Tex Edwards tried to 'game' 2degrees with share settlement offer – CEO

An Employment Relations Authority determination released yesterday details an email Mr Hertz sent after he had been advised that Mr Edwards wished to “wrap up a deal” to settle shareholding issues he had been discussing with 2degrees.

In the email, Mr Hertz wrote:

"This is a bit of positioning and gaming on his part. He knows very well that I do not have a mandate to agree on shareholder matters.

"He uses this kind of technique to delay, distract and defer. I will not let that happen. My intention is to drive this to a place, within NZ employment law, where he obtains a formal support or legal representative who will guide Tex to a solution.

"If that is not possible, then we will likely be eliminating his position or entering a performance disciplinary process that will end up in a mediated negotiation of settlement or an employment court proceeding.

"We cannot afford the distraction any longer and we are simply not well served by his presence inside the business."

In February, Mr Hertz told Mr Edwards that his position as "strategist" would be eliminated. The founder saw the move as personal rather than motivated by business.

He took a personal grievance claim that sparked a series of actions culminating in his failed attempt to injunct his dismissal company ahead of a full hearing on August 22.

Mr Edwards declined to comment on his employment case or his share dispute with 2degrees yesterday. 

However, allies of Mr Edwards have widely spread the story that the founder was angered when 2degrees lent money to another minority shareholder, the Hautaki Trust, to help it prevent its shareholding (already eroded by new share issues) being diluted further.

The move came after Hautaki was given extra time to raise capital. Mr Edwards is said to question why he was not offered the same terms.

During the ERA injunction hearing, Mr Edwards questioned the impartiality of Mr Hertz and 2degrees chairman William Sherriff, both of whom have ties to Trilogy, 2degrees' US-based majority investor.

Mr Edwards, a former investment banker, was instrumental in getting Trilogy onboard with 2degrees.

However, as Trilogy has built a majority stake over time (it took a 26% stake in June 2008, gained majority control in July 2009, and in February 2010, the Overseas Investment Office approved Trilogy to acquire up to 100% of 2degrees).

In a Companies Office filing last month, for its 2011 financial year, 2degrees put the total captial value of its private equity shares at $410 million – a big jump over the prior year's $329 million and 2009's $243 million.

The valuation puts the value of Mr Edwards holding at just over $4 million (although the founder may be rueing it could have been worth $8 million if a he had been extended the same company loan terms as Hautaki and been able to prevent his 2% stake being diluted).

"The value of my stake will will become at risk if I am no longer employed by the company," Mr Edwards told the ERA.

Last year, Mr Edwards told NBR ONLINE he had not got rich from 2degrees, due to the amount of personal money he put in between its founding in 2000 and the time Trilogy and other international investors came on board.

Mr Hertz was previously CEO of Western Wireless, a US telco founded by Trilogy chairman and billionaire investor John Stanton.

Mr Sherriff – who replaced Hautaki's Bill Osbourne as 2degrees' chairman as Trilogy took majority control – is a Trilogy senior vice-president and the US company's CTO.

Cutting Tex in half: 2degrees shareholdings (February 2012 Companies Office filing)

Trilology International Partners (US): 58%
Tesbrit (Holland): 28%
Hautaki Trust (iwi): 10%
NZ Comms Trustee (employee shares): 2.5%
KLR (Tex Edwards' family investment vehicle): 1%

Total share capital (as of Dec 2011): $410 million