Allied and Hanover confirm deal

www.depositrates.co.nz

Wednesday 18th November 2009

BREAKING NEWS: Allied Farmers and the Hanover Group have confirmed speculation that they will do an equity swap which will see Hanover and United investors become shareholders in the listed Allied Farmers.

The deal replaces the moratorium that Hanover investors voted for last year.

It also provides an exit for Hanover shareholders Eric Watson and Mark Hotchin. While they will not be involved if the deal goes ahead, they will still have provided the assets and cash agreed to in last year's moratorium.

This means they will have lost about $76 million on the deal.

The deal needs ratification from Hanover and United Finance investors, plus Allied shareholders. For Hanover investors it will allow them some flexibility in what they do with their investments.

In some ways it is similar to what Geneva Finance did a number of years ago when debenture holders swapped their debt investments for shares in the company.

For Allied's existing shareholders there will be a significant dilution in this shareholding, however they will own part of a bigger company that is better capitalised than it is now.

Part of the rationale for the deal is that Hanover has struggled to maximise the value of its assets and loans in the current structure.

Decision-making is slow and the trustee has to approve deals before they can be done.

Also the company has the problem that many of its loans are second mortgages.

It is also understood the company has lost most of its best loan and account managers.

PRESS RELEASE: Allied Farmers Announcement

ALF Signs Agreement with Hanover and United Finance

Allied Farmers advises that it has signed an agreement with Hanover Finance and United Finance, which subject to satisfaction of conditions, will result in Allied Farmers buying the finance assets of those companies in a deal worth approximately $400 million.

This significant transaction is part of a new strategy, which will see Allied Farmers dramatically increase the size of its rural services and finance businesses.

The agreement is conditional upon both Allied Farmers shareholder approval and the approval of Hanover and United investors. The two-step process will result in Hanover and United investors receiving Allied Farmers ordinary shares, and Allied Farmersacquiring the finance assets of Hanover and United.

Allied Farmers, assisted by its external advisors, have carried out detailed due diligence on the Hanover and United assets and have built up an understanding of the risk and return profile
associated with them.

The intention is that a large proportion of the performing assets will be transferred to Allied Nationwide Finance, increasing the size of the balance sheet and improving capital adequacy.

A new subsidiary of Allied Farmers will be established for holding and managing difficult assets. In the interim this subsidiary will be lead by Allied Farmers Managing Director, Mr Rob Alloway, until a permanent appointment is made.

Given the uncertain nature of these assets, Allied Farmers has been careful to ensure the fairness of the transaction to both our new and existing shareholders. Forexisting shareholders, the transaction includes an adjustment mechanism which will realign relative shareholding as at June 2011 if the expected recoveries from the acquired assets do not meet expectations.

Asset realisations post transaction have the potential to flow significant cash into Allied Farmers.

This will strengthen the company's position medium term, and should provide the company many opportunities for growth in the rural and finance sectors.

A Notice of Meeting for a Special Meeting of Allied Farmers shareholders will be sent to all shareholders next week, with the meeting intended to be held early December and prior to the meeting of Hanover and United investors which is intended to be held in mid-December.

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