Kerr may gain control of Pyne Gould

Friday 13th January 2012

George Kerr’s Australasian Equity Partners Fund may gain control of Pyne Gould at a bargain price as small shareholders grapple with valuing the grab-bag of assets left over when the company tipped its Marac Finance unit into Heartland New Zealand.

Kerr and partner Baker Street Capital’s 37 cents- a-share offer values Pyne Gould at $80 million, below the lowest point of the independent valuer’s range of 49 cents to 57 cents, or as much as $123 million. Net tangible assets were 60.8 cents a share at June 30.

Pyne Gould’s assets include 9.5 percent of PGG Wrightson, worth about $26 million, 6 percent, or $11 million worth of Heartland shares, wealth manager Perpetual Group with $609 million under management, and Torchlight Group, which invests in distressed assets and is managed by Kerr. It also has a portfolio of impaired property loans which were valued at $160 million in 2009.

Shareholders may struggle to determine the value of the various unlisted components, said John Cairns, an analyst at Forsyth Barr. “The whole issue is it’s not particularly transparent, least of all Torchlight.”

Kerr, whose great-great-grandfather’s Pyne and Co was one of the three firms that merged to create Pyne Gould, has acceptances for 49.46 percent of the company, according to the latest substantial security holder notice. The offer goes unconditional above 50 percent.

Independent directors Bryan Mogridge and Bruce Irvine have said long-term holders of the stock may want to retain their stake though those needing a short-term return may want to sell because there’s little prospect of dividends any time soon.

Kerr underlined his vision for Pyne Gould at the annual shareholders’ meeting in November. He told investors that the firm is no longer a high-dividend stock without its Marac lending unit, and needs owners with a long-term investment horizon with dividends not to come for several years.

“Any profits will be reinvested” he said.

Forsyth Barr’s Cairns says Kerr must believe he can extract value from Pyne Gould’s remaining assets and those shareholders who remain could eventually see the shares reach their NTA.

“If you’re prepared to stick in there, you could see them get up around that level” he says.

Kerr and Baker Street Capital launched the takeover offer at 33 cents per share last October and subsequently raised the price in November. It closes on Jan. 31.

PGC posted a loss of $141.1 million for the 12 months ended June 30, from a year-earlier profit of $22 million. The Christchurch-based company said the loss reflected a $114.2 million one-time charge and a trading loss of $26.9 million.

New Zealand Shareholders Association Chairman John Hawkins said he did not believe it was a happy situation for long-term investors.

“I think there are a number of disillusioned shareholders looking to get their money out” he said.

The Kerr-controlled Torchlight unit has continued to make investments including A$5 million to lift its stake in Australian investment adviser van Eyk Research, which helps guide other Pyne Gould funds including the Perpetual asset management business, which oversees $251 million.

Van Eyk Research currently advises institutions on about $50 billion of investments and operates the van Eyk blueprint fund - which has funds under management of about A$1.4 billion

Torchlight, which contributed $3.2 million in earnings to the Pyne Gould last year, also operates Torchlight Fund No. 1 which in July 2010 raised $150 million in committed capital.

Last year it emerged Torchlight (GP) 1 subsidiaries paid almost $40 million for 202 hectares in Queenstown and Wanaka, including 63 hectares of vacant residential land in Jacks Point and 139 hectares at Wanaka’s Henley Downs development.

In early December, Torchlight convinced unit holders in ASX-listed ING Real Estate Entertainment Fund to sign over the management contract at no cost. Torchlight has to underwrite a A$15 million rights issue, which, if anything though, will give it more voting clout when it restructures the property fund into a listed hotel owner and operator.

That month, it also took over the BOS International (Australia) project and corporate debt facilities to RCL Group, an ASX-listed fund that invests in residential property developments across Australia and in Queenstown. Torchlight is also working through a recapitalisation proposal for RCL.

Pyne Gould shares last traded at 34 cents, valuing the company at $73.7 million. They touched a two-year low of 26 cents on Oct. 5, before Kerr and Baker Street made their offer.

(BusinessDesk)

BusinessDesk.co.nz

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