NZX's cost-cutting approach to acquisitions caused 'friction', former staffer tells High Court

Tuesday 14th June 2016

NZX's cost-cutting approach with new acquisitions frequently caused "friction", a former employee has told Wellington's High Court.

NZX is suing Dominic Pym, Grant Thomas, and their companies Ralec Commodities and Ralec Interactive for between A$20.7 and A$37.6 million, and say they provided "wildly inaccurate" forecasts prior to NZX buying the Australian grain trading platform in 2009. Ralec's counterclaim of A$14 million says NZX and former chief Mark Weldon underfunded the business which meant it couldn't meet the earnout targets.

Rachael Greer, who was a Queensland-based business acquisitions consultant at NZX, was called by Ralec as a witness. She was cross-examined by Alan Galbraith QC, the lawyer representing Mark Weldon yesterday.

In her brief, Greer said that in September 2009 she told Weldon that Clear "would have the impression NZX has money it would like to give out like lollies" because NZX was a big business.

Galbraith asked whether former NZX corporate counsel Rachael Newsome or former head of strategy Heather Kirkham had told Clear that NZX "marched to a slightly drier drum". Greer replied that she didn't know but she had thought it was important to make sure Clear understood it wouldn't be showered with cash because previous companies acquired by NZX had been under that misapprehension, which had caused unhappiness.

"NZX had a very cost-cutting approach to new businesses, and I was constantly aware that because we were buying them [Clear] and talking about developing Alcazar [NZX's agri-portal strategy] they had the impression we had a lot of available cash, but we held onto our cash very tightly," Greer said. "There was always a matter of friction and disgruntlement once companies were integrated that there wasn't the money available that they had thought there would be to make the businesses really hum."

Greer said when she resigned in November 2009, she believed she was owed $40,000 for a success fee for the acquisition of Clear. When she raised this with Weldon in February 2010, his response was to "storm up the stairs and remove me from the NZX intranet", Greer said.

A lawyer Greer approached over the missed fee said she had a good case but it would cost her $40,000 to recover the $40,000 she believed she was owed, so she decided not to pursue the case, she said.

Greer declined to talk to NZX after an email from Newsome when the stock market operator started legal proceedings. Greer said she didn't feel any obligation to NZX in respect of the legal proceedings, and agreed with Galbraith's suggestion that it was because she had been unhappy with the circumstances of her resignation. She denied it was an issue she still felt strongly about.

"I wasn't happy - I believed that I was owed money, and they had determined I wasn't going to be paid it," she said. "I didn't feel any obligation to talk to them post that."

Greer described Weldon as being "gung-ho" and "very, very keen" on the Clear acquisition, and said she had thought Clear could be a "real opportunity" for NZX.

Galbraith asked if members of the due diligence team would have altered their advice to "toady" up to Weldon. Greer rejected that but said Weldon controlled how things were done.

"[The due diligence team was] thoroughly professional," Greer said. "However, if he wanted something done - we definitely looked at things in terms of getting things done to what he wanted to happen. If people brought something up and he disagreed with that it was put aside pretty smartly. He was the one controlling the strings, not the other way around - we were his workers."

Greer said that she could recall Clear's founders' requests for a 50 person call centre, road shows and other marketing spending ahead of the acquisition, though she had taken the requests with a grain of salt as they were trying to sell something and NZX hadn't done its own review.

Grant Graham, a partner at KordaMentha who NZX has called as an expert witness, read his brief and was cross-examined by Ralec's QC Tim North in the afternoon on his report on the losses incurred by NZX from the acquisition of Clear.

North said Graham's report must be defective if there was no causal connection between the representations made by Clear, reliance on representations, and the loss itself. Graham said he had been told that would be a matter for legal submission, and to assume the causal link was there, but accepted it would "stand to reason" that his report would be of no assistance if that link wasn't there.

An error in the employment contracts for Clear employees, which had them employed by NZX rather than its wholly-owned Australia-based subsidiary NZX 4, was another topic North focused on. Justice Robert Dobson clarified with Graham whether he had meant to say Clear's IT staff were employees of NZX4 or NZX, saying that it could be an important distinction in the thousands of pages of transcript which will be generated by the trial.

Graham's cross-examination continues today.

BusinessDesk.co.nz

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