Wednesday 10th of December 2008

It’s no surprise to me that Hanover’s investor voted for the proposal. The restructuring plan, roadshow and meeting were the easy bit. Now the hard work starts. Recovering loans and repaying investors. Hanover’s front people, shareholder Mark Hotchin and chief executive Peter Fredricson, have set themselves an ambitious target of returning 100c in every $1 invested. The biggest factor in achieving this goal, and keeping the promise to investors, is what happens with the property market. Should they have a favourable tail wind earlier, rather than later, then the job gets easier. The trouble is they don’t know what the conditions will be like. One thing in their favour is the time frame. They have five years, with the bulk of repayments to investors, scheduled in the last couple of years. By then New Zealand’s property market should be well through its cycle. A couple observations from the meeting. One of the themes of the day, particularly from so-called shareholders’ champion Bruce Shepherd, was about the possibilities of litigation against the shareholders (quite ironic, really). It was interesting that Shepherd wanted special treatment and the ability to ask more than one question plus one supplementary (the ground rules laid out by the chairman at the start of the meeting). The chairman enforced his rule and Shepherd put his request to the audience, who turned him down. I do get the impression that Shepherd has lost some of his mojo these days and wonder if it is time the Shareholders’ Association finds a new front man? (BTW: He gave an interview on NewstalkZB after the meeting which was incredibly condescending to investors and said he wanted nothing more to do with finance companies and their investors - ever again. I see there is a similar piece here). There was much debate about taking legal action against the directors, particularly over the dividends paid over the past couple of years. The idea being that this could recover a greater sum for investors than the restructuring plan. My observation is that very few of these cases are ever that successful for investors. The time, cost and complexity of such action is prohibitive. Investors were better to take the money offered from shareholders and get on with running the business. Another theme was questions asking Hotchin why his Waiheke and Paratai Drive properties were not part of the deal. In the end he did admit Waiheke was in and he indicated that many other assets were being pledged which suggested he has personally put a fair bit towards this rescue package, when he could have just walked away from the company and let it fail. My other observation from the meeting and the roadshow, is about ceo Peter Fredricson. I first met him when he ran Tower Managed Funds. During these meetings he has been impressive: Frank and honest. Seeing a guy like this being prepared to back the plan gives me a level of faith that Hanover will succeed.