NZX was told Clear's business expenses would fall ahead of acquisition: Weldon

Tuesday 17th May 2016

NZX was aware that Clear's businesses were loss making but were told its costs would drop before the market operator completed its 2009 acquisition, Wellington's High Court has heard.

Mark Weldon, the former chief executive of NZX, is on his second day of giving evidence, the fourth witness in the case which has entered its third week and is predicted to last another six.

NZX and Ralec have made claim and counterclaim over NZX's purchase of the Australian Clear Grain Exchange in 2009. NZX is suing for between A$20.7 million and A$37.6 million, and Ralec has countered with a suit totalling A$14 million plus bonuses.

NZX claims Clear’s former owners, Grant Thomas and Dominic Pym, and their companies Ralec Commodities and Ralec Interactive misled NZX when it bought the commodities trading platform with “wildly inaccurate” forecasts. Ralec subsequently filed a counterclaim against NZX, later adding Weldon to the list of defendants. It claims NZX, which bought the platform for A$7 million with the potential for a further A$7 million of earnouts, failed to fund the exchange sufficiently. The case pre-dates much of NZX's existing management, having first hit the courts in 2011.

Ralec's QC Tim North asked Weldon whether he knew Clear Interactive had not traded profitably before NZX made the acquisition. Clear Interactive posted a loss of $4.2 million in 2009 while Clear Commodities had reported a profit of $88,000 that year.

Weldon said the historical data was important to NZX's understanding of the business's cost base, but NZX was provided with more financial information than just a profit-and-loss statement by Clear, and that other financial information was used in valuing the businesses.

"If the business was to be valued on loss of $4.2 million, we wouldn't have bought it," Weldon said, adding that Clear Interactive's $4.2 million loss in 2009 equated to a monthly loss of about $380,000, and NZX was told this would reduce to between $200,000 and $250,000 per month.

In his opening submission a fortnight ago, North mentioned those 2009 figures for Clear Interactive and Clear Commodities, and said NZX "knew this business could not continue without the benefit of additional financing and resourcing."

North queried Weldon on the goodwill value placed on Clear Interactive and Commodities by NZX post-acquisition and said they were initially valued together at $100,000 which went up to $395,000 by 2012. Weldon said he wasn't sure and asked to see the accounts.

Early in the day, Justice Robert Dobson warned North that he was "not going to decide any credibility issues on memory tests," after Weldon's QC Alan Galbraith objected to Weldon being asked whether he had had any meetings with Thomas and Pym between July and September 2009.

North also asked Weldon about employment clauses in the sale and purchase agreement. Weldon said the agreement meant NZX was required to employ some people but only required to offer employment to others, as NZX did not want the whole agreement to fall over if one of the latter group of people decided not to come across when the acquisition was completed.

Before the acquisition of Clear, NZX's due diligence team made a valuation of the business. North asked whether that valuation or NZX's expectations for Clear were shared with the former owners, Thomas and Pym.

Weldon said NZX did not provide Thomas and Pym with a valuation, but that was quite different from discussing its expectations, and those involved had had numerous conversations about NZX's expectations of grain market tonnage from Clear.

BusinessDesk.co.nz

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