Congratulations to Allied Farmers for winning a $6 million legal dispute against property developer Mark Cooper. The funds are extremely timely, with Allied due to pay Eric Watson and Mark Hotchin a further $5 million by the end of this month.
That payment is due as a final settlement on last December’s deal that saw Allied take over the Hanover and United Finance loan books, at the time valued at just under $400 million.
Despite the rapid deterioration in the value of the assets (to $124 million at last count) Allied is legally bound to pay the former Hanover owners the $5 million, as explained in Grant Samuel’s independent “appraisal report” on the transaction.
Under the deal, Hanover retained $5 million to fund costs associated with the proposal, including financial, tax, legal, accounting and other fees payable to advisers, amounts to the trustees and the Grant Samuel report.
"An additional $5 million in cash will be paid to Hanover for the costs of exiting the business including tax and contingent liabilities arising from pending litigation," Grant Samuel said in it's report.
Ecko those thoughts
Most of that first $5 million is likely to have already gone to Hotchin and Watson’s broker for the deal – understood to be Andrew Schmidt of Ecko Capital.
Mr Schmidt was a mergers & acquisitions bigwig at Credit Suisse before being seconded to become chief executive of Hanover Group in 2007. He joined Hanover with a mandate to sell the company and nearly succeeded.
Private Bin recalls Australian investment bank Babcock & Brown was close to inking an $800 million deal to buy Hanover, which at that time had total assets exceeding $2 billion.
Sources say the deal fell down when Goldman Sachs stepped in with a second proposal, said to involve a share market listing.
When both deals fell through, Schmidt left Hanover, eight months after his appointment, and the company began its slippery slide towards the open arms of Allied Farmers.
Ironically, ultimately Schmidt proved his worth getting Watson and Hotchin out of the company but his fee is understood to have been approximately $4 million, or 1% of assets.
Getting back to the additional $5 million owed, Private Bin understands Allied is searching for an escape hatch.
The company may try and delay payment until there is certainty over the remaining funds from Cooper’s luxury development in Beverley Hills, known as the Reeves Maison Condominiums, part of Mr Cooper’s Brockton Brentwood Property company.
The receiver is holding additional funds of $3.5 million in trust, which is forecast to increase to between $11.5 million and $13.5 million as the remaining condominiums are sold.
Clouding the picture is there is some doubt as to whether Allied actually lays claim to this money.
"Whilst there remain objectors to the distribution of the remaining funds, given the success in this judgment and the difficult position it creates for these objectors, the company is confident of further distributions in due course," Allied managing director Rob Alloway said in his press release.
This story suggests that the Reeves Maison funds may not be due to Allied because the assets in question may not have been part of the December debt for equity swap.
In February at the High Court in Auckland, United Finance lawyer Nathan Gedye disputed the notion that Allied was due the money.
Mr Gedye referred to an affidavit from Minter Ellison Rudd Watts partner Andrew Monteith, who worked for Allied Farmers on the Hanover transaction, which said “some” loan assets were not transferred to Allied Farmers as part of the deal and Brockton Brentwood was one of them.
“Clearly he is in a position to know what he’s talking about,” Mr Gedye said.
Stars in their eyes
In any event, the legal fees for this whole fiasco are likely to be steep.
Alloway said in his press release that US law firm Miller Barondess did a wonderful job.
No doubt they did but there services would have come at a hefty price.
According to US news reports, Louis Miller built his reputation representing A-list clients including Sean Connery, Michael Jackson and Lionel Richie, as well as defending the Los Angeles Police Department in the Rodney King civil rights damages case.
Mark Barondess represents the interests of CNN broadcasting giant Larry King and his companies. A former divorce lawyer, he has written a book called "What Were You Thinking? $600-PerHour Legal Advice on Relationships, Marriage & Divorce:"
Private Bin wonders what the best title for a book on the Allied Farmers deal with Hanover should be called.
Mon, 21 Jun 2010