SEA seeks end to investor John Powell’s “oppression” claim
Justice Hugh Williams reserved his decision yesterday on an application by SEA Holdings NZ Ltd to strike out a claim by Christchurch businessman John Powell & his company, Latimer Holdings Ltd, to be paid out of their investment in Trans Tasman Holdings Ltd at fair value â€“ which they said should be net asset value — under the “oppression of minorities” clause of the Companies Act, section 174.
SEA also wants summary judgment against Mr Powell & Latimer. Whichever way the judge goes, an appeal is a likely outcome of Justice Williams’ Auckland High Court ruling.
Some arguments from the substantive case (still to be heard) were put to the judge in the strikeout hearing, and Mr Powell’s side claimed in a few instances that insufficient information had been provided on certain aspects, thus requiring continuation of the case.
SEA Holdings NZ holds SEA Holdings Ltd of Hong Kong’s stake in Trans Tasman, now above 55%.
Basic facts of the dispute are these:
Mr Powell and Latimer Holdings bought into Trans Tasman in the wake of SEA’s attempt in 2001 to buy all the equity in Trans Tasman, offering debt securities to minority shareholders. At that time Trans Tasman’s net asset backing was 70c/share.
Mr Powell & his company bought 2.9% of Trans Tasman between May 2001-August 2002 â€“ 17.5 million shares at an average 25.2c/share for a total $4.4 million. The market price now is 33c.
When Mr Powell filed his claim, in February this year, for SEA to pay him out of his investment at net asset backing, the share price was 25c and asset value was 55c.
Trans Tasman counsel said in the hearing the share price had risen 48%, from 23-34c, from the time Mr Powell started buying in May 2001 until 15 August 2003 (date of an affidavit, closing point for this calculation). The value of the portfolio had risen to $5.9 million, giving a $1.53 million profit.
From the portfolio average of 25.2c to today’s market price of 33c, the rise in portfolio value is 31% and the gain on paper is $1.36 million.
Through all this period, Trans Tasman hasn’t paid a dividendWindfall potential
The Trans Tasman lawyers (Mr Cooper & senior counsel Brian Latimour), not surprisingly, referred to the potential of a Powell windfall.
“The plaintiffs, who have already made a very substantial profit from their investment in Trans Tasman, are asking the court to order SEA NZ to buy their shares at a price that would give the plaintiffs a profit of $5.2 million or 118% in the period of a little over 2 years since they acquired their shares,” Mr Latimour said.
He added, later in his submission, that “It is not the role of section 174 to allow an investor who has made a poor investment decision to ask the court to â€˜correct’ its poor decision by setting a price at which the investor’s shares are to be purchased. That would undermine the fundamental concept that the market determines its own price.
“Similarly, it cannot be the role of section 174 to allow an investor to buy shares in a company with a net asset value above its share price, and then to ask the court to require another shareholder to purchase the investor’s shares at the net asset value.
“If that were possible, the courts would be inundated with claims by investors seeking windfall gains similar to those sought by the plaintiffs in this case.”
Mr Latimour argued that no breach of Trans Tasman’s constitution, the Companies Act or stock exchange listing rules was alleged. He said minority oppression could only arise at a listed company where there was unlawful conduct, and the Powell claim relied on an incorrect interpretation, seeking to extend the concept of legitimate expectations well beyond the proper boundaries the courts have recognised.
What of the supposed windfall from the Powell perspective?
Stephen Rennie, for Mr Powell & Latimer, said the SEA assertion that they could sell their shares on the market at above purchase price “is an attempt to deflect attention from the true inquiry and is misconceived.
“The purchase price is irrelevantâ€¦ In this case the complaint centres around continued use of majority voting power to prevent liquidation and to preserve a continuing receipt of cash benefits from Trans Tasmanâ€¦ It is wrong to equate the NZX price with fair priceâ€¦
“A sale on the NZX effectively transfers the prejudice. SEA NZ can raise the identical argument and never be held accountable so long as the share price remains constant or increases.
“In the meantime, it can sit and choose the appropriate time to make a takeover, or purchase shares itself, and ultimately end up with the assets for less than fair value.”
GPG, which held 3% of Trans Tasman, proposed to the May 2002 annual meeting that Trans Tasman be liquidated.
Mr Rennie told Justice Williams: “The plaintiffs voted in favour of the resolution. For them it was a triggering event. It brought home to the plaintiffs the many problems associated with Trans Tasman & the underlying management. They regarded liquidation as the best option for all shareholders.”
This special resolution got support from 20.6% of total shares, 36% of those voted. SEA, holding 55% of stock, got support from an extra 2%.
Mr Rennie said that, assuming orderly disposal at book value, liquidation then would have raised 59c/share, more than double the 26c share price at the time.
Other Trans Tasman factors
The office property market, and Trans Tasman’s state, began changing about the time GPG began to take strong interest in the affairs of a company which was the successor to 2 beleaguered remnants of the 80s, Robt Jones Investments Ltd and Seabil NZ Ltd.
With a lower debt level, Trans Tasman has turned its attention to development schemes around Auckland’s Viaduct Harbour and to industrial land subdivision near Auckland International Airport.
Its 50.2%-owned Australian subsidiary, Australian Growth Properties Ltd, has sold the bulk of its portfolio. Mr Powell wants the money from cashing up in Australia returned to shareholders (so half would return to Trans Tasman).
Australian Growth hasn’t said what it will do with the money, but Trans Tasman doesn’t want to wind that company up and SEA in Hong Kong has said it doesn’t want to liquidate either of its Australasian listings.
Trans Tasman shareholders will meet in mid-October â€“ Monday the 20th is now the likely date, given timeframes for getting exchange approval and sending out documents â€“ to vote on the takeover and proposals to return capital.