SEA looks set for long Trans Tasman 'creep'

By Chris Hutching

Friday 7th May 2004

SEA Holdings New Zealand looks set for a long, creeping takeover of Trans Tasman Properties, judging by the options outlined in an independent report, which gives minority shareholders little comfort or guidance.

The report by Ferrier Hodgson & Co concludes the 40c a share offer from 60% owner, Hong Kong-based SEA Holdings, is neither fair nor reasonable and that it is not designed to be a 100% takeover but is targeted at shareholders unhappy with Trans Tasman's strategic direction and non- payment of dividends.

A fair price would be within the 50-57c range after allowing for operational costs (net asset backing is 63c), the report says.

Independent directors John Ferner and Carl Peterson have recommended shareholders reject the offer.

Other Trans Tasman directors and senior executives such as Don Fletcher and Rodney Hodge (both associated with parent company SEA) have said they plan to hang on to their shares regardless of the offer.

Greg Kenward, chief financial officer of Trans Tasman, and Bruce Catley, chief operating officer, are also planning to hold on to shares they own or control.

Ferner and Peterson said restructuring proposals for Trans Tasman could provide materially greater shareholder value, although they also said the restructuring plans might involve more developments in the Asia Pacific region such as Hong Kong or Australia and the takeover offer might suit shareholders who were uncomfortable with such changes or keen to exit for personal or investment reasons.

The independent directors have written to SEA suggesting alternative offers, including a special dividend, that would have sweetened the deal for minorities but their suggestions were rejected.

The independent report examines the possible strategy of SEA's Asian owners in making the offer and their ability to gain slow control through the Takeovers Code creep provisions.

In the event that SEA acquires additional shares it may be able to promote and pass special resolutions. Although the threshold for this level of control is 75%, many shareholders do not normally attend shareholder meetings or present proxies and this means effective control to pass special resolutions could be lower than 75%. In other words, SEA holds the whip hand.

"If an increased level of control by SEA is material to any particular shareholder, they should note that SEA is already a majority shareholder, and that directors who are SEA representatives are a majority on the Trans Tasman board.

"Trans Tasman's senior management includes executive directors who are also SEA representatives, SEA has the ability to control the business plan and direction of Trans Tasman, and SEA already controls the outcome of any ordinary resolution unless it is prevented from voting for the resolution because of related-party restrictions," the report says.

In recent months, SEA has used the creep provisions under the Takeovers Code to lift its stake from 55.16% to 59.97% and will be permitted to increase its holding in Trans Tasman after the current offer closes on May 20.

If SEA acquires less than 1,094,134 shares under this offer the date from which it will be allowed to "creep" again will be October 17, 2004.

If SEA reaches 70% as a result of this takeover offer, it will be allowed to creep again after May 20, 2005, according to Ferrier Hodgson.

Trans Tasman directors and management have been considering various restructure proposals because of the tax effects of the new Asia Pacific strategy.

Options being considered include the migration of Trans Tasman to an alternative jurisdiction, setting up a new holding company of Trans Tasman by way of a scheme of arrangement, the transfer by Trans Tasman of all or part of its assets to a wholly owned overseas company which would subsequently be listed and its shares distributed pro rata to Trans Tasman shareholders (the spinoff proposal) and the transfer by Trans Tasman of its assets to an already listed overseas shell company in consideration for shares in that company.

Those shares would then be distributed pro rata to Trans Tasman's shareholders (the reverse takeover proposal).

The Trans Tasman response to the SEA offer is being handled by independent directors Ferner and Peterson because executive chairman Don Fletcher is also an employee of SEA and is involved with SEA in other property development projects such as Jack's Point resort near Queenstown.

Trans Tasman director Hodge is also the chief financial officer and a director of SEA, while director Jesse Lu is the chairman and managing director of the parent company of SEA.

Ferrier Hodgson noted that in November Trans Tasman took over Australian Growth Properties after it sold significant properties in George St in Sydney, "which has placed Trans Tasman in its strongest financial position for many years."

The annual report for the year to December 31, 2003, shows the strength of the Trans Tasman balance sheet, with $377 million of shareholders' equity and $723 million of assets, of which approximately $165 million is unpledged cash.

On December 31, 2003 the net asset backing per Trans Tasman share was 63c. The largest block held by a minority shareholders is 1.49%, with most under 1%.

SEA group's makeup

Ferrier Hodgson & Co explained the breakdown of the interlinked SEA companies in its report as:

SEA NZ, a holding company for Hong Kong interests, is a wholly owned subsidiary of Tapro Investments BV (a Netherlands-registered company).

Tapro Investments BV is a wholly owned subsidiary of Tapro Investments NV (a Netherland Antilles-registered company).

Tapro Investments NV is a wholly owned subsidiary of SEA Holdings (NZ) Ltd (a British Virgin Islands-registered company).

SEA Holdings (NZ) Ltd is a wholly owned subsidiary of SEA Holdings Ltd (a Bermudan-registered company listed on the Hong Kong Stock Exchange).

SEA Holdings Ltd is a partly owned subsidiary of Nan Luen International Ltd (a Bermudan-registered company).

Nan Luen International Ltd is a partly owned subsidiary of JCS Ltd (a Bermudan-registered company), which is owned and/or controlled by members of the Lu family.

Each of these companies therefore indirectly controls 356,728,301 Trans Tasman shares (comprising 59.97% of the total number of equity securities in Trans Tasman). Each of these companies is an associate of Mr Lu Wing Chi.

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