely to improve if King or Petricevic are elected.

Sheppard, chairman of the Shareholders Association, has been nominated by Southern Hills, which he owns.

Until the end of July, Southern Hills was a shareholder, and Sheppard a director of Performance Finance (now called Market Road Finance), which is an Auckland loan broker that arranged used car loans on behalf of the failed Provincial Finance. Sheppard did not disclose this former interest in his Dorchester Pacific resume, even though Performance Finance operates in the same area as Dorchester.

It is highly unlikely that Green, Bridgecorp or Viking Pacific will vote for Sheppard. Sheppard has made a great contribution to the association but he is not the ideal candidate for listed company boards because of his outspoken views and unique personality.

Sheppard still has a strong political bent. He couldn't sit still when Michael Cullen addressed the Shareholder Association's annual meeting last week and told members that he wanted the association to become more political.

The re-election of Dorchester chairman Barry Graham is also not assured. He hasn't shown particularly strong leadership and it is unclear how the major shareholders will vote.