Merger plan for N.Z. Equities

Press, 22 June 1989, Page 27

Merger plan for N.Z. Equities

New Zealand Equities plans to merge with its Hong Kong offshoot, Paladin, Ltd. The merged company will known as Paladin. The N.Z. Equities shareholders are being offered scrip — not cash. The merger will be affected by an issue of shares by the Hong Kong offshoot covering assets.

Paladin is listed on the Hong Kong and New Zealand stock exchanges. The offer is subject to agreement by Paladin shareholders to an increase in the company's shares to offer N.Z. Equities shareholders. N.Z. Equities holds 39.9 per cent of Paladin and will use these shares’ votes, and the directors of Paladin hold another 1.2 per cent of the votes. The offer is five Paladin shares for every two New Zealand Equities shares. In a statement yesterday, N.Z. Equities said the offer valued the N.Z. Equities shares at 54c each. N.Z. Equities traded this week at 38c, after rising from a low of 20c in March. However, the asset value of Paladin shares is harder to settle than their market value.

The last report from Paladin Investments was for the 12 months ended June 30, 1987. When a company is floated or formed from a merger, it can take about 18 months before an annual report is issued. Which means, if the merger succeeds, it may be another 18 months before the shareholders can get the measure of the enlarged Paladin. Paladin said in a statement yesterday that the merger would increase Paladin’s gearing. “However, had the merger-been effective for the period ended December 31, 1988, based on the interim results of both groups the proforma earnings per share of the enlarged Paladin group for that period would have been substantially enhanced. The statement says that Paladin’s consolidated net assets at December 31, 1988, amounted to $HK283.7 million (SNZ63.6M). For six months ended December 31, 1988, Paladin reported a profit after taxation of SHK7M ($1.56M). Full acceptance of the offer would result in the issue of about 88.9 M new Paladin shares, representing about 31.8 per cent of the enlarged issued share capital of Paladin. New Zealand Equities also has on issue $334,000 partly-paid ordinary shares. “Appropriate proposals will be made to the holders of those shares in due course,” the offer document says.

The offer describes Paladin as a 38.7 per cent associate of N.Z. Equities, with Mr Avon Carpenter and Mr Peter Francis representing N.Z. Equities on the Paladin board. The offer says that Barclays Financial Services (N.Z.), Ltd, was appointed by N.Z. Equities to report on the financial terms of the offer, and Barclays had advised that in its opinion they are “fair and reasonable in their application to the holders of ordinary shares in New Zealand Equities.”

The N.Z. Equities directors have indicated that they will accept the offer. Their holding of N.Z. Equities is 25.4 per cent. New Zealand Equities was constructed from the shell of the Canterbury road contracting firm, Farrier Waimak, in 1984 after two Auckland businessmen, Mr Avon Carpenter and Mr Peter Francis, bought the Farrier Waimak stake held by R. Richardson, Ltd, and associates, of Invercargill, giving them about 75 per cent of the capital. Richardson’s retained Farrier’s contracting business. New Zealand Equities took over UEB, and in late 1988 had what David Hay described in “The Press” as a remarkable structure: SSISM worth of assets were controlled by SISM worth of issued shares. Liabilities outside the group accounted for S3OOM of its financing. Apart from Paladin, New Zealand Equities owns the Asia Pacific Trading Corporation, which was floated in 1985 as Greenhouse Park, a flower grower, with Mr Carpenter as chairman. It became, a fully-owned subsidiary of N.Z. Equities in December, 1986, after a special isuses of shares. The name was changed at the same time. In its latest annual report N.Z. Equities was criticised for its treatment of gains from the sale of properties acquired from UEB. After they were bought, the directors decided the properties were worth less than book value, and wrote them down. The reduction was treated as goodwill and subtracted from retained earnings, not profit. The same year they were sold, making a profit of S36M, which more than recovered the amount written off. All of the gain was included as 1988 profit.

Paladin was floated as Paladin Investments in New Zealand in 1986. The float raised SI9M, being heavily oversubscribed. Shareholders in New Zealand Equities were entities to buy one Paladin share for every five held in N.Z. Equities.

Within months Paladin Investments took over J. F. Special Holdings. Ltd, of Hong Kong. J. F. Special Holdings then changed its name to Paladin International, whose major shareholders were N.Z. Equities (30 per cent) and Mr Warren Kitson (30 per cent), a New Zealand solicitor practising in Hong Kong. A few months after this Mr Kitson resigned from the position of managing director of Paladin International on selling his 30 per cent stake in Paladin Investments, of New Zealand, to N.Z. Equities. The managing director of N.Z. Equities, Mr Peter Francis, became chairman of Paladin International. In 1988, Paladin Investments of New Zealand and Paladin International of Hong Kong merged to form Paladin, Ltd, incorporated in Bermuda for tax reasons, and listed on the New Zealand and Hong Kong exchanges. New Zealand Equities made a full take-over for Asia Pacific in 1988 with an offer of two of its own shares for each nine shares in Asia Pacific.