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Watson's company 'no schoolboy'

By Deborah Hill Cone

Friday 1st November 2002

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Cullen Investments was not a "naive schoolboy" in the world of commerce so it knew exactly what it was promising when it signed an agreement using the word "transaction", the High Court at Auckland has heard.

Jowada Holdings, set up by economist Josephine Grierson, has applied for a summary judgment against Cullen after plans for a joint venture to take over lingerie company Bendon fell apart.

Jowada claims it is owed $886,000 as a success fee under a March 2001 agreement in which Cullen agreed to offer Jowada an option to participate in the Bendon transaction or pay a fee of up to 1.5% of the value of the deal.

In January Cullen sent Jowada a letter it claims was an offer to join in buying Bendon. Jowada disagrees.

A Cullen-related company, Pacific Retail Group, went on to buy Bendon for $59 million.

After hearings spread across three days the case zeroed in on the meaning of two words in the agreement. At issue was the meaning of the words "the transaction".

Jowada's view: the transaction meant simply the purchase of up to 51% of Bendon's shares.

Cullen's view: the transaction referred specifically to the purchase of Bendon shares through a method of amalgamation, a structure suggested by Ms Grierson.

Cullen's counsel, Adam Ross, argued that the transaction referred to in the March 2001 agreement was an amalgamation proposal, codenamed "Straps," in which the amalgamation provisions of the Companies Act could be used to acquire 100% of Bendon with the support of only 75% of Bendon's shareholders.

But for reasons including the fact that 26% shareholder AMP refused to sell, that structure could not be used, he said.

He urged Master John Faire not to look at the agreement in isolation but to consider the "factual matrix" surrounding it.

Mr Ross also claimed that Jowada did not have the money to participate in the deal anyway. "The truth is Jowada could not do it," he said.

Ms Grierson's counsel, Paul Dale, said Master Faire should consider only the agreement, which Cullen's own lawyers admitted was silent on the issue of amalgamation or whether Jowada needed to demonstrate proof of funds.

When Cullen signed the agreement it knew what it was getting into and if it had meant it to refer only to the amalgamation structure it would have changed it to include reference to it, Mr Dale said.

"Cullen is not a naive schoolboy in the world of commerce," he said.

Jowada maintains that the amalgamation proposal was only one of a range of possibilities considered when discussing how to structure the deal.

The word "amalgamation" has not been used anywhere in the agreement.

When the hearing finished on Wednesday Master Faire summed up the questions he had to answer as:

* did the agreement impose an obligation to make a payment in the event that only the transaction of the nature outlined by Cullen ­ an amalgamation ­ was entered into?

* alternatively, if the agreement covered simply a purchase of shares by Cullen was there satisfaction of the condition that negates the obligation for Cullen to pay a fee?

The master reserved his decision.

Meanwhile, publicity-shy retail tycoon Wayne Walden was revealed as the backer lined up to help finance Jowada Holdings' joint-venture bid ­ the "Wa" in Jowada, which stands for Josephine, Wayne and David Hayde, Ms Grierson's former business partner.

Mr Walden, who was a longtime managing director of Farmers Deka and has property interests, said in an affidavit that he wanted to keep a low profile in the deal and did not become directly involved with Cullen.

He and former Farmers Deka finance director Gary Bluet planned to personally invest $2 million and associates agreed, subject to shareholder agreements, to invest a further $5 million.

"Some of this money would take a month or two to get in place but it would be available in the time frame required to complete the acquisition," Mr Walden said.

Ms Grierson's affidavit said Jowada had encountered a stumbling block to raising funds which was that investors who could be regarded as the "blue blood" of New Zealand business were happy to deal with Mr Walden but did not want to be associated with Cullen.

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