Waipuna's 60 million dollar question

By Brian Gaynor

Investment

This is the story of Waipuna International, the company with a revolutionary weed-killing system which uses superheated water instead of chemicals.

It is a tale of dogged determination involving a soccer international, a former politician, prominent stockbrokers, broken promises, disgruntled shareholders and a dramatic phone call during last Friday's annual meeting.

The surge in the company's share price, which is quoted on the stock exchange's unlisted securities facility, added to the intrigue. It jumped 15c to 25c after last week's meeting, even though directors warned that the loss for the first nine months of the year was similar to the same period in the July 1998 year.

Waipuna International - which derives its name from the Maori words "wai," meaning water, and "puna," meaning clear spring - was established in July 1994. Two months later it raised $2.3 million from the public through the issue of 4.6 million shares at 50c per share.

The company also bought the assets of Waipuna Systems for $2 million. Waipuna Systems owned the rights to the new weed-killing process, although the original inventors, Richard Newson and Graham Collins, remained entitled to a royalty of 6 per cent on all income earned from the technology.

The controlling shareholder of Waipuna Systems was Dennis Tindall, who was also managing director of Waipuna International. Mr Tindall was a highly regarded athlete who played 27 games for the All Whites between 1971 and 1976 and scored two goals in a famous 3-3 World Cup game against Australia in Sydney in 1973. Mr Tindall also had a big involvement in failed listed company Caprana Corporation.

The chairman of Waipuna International was Geoff Thompson, former MP, under-secretary and president of the National Party. Mr Thompson was also a director of Caprana Corporation.

Waipuna International started off with a hiss and a roar. Regular communications were sent to shareholders and the annual report for the year ended July 1995, was particularly optimistic. Dennis Tindall said the company operated in Australasia and North America and would be established in eight European countries by March 1996.

The seeds of the company's problems were being sown at this early stage. Waipuna was expanding too rapidly. The company was trying to take on the world before it had established a strong and secure base in Australasia. Shotover Jet made the same mistake and has shown signs of recovery only since it closed most of its overseas activities.

In 1996, stockbrokers Forsyth Barr entered the frame. The Dunedin-based company aggressively promoted Waipuna International to investors when the share price was above 50c. Forsyth Barr was also organising broker to a failed cash issue in April 1996, which hoped to raise $3.15 million by issuing new shares at 90c each.

The issue was aborted because of a failed attempt to raise funds in the United States for the development of the company's North American operations.

The annual report for the year to July 1996, which reported a loss of $2.9 million, made dismal reading. Just four months before the balance date, directors were forecasting a net profit of $0.8 million.

The annual report also disclosed that Forsyth Barr had advanced funds by way of a loan to Waipuna and the broker had first call on any proceeds from a cash issue. It has never been revealed whether Forsyth Barr had first call on new funds three months earlier when the aborted cash issue was still open.

In 1997, a Belgian businessman, Francois Mandy, bought a major shareholding and joined the board. Mr Mandy took control of the European operations. Waipuna then entered a period of relative tranquillity and the 1996/97 annual report had an optimistic tone after the net loss was reduced from $2.9 million to $0.8 million.

Francois Mandy's cordial relationship with Mr Thompson and Mr Tindall didn't last long. He resigned from the board in September 1998 and in a recent letter to shareholders made a stinging attack on his fellow directors. Mr Mandy claimed that he was obstructed in his duties as a director; that he received misleading information; that excessive amounts had been paid to companies associated with Mr Tindall; and that a cheque paid to the company's auditors had bounced and remained unpaid for eight months.

Mr Mandy has two outstanding legal proceedings against Waipuna International. One is an application to appoint an interim liquidator or receiver. Two weeks ago, Dennis Tindall wrote to shareholders with a vigorous defence to Mr Mandy's accusations. He said Mr Mandy was trying to take over the company's intellectual property in Europe and he had ceased to make a useful contribution to the company.

After this heated public exchange of letters, last Friday's annual meeting in Auckland was expected to be a showdown between the antagonists. The atmosphere before the meeting was remarkably relaxed. Directors greeted shareholders with a smile and there was no sign of Francois Mandy and his supporters.

The first surprise was the announcement that John Anderson, a Melbourne accountant, and George Hunter, Waipuna's former development manager, had been appointed directors. Mr Anderson chaired the meeting and shareholders were told that Mr Hunter and associates had bought Mr Mandy's shares that day. This explained the absence of the former director and his supporters.

Dennis Tindall opened proceedings with a long statement attacking Mr Mandy and predicting an exciting future for Waipuna. He reiterated that Waipuna's hot-water machines were recognised for their cleaning ability and the company had enormous potential because there was a large number of old and dirty buildings in Europe.

At this stage the company's financial controller made a dramatic entrance with a small piece of paper and a broad grin. As the paper was passed from director to director they turned to each other and smiled. Dennis Tindall was ecstatic: "I can't believe it. This is beyond our wildest dreams. I never realised it would be as good as this."

The suspense was agonising, but Mr Tindall spoke on without revealing the contents. He was followed by Mr Thompson, who criticised the auditors for qualifying the accounts. Mr Thompson then came to the defining moment of the meeting - he revealed that the piece of paper contained the figure $60 million-plus.

This figure had been phoned through from a major accounting firm in Australia, believed to be Deloitte Touche Tohmatsu, and it represented the assessed value of Waipuna's intellectual property. The figure is in Australian dollars and it is unclear whether any conditions are attached. The valuation relates only to the company's hand-held weeder, developed for domestic consumers.

Directors told the meeting they were hoping to use this valuation to persuade Australians to invest in Waipuna. The preferred vehicle would be a tax-driven scheme before the end of the Australian tax year on June 30. They believe Waipuna has a bright future if fresh funds can be raised in this manner.

The mood of the meeting changed dramatically after the revelation, even though directors announced that the company continued to operate at a loss. One shareholder became so excited that he almost pleaded with directors to include everyone in any new capital raising.

The well-timed phone call from Australia and the $A60 million valuation could be the change of fortune that long-suffering Waipuna shareholders have been waiting for.

There is a possibility an Australian investor may make a significant investment, which could make a considerable difference to Waipuna's prospects.

Mr Thompson and Mr Tindall are due a lucky break but Waipuna has a long history of broken promises. Most informed observers of the company will want to see the money in the bank before they are convinced Waipuna has a viable long-term future.

* Disclosure of interest: Brian Gaynor is a Waipuna International shareholder.