Midas man raises $120m and sends most of it back

Friday 17th August 2001

By Chris Hutching

The Midas touch of South Island entrepreneur Howard Paterson was at work again when investors sent cheques worth nearly $120 million for a $5 million share issue to float a biotechnology company.

Mr Paterson confirmed yesterday all the cheques were genuine and had been cleared by the bank but most of the money is being sent back, with the successful subscribers receiving about 4% of what they applied for. Some investors sent in cheques for many millions of dollars.

The chosen few who received an allocation in Botry-Zen, which has developed an organic agent to control botrytis in grapes, are mainly New Zealand investors but there are some overseas interests whose involvement will be valuable when the company sets up international distribution.

The shares, issued at 10c each, made their trading debut on the secondary board of the Stock Exchange at 50c each before settling back to 33c mid-week.

Mr Paterson said, compared with some other floats, Botry-Zen offered a real product backed with research from reputable organisations as well as the industry. Investors clearly had made decisions based on the credibility and track record of the parties involved.

Another attraction for investors was the perception that when good looking floats came on the market the sharebroking firms snapped them up while floats with lesser prospects tended to get offloaded fairly quickly to clients.

Mr Paterson's modus operandi was also evident in the recent floats of Blis and A2 Corporation, owners of patents for health products that are still being developed. A select few investors are invited to subscribe at 10c a share and, when share trading begins, the price tends to skyrocket.

In the case of Blis a subsequent share issue for more working capital was made at 73c a share and by the time the shares eventually listed on the main board of the Stock Exchange the price soared to $2.20 before settling back to current prices at around 90c.

One of the people who helps Mr Paterson in his Dunedin office at the Edinburgh Trust (not a registered company) is David Parker, who said only those who were invited to take part in the initial issue of Botry-Zen received a scaled back allocation. But many more had sent in cheques unsolicited in the hope they would receive a parcel.

Once they were trading on the market, prices were based on expectations about the potential value of the intellectual property involved, he said.

"It's the track record of Howard and the Edinburgh Trust that drives these things. He has a loyal group of colleagues and friends who can provide the necessary capital to help get things off the ground. But buyers estimate what the potential is and discount it by about 90% to arrive at what they think is a fair price for the shares," he said.

"In the case of Blis, we had the initial float and then a placement to institutions before final Stock Exchange listing. The share price eventually settled back to about what it was during the interim phase, which suggests to me that fair value had been factored in by those institutions, who also give credibility that the company has potential.

"What's more difficult is to value these fledgling companies at the very start but we take extreme care not to manipulate prices and instead let the free market reign."

Mr Parker said Botry-Zen's anti-fungal product for grape vines would reach the product-selling stage before Blis, which required more capital for further research and commercialising the product.

"We have a lot of people come to us who own intellectual property because they want the lowest risk outcome. Howard generally rejects nine out of 10 proposals and in the case of Blis other people had a look at the proposal and turned it down," he said.

Footnote: A North Canterbury vineyard float, Waipara Hills Wine Estate, has extended its offer to August 31 after failing to reach its $3 million target.

Otago's biotech strategy

The Paterson touch

A2 Corporation owns intellectual property patents over a method of testing for beneficial milk proteins.

Blis owns patents for a cure for streptococcal and related infections.

Botry-Zen owns rights over an organic biological control agent effective against Botrytis cinerea.

Research was undertaken by HortResearch as part of the Winegrowers of New Zealand research programme, which is jointly funded by the Wine Institute and the New Zealand Grapegrowers Council facilitated by support from the Foundation of Science, Research and Technology

C G Surgical, another Paterson venture developed by engineer Richard Cathro, has patents over a titanium and teflon clip used in surgery to prevent neck bones pressuring the spinal cord.

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