Allied Farmers offers hand of welcome to Hanover investors

The deal needs approval from investors in Hanover and its associate United Finance and from Allied Farmers' shareholders, who will be diluted down to 5% of a vastly larger company. Allied chairman John Loughlin has to convince them that taking on a loan book that's 80% bad offers the best prospects for the company's economic growth and their wealth. Allied's stock rose 6.1% to 35 cents today, having shed two-thirds of its value in the past 12 months.

"We're acquiring challenging assets with uncertain value," Loughlin told reporters on a conference call. "We sense there is both challenge and opportunity in those assets."

Hanover's high-profile owners, Mark Hotchin and Eric Watson will exit under the deal, with some $10 million left in their company for mop up and closure costs. All other assets transfer across. Allied plans to follow a strategy employed by Pyne Gould Corp. of creating a new asset management arm to manage the bulk of the mortgages which have gone bad.

That leaves about $50 million of loans "that will be clean and have been reviewed by the trustee and independent directors" and are to be transferred directly into Allied Nationwide Finance, according to Loughlin.