Allied confirms deal with Hanover

Mark Hotchin. Photo / Brett Phibbs

About 13,000 Hanover investors have a new proposal on the table after Allied Farmers' announcement that they have signed an agreement with Hanover Finance and its subsidiary United Finance.

The deal, worth $400 million, would see Allied Farmers pick up the "challenging" assets of the failed finance company in exchange for shares in Allied Farmers.

Allied Farmers chairman John Loughlin told a press conference that Hanover debenture holders will get shares in Allied Farmers which will equate to 78 cents in the dollar for their original investment.

The deal, which was tipped by Adam Bennett in his Stock Takes column last week, is subject to a market value of Allied's shares.

"That reflects both the value of the assets there and the support package provided by Messrs Hotchin and Watson," Loughlin said.

He was referring to a deal by Eric Watson and Mark Hotchin that was valued at $96m shortly before Hanover investors decided to enter a moratorium rather than face liquidation.

Loughlin said the deal was now valued at $44m.

Hanover has employed Grant Samuel to provide a report for investors on the merits of the Allied Farmers Proposal.

Hanover chairman David Henry said in a written statement: "Following receipt of Grant Samuel's independent expert report and consideration of this report, the independent directors will make recommendations to investors regarding the Allied Farmers Proposal.

"At that time we will communicate fully to investors prior to the vote required from them for the Allied Farmers Proposal to be approved."

Hanover directors last week told investors that they would only receive 70 cents in the dollar.

Loughlin said: "From Allied's point of view, this is a transaction that we have been thinking about for sometime. For many people as we announce it, it will probably seem counter-intuitive," Loughlin said.

He said despite the economic climate, Allied Farmers has seen an opportunity.

"The Hanover assets have been colourfully described. They certainly were not an appropriate bunch of assets to back a finance company venture.

"At the same time, the changes in the financial position of Hanover have effectively turned those secured debenture positions into an equitable position," Loughlin said.

He said Hanover's portfolio was a mixture of "performing" and "challenging" assets.

"Of the total assets acquired some 20 per cent were performing while the balance were non-performing," Loughlin said.

He said the performing assets will be transferred to the Allied Farmers subsidiary Allied Nationwide Finance while the remainder will be placed in a "separate asset management group".

Loughlin said the $400m deal will result in 900 million new shares being issued and could push Allied Farmers on to the top 50 NZX.

He said shareholders in Allied Farmers will have some protection.

"For existing shareholders, the transaction includes an adjustment mechanism which will re-align relative shareholding as at June 2011 if the expected recoveries from the acquired assets do not meet expectations," Loughlin said.

He said for the deal to go ahead it will require a 50 per cent support vote from Allied Farmer shareholders and 75 per cent of Hanover investors. The meetings of the respective share holders are due to take place next month.

Shares in Allied Farmers were placed in a trading halt earlier today.

Yesterday, auditors KPMG released Hanover's accounts, showing a $102 million loss for the year to June.

The company had an operating loss of $283m, compared to a $10m profit for the previous year.

Bad debts of $137.1m had been written off and provisions made for credit impairments of $136.9m.

Last week Hanover said it was no longer likely to fully repay investors under a debt restructuring plan due to a deterioration in the commercial property development market.

Directors estimated the return to secured depositors was likely to be about 70c in the dollar for Hanover Finance investors.

Investors in subsidiary United Finance could expect estimated returns of around 90c.

Investors voted in December last year to accept the debt restructuring plan under which investors were to be repaid more than $500m owed to them over the next five years as an alternative to receivership.

Last month, Allied Farmers said it was carrying out an extensive review of its structure, market presence and operations.

Following a disappointing 2009 result, the review was seeking to establish ways the group could significantly improve its operating performance and market share in the two key rural and financial services businesses.

For the year to June, Allied Farmers reported a bottom line loss of $33.3m, after a $20.5m writedown on the value of Allied Nationwide Finance.

The loss compared to a $2.37m profit in the same period last year.

The pre-tax loss of $5.7m compared to a $8.2m profit last year.

Allied Farmers shares lifted 2c to 35c following the announcement, after a trading halt was lifted.

- additional reporting from NZPA