KEY POINTS:
Richina Pacific shareholders face a difficult decision at a special meeting in Auckland on Monday.
The company, which has been a poor performer under the stewardship of Richard Yan, is proposing a complex amalgamation which will be followed at a later date by a separation into four different entities. If the proposal is approved Richina Pacific will be delisted from the New Zealand sharemarket.
Shareholders will have three main options at Monday's meeting:
* They can vote either for or against the resolution but stick with the company if the resolution is approved
* They can vote for or against the resolution and require the company to buy back their shares at 45.47 cents each either immediately or on January 30, June 30 or December 31 next year or
* They can vote against the resolution and object to the 45.47 cents per share buyback price either through the Bermudian courts, where the company is registered, or under arbitration in New Zealand.
The problem with Richina Pacific is that it has promised much but delivered little. Investors have to decide whether they will stick with the company in the hope it will achieve its full potential or cut their losses and run.
There was great expectation when Yan's investment fund purchased 50.9 per cent of NZX listed Mainzeal in May 1995. Yan, who was born in China, achieved educational distinction at Auckland Grammar, Auckland University and Harvard Business School.
He also had a notable start to his business career in Australia and the United States. He convinced a number of wealthy Americans to put money into his investment fund which would look for opportunities in China. Mainzeal was chosen as the vehicle for this fund.
At the end of 1995 Mainzeal made a successful offer for the 50 per cent of Mair Astley it didn't own and in September 1996 changed its name to Richina Pacific.
Since then Richina Pacific has made a number of investments in China, including:
* A major tanner that has failed to achieve its full potential.
* A greenfield aquarium in Beijing which cost more than expected and has produced disappointing results.
* Purchasing a former Chinese state-owned enterprise with interests in industrial water supply, chemicals, shoe manufacturing, taxis, plant leasing, real estate, a hotel and department store.
* Becoming a Chinese property developer and a provider of financial services.
Richina Pacific's annual meetings are quite extraordinary as each year Yan seems to be chasing a new pot of gold. One year it is the tannery, the next aquariums, then former state-owned enterprises, followed by property developments while the financial services sector was the next big winner at one stage.
Yan has problems focusing on one activity, setting goals, achieving these objectives and only moving to another initiative once he has reached his targets.
Yan once told shareholders that former Prime Minister Jenny Shipley, who is a Richina Pacific director and chairman of Mainzeal, would be a great asset to the company as she would open doors to the top levels of the Chinese Government. It is unclear how many doors Shipley has opened but she told the 2005 annual meeting that Mainzeal, Richina's New Zealand construction subsidiary, was applying for a Chinese property development licence.
That was one of the main themes of the 2005 meeting yet little has been heard since.
Another extraordinary feature of the company is that it is now registered in Bermuda, has its head office in Kuala Lumpur, has most of its activities in China while the chairman is based in New York and Yan lives in Auckland. The cost of supporting this worldwide structure must be enormous.
The company's share price was 24 cents and its market capitalisation only $36 million just before the latest restructuring was announced on November 21. This $36 million compares with a market value of $44 million when Yan purchased his stake in May 1995 and the company has raised $71 million of new capital from shareholders since then.
On Monday shareholders are being asked to approve the amalgamation of Richina Pacific, the NZX listed company registered in Bermuda, with three other companies. One of these is also based in Bermuda while the other two are incorporated in the British Virgin Islands. The notice of meeting specifically states that the merged company will not be listed on the NZX.
At a later, unspecified, date the new company will be split into four separate divisions. These are the China Division, representing the leather, aquarium and other China-based businesses; the New Zealand Division, containing Mainzeal; the Property Division, including all property operations outside New Zealand; and the Investment Division, which will contain the balance of the businesses, including financial services.
It is unclear why Richina Pacific is merging with two British Virgin Island companies, particularly when these are controlled by Yan.
It is also unclear why the amalgamation and separation are taking place at different times and why the company has to delist.
If the proposal is approved shareholders can either; keep their merged company shares; accept the 45.47 cents a share buyback offer immediately; accept the offer at a later date in 2009; or object to the buyback price.
Shareholders who wish to accept the buyback offer should write to Mr Yan at PO Box 5185, Auckland 1141, immediately after Monday's meeting.
If investors keep their merged company shares they won't have a recognised sharemarket to buy and sell these shares or the protection of stock exchange listing rules. These rules are particularly important for minorities when there is a dominant shareholder.
If they don't cash up immediately they can stay on board with a view to accepting the 45.47 cents a share buyback on January 30, June 30 or December 31 next year. The advantage of this is that it gives investors the opportunity to asses if the company is making progress but still have the chance to accept the 45.47 a share offer before December 31, 2009.
The negative feature of this strategy is that there is no right to object to the 45.47 cents a share offer price once the initial January 7 deadline passes and the company may be able to opt out of the payment for a number of reasons, including the solvency test criteria.
The other option is to object to the buyback price under two jurisdictions:
* The Bermuda Companies Act whereby Richina Pacific must pay the higher of 45.47 cents or the amount determined by the Bermuda Court
* The New Zealand Arbitration Act 1996 whereby a fair and reasonable price is determined by arbitration. This price may be higher or lower than 45.47 cents a share.
A large number of shareholders are extremely annoyed with Richina Pacific because it has promised so much and delivered so little. In addition they purchased shares well above 45.47 cents and the company's net tangible asset backing as at June 30 was US71c or over NZ120c at today's exchange rate.
These shareholders may wish to object to the buyback price but they need to make haste because the preferred option is to appeal to the Bermuda Courts and this must be done by the first week in January at the latest.
Whichever way one looks at it, every Richina Pacific shareholder needs to decide their preferred course of action and make themselves fully aware of the important trigger dates.
Richina Pacific is not a company where shares can be put in the bottom drawer in the belief that they will be worth more in 10 years' time than they are today.
Disclosure of interest; Brian Gaynor is an executive director of Milford Asset Management and a Richina Pacific shareholder.
bgaynor@milfordasset.com
