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MMG could scupper $140m DNZ float

By Jenny Ruth

Wednesday 2nd December 2009

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MMG Advisory Partners has legal advice which could scupper DNZ Property Fund's up to $140 million capital raising and plans to list on the NZX.

MMG director David van Schaardenburg says his advice is a vote by 75% both by value and by number of holders of DNZ's "A" shares would be legally binding on the company. DNZ has two classes of share with the investors owning the "A" shares and the manager owning all the "B" shares.

MMG's advice is at odds with information in DNZ's prospectus which says the "B" shares holder "control the composition of the board of the company and therefore its ultimate governance function and are able to block any shareholder resolution." The existing DNZ investors have had no opportunity to vote on the capital raising.

MMG has written to DNZ's more than 8,000 existing investors asking them to vote to remove three of DNZ's six directors, Edward Harvey, Mark Hopkinson and former Brook Asset Management chairman Simon Botherway, from the board and to replace them with van Schaardenburg and MMG chief executive Derek Young.

Harvey and Hopkinson are the DNZ investors' representatives on the board.

MMG has a very tight time frame and is asking investors to return their votes by December 9. Although the capital raising offer closes on December 4, new shares aren't scheduled to be allotted until December 16.

"The main thing we're trying to do here is to give them (the investors) the opportunity to vote," van Schaardenburg says.

The letter says MMG opposes the offer because "we believe the terms of the offer heavily favour the management company and new investors at the expense of existing shareholders (you)."

DNZ plans to use $43 million of the float proceeds to buy the management contract from chief executive Paul Duffy and former chairman Alastair Hasell.

DNZ has about 8,200 existing investors, mostly mums-and-dads retail investors who were advised to invest in the 32 Dominion Funds syndicates from which DNZ was formed on the advice of Money Managers, now MMG following a change of ownership last year.

The new shares are priced at 82 cents, a 56% discount on net tangible assets (NTA) after the termination of the management contract, and the value of most existing investors' holdings is expected to fall dramatically. They are also facing a big cut in dividends.

"Things like this are generally bad for our financial markets and the financial community as a whole, not just the affected investors, but the wider community," van Schaardenburg says.

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