PGG Wrightson (PGW) is proposing to sell its finance arm (PGF) to Heartlands Building Society. The move is not surprising because the new Singaporean cornerstone shareholder signalled this possibility when it made a partial takeover offer for the shares.
Information provided by the company advised shareholders that informal discussions with potential buyers indicated the price offered by Heartlands is as high as can be expected. We also note that Messrs Gould (MD of PGW, but former MD of Pyne Gould Corporation) and Irvine (Director of both Pyne Gould and PGW) are standing aside from the voting as they are pretty obviously conflicted. Never-the-less, they must be rubbing their hands at the prospect of Heartlands capturing this finance house whose lending is so strong in the Canterbury and South Island region.
The price will be based on net asset value. No good will is being paid. That seems extraordinary when PGW are transferring a loan book of $491million with all the doubtful liabilities removed.
Eighteen really suspect loans totalling $90 million will remain with PGW. They will also guarantee a further eight loans totalling some $30 million.
The transfer includes various funding lines – bonds $94million, debentures $265million, deposits $59 million and bank facilities $100 million. Are these really worth nothing? PGW is giving up a performing loans portfolio, a current net profit of $2.5 million, and retaining a group of low quality loans for a cash payment of only $7.5 million. PGW is even committing to take $10million of shares in Heartland. Looking at the recent record and results, that might be the only good investment the PGW board has made in quite some time.
PGW is effectively selling a complete business, albeit one in the doldrums, on a Price Earnings ratio of 3, when the market is according the shares a P/E of 28. These Directors are men with little faith in their own ability. PGF has consistently produced over $5.5million after tax over the past five years. That Northington and Partners should find this arrangement fair to shareholders in PGW is beyond belief. Of course, if you hold shares in PGC and Heartland as Mr Gould and Irvine do, you would probably be feeling pretty conflicted but happy.
This is another related party transaction of the type which has almost knee-capped our leading rural servicing business over the past five years. At a time when New Zealand is experiencing record high farm prices, the leading rural supplier online viagra is in trouble. It can only be bad governance.
Alan Best
NZSA Director
