Sheppard works to scupper deal

By ADAM GIFFORD

A plan by exo-net founders Maurice Bryham and David McKee Wright to revive the fortunes of technology investor IT Capital could be scuppered by shareholder activist Bruce Sheppard.

A shareholders' meeting on July 23 will be asked to approve a plan in which the pair will tip their investments in three technology start-ups, as well as $1.2 million cash, into IT Capital in exchange for a 41 per cent stake.

They will also bring in a further $2.5 million from other investors and sign a three-year management contract.

The start-ups are mobile phone application company Datasquirt, electric motor developer Conceptual Solutionz, and Sealegs International, which is developing a boat with retractable wheels.

Accounting firm Grant Samuel has put the value of the stakes at $5.5 million, despite the pair having spent only about $100,000 on them to date.

Sheppard said IT Capital shareholders were being asked to pay a high price for unproven companies.

"They're donkeys. They're not even donkeys, they're mules and asses," Sheppard said.

"[Bryham and McKee Wright] are selling shareholders hope and prayers. They have nothing much else."

He said the plan needed a 75 per cent majority to be accepted.

"There are 170 million shares on issue. About half will turn out to the meeting, and if 20 million vote against, there is no deal.

"At the last meeting we got 19 million proxies."

He said that rather than taking shares up-front for the companies, Bryham and McKee Wright should take a mandatory note, to the value of their current investment, which would convert to IT Capital shares in three years on a sliding scale.

"If they perform to the Grant Samuel predictions, at the end of three years they will convert to 40 per cent of IT Capital shares.

"If they do better, they can have more shares."

Without the new companies, all IT Capital has of value is its stake in Deep Video Imaging.

It does not expect to get back its investment in new media company Terabyte Interactive or web tools developer Golden Orb. It has written-off its stake in Virtual Spectator.

"IT Capital needs to be liquidated. That will kill the corporate overheads," said Sheppard.

That would leave Deep Video Imaging to be propped up by its other major shareholder, The Warehouse founder Stephen Tindall.

Bryham said the value placed on the companies he and McKee Wright were bringing to IT Capital was fair, as the independent Grant Samuel report made clear.

"Bruce could have made the same criticisms when IT Capital invested in exo-net at a valuation ranging up to $10 million," Bryham said.

"That was a company with three people in it. We had spent $40,000 cash and most of the investment was sweat equity from the co-founders.

"Most people would agree it was a pretty good deal for IT Capital."

IT Capital got back its investment tenfold when exo-net was bought a year later by Australian firm Solution 6 for $A30 million ($34.5 million).

Bryham said the decision by Technology New Zealand to grant research funds to two of the companies showed their soundness.

"There was a reasonable procedure and due diligence process we had to go through," he said. "The Government is not going to put money into wacky ideas."

Sealegs International received $97,808, a third of its research and development budget for the next year, to help develop prototypes.

Conceptual Solutionz got $87,020 from the Grants for Private Sector Research and Development fund.

Bryham said Sealegs should be selling products within a year.

Conceptual Solutionz would take longer to start making money, and Datasquirt had two applications already in use, Auckland Regional Council's Rideline and Village Force Cinemas' Movietime service.