Richmond caught on the ropes in sharemarket warehousing case

By Chris Hutching

Friday 16th August 2002

The credibility of the Richmond arguments against PPCS in the High Court at Christchurch were dealt a blow this week as it wavered over allegations PPCS held a direct interest in a parcel of Richmond shares that it alleged were "warehoused" during a five-year ownership battle.

Equally damaging were revelations of a false affidavit from one of the Richmond parties in the action.

More details about the false affidavit were due to come to light today after the parties took legal advice on the matter and were expected to make a statement about it.

The case has been going on for two weeks. It is being driven by a minority of disgruntled Richmond shareholders determined to prevent Dunedin-based co-op PPCS taking control of North Island based Richmond, a Stock Exchange-listed company.

Conversely, the court has heard about the extraordinary methods PPCS has gone to in order to secure its position.

Reporting the case has proved difficult because the affidavits of the various witnesses have not been read out in court before witnesses were cross-examined about them.

A feature of the case has been the attendance of publicity agents for both sides.

One affidavit was obtained and used by a journalist when parts of it were deleted in court, leading to the possibility of a defamation action. As usual, the courts refuse to make transcripts of the trial available.

Richmond alleges PPCS twice made arrangements for third parties to hold a 34% parcel of Richmond shares that were the subject of a dispute about the way they were bought. But during the course of the trial the Richmond side has retreated from its assertions of a direct link between the shares and an indemnity provided by PPCS for $18 million of Citibank funding to Active Equities, which bought the 34% after PPCS was ordered to sell them in June 2000.

James Farmer QC, for Active Equities, explained how the Citibank indemnity did not give PPCS any legal or commercial rights over Active Equities. Any relationship was solely between PPCS and Citibank.

But he acknowledged in response to a question from Justice Lester Chisholm that in a market sense PPCS was the only logical buyer at the time.

Later, another two bidders came onto the scene and Active Equities was able to add value to its investment from the rival bidders.

Mr Farmer said that overall, Active Equities would make $20 million out of its trading in Richmond shares at cost to PPCS.

This included an option arrangement that would give PPCS 51% of Richmond in February 2003.

In his evidence, PPCS chief executive Stewart Barnett outlined his strategic view of the meat industry in which he considered the best interests of the country lay in the industry being divided between two long- term players and smaller boutique operations.

He envisaged the two long-term players would be a combined PPCS/Richmond and Affco/Alliance.

It was important for New Zealand companies to retain meat quota to overseas markets and he saw there was a risk in Richmond delivering quota to overseas interests by allowing them onto the register.

He learned how Richmond management and some shareholders were so keen to woo another stakeholder that they approached UK meat processor Bernard Matthews and even the Moroccan royal family in preference to PPCS.

He told of the extraordinary opposition he encountered at various Richmond shareholder meetings as one of the reasons PPCS had to act in a circumspect manner.

For example, Mr Barnett revealed how PPCS bought its first 1.5% in Richmond through Robert Nelson and John Krelitch so it could receive shareholder information. The two men were put forward as nominees by Christchurch merchant banker Brian Kreft. Mr Nelson was subsequently elected to the Richmond board.

He denied allegations from Richmond chief executive John Loughlin that PPCS had undercut Richmond in the Middle East and said Richmond had tried to substantially increase the amount of product it sent to the region and that upset the market.

Nor did PPCS copy Richmond processing methods that were being developed independently by his company.

As evidence that PPCS wanted a healthy Richmond and was not intent on acting against its interests, Mr Barnett revealed PPCS had bought $13 million worth of meat to alleviate Richmond's cashflow crisis in late 1999.

Earlier this week, PPCS solicitor David Stock told how he had taken particular care in all dealings with Richmond and had helped construct the Active Equities deal to buy Richmond shares in such a manner it would not give PPCS any right or interest in the shares.

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