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Pyne Gould, EPIC lock horns before vote on sacking directors

Tuesday 23rd September 2014

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Pyne Gould Corp and Equity Partners Infrastructure Co No 1, better known as the EPIC fund, are in a war of words ahead of a special meeting where Pyne Gould is seeking to dump the fund's board.

The EPIC board "strongly recommends" shareholders vote against the resolutions put forward by Pyne Gould seeking to replace directors Mick Carolan and Andrew Gartshore with Pyne Gould's managing director George Kerr and director Russell Naylor, EPIC chairman Murray Tonkin said in a letter to investors. EPIC holds a stake in UK motorway operator Moto.

Tonkin said a letter from Pyne Gould criticising the board's handing of an 11.5 million pound placement to Cheyne Capital was "misleading' and that a funding offer from the Kerr-controlled firm was "significantly less favourable than the terms on which EPIC could access funding from independent third party funders." The EPIC board received advice that the Pyne Gould funding terms were unusual and not in EPIC's best interests.

"Your board considered that the funding which PGC was offering to provide did not provide sufficient capital to support the company's ongoing operations," Tonkin said. "With no obvious means of refinancing, a likely outcome would have been that PGC effectively took control of EPIC's assets under its security."

Pyne Gould, which owns 27 percent of the EPIC fund, yesterday released a letter to EPIC investors claiming the fund's board sold EPIC shares "significantly below fair value" and didn't disclose the relationship between Gartshore and the owner of Cheyne Capital. Guernsey-based Pyne Gould is looking to lift its stake in EPIC to 49 percent, and plans to pay EPIC investors with Pyne Gould shares, issuing up to 41.6 million shares, representing 20 percent of the current shares on issue, although hasn't yet settled on a price.

The EPIC acquisition would dilute the Kerr-controlled Australasian Equity Partners Fund No 1 LP (AEP) holding in Pyne Gould to as little as 67 percent, from 80 percent currently. AEP, which counts Californian hedge fund Baker Street Capital as a minority partner, took control of Pyne Gould in 2012, paying 37 cents a share.

EPIC's Tonkin told investors the fund held documentation indicating that Pyne Gould, via its Torchlight subsidiary, approached another shareholder in Moto with a view to buying its shares in the motorway operator at a price suggesting an EPIC valuation at 29 cents per share.

"It is surprising that PGC is now suggesting that EPIC shares are worth $1.50 per share," Tonkin said. "We are concerned that this statement is unsubstantiated, and highly misleading."

Tonkin also said Pyne Gould last month issued a claim against EPIC in the High Court of England and Wales, seeking 525,000 pounds, which it claims was loaned to EPIC at an annual interest rate of 8 percent and due on or around May 9. EPIC later filed a letter of claim against Pyne Gould and its subsidiary, Equity Partners Infrastructure Manager, the former EPIC manager, over outstanding payments of at least $2.53 million.

Pyne Gould and Kerr have been closely linked with the EPIC fund over the years, terminating their management contract in 2012 with an $8.9 million payment after it was advised Kerr's takeover would trigger pre-emptive rights in the shareholders' agreement for its 17.5 percent stake in Moto. The firm bought the EPIC manager, and the stake in the fund, from Kerr for $18 million in 2009.

Shares of Pyne Gould rose 2.4 percent to 43 cents, and have shed 13 percent this year.


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