Property management company Waltus could be in for a protracted court battle as it fights to implement a plan to amalgamate most of its property syndicates into one entity.
Waltus had gained the necessary support from 27 of its 29 New Zealand based property syndicates to merge them into a single company structure following a series of votes earlier this year.
However, a group of dissenting investors claims Waltus must offer to buy out those shareholders who do not wish to be included in the new structure.
The group of 63 investors, headed by investment adviser Murray Weatherston and accountant, Brian Moyle, will pursue the matter in a High Court hearing set down for October 12.
Moyle says if the High Court ruling goes against the group’s claims, an appeal is likely.
“Based on the comments I’m hearing, some in the group will take this matter to the end of the world,” Moyle says.
“A couple of people have also said that if there’s an appeal, their money will be behind us.”
Weatherston says the dissenters’ case hinges on an interpretation of the Companies Act (1993).
He says while Waltus gained support for the merger of its syndicates using a part of the Act that does not require a mandatory buy-out of dissenting shareholders, the Court can still make provision for it.
Waltus director, Shayne Hodge, agrees with this analysis but claims the Weatherston/Moyle group is adopting “greenmail” tactics.
“They’re just using the court process to engineer a take-out,” Hodge says.
He says shareholder support for the syndicates restructure was overwhelming, with 87 per cent of the votes cast in favour of the move.
“There was a 76 per cent turnout of eligible voters, which indicates a high level of interest in the issue. Most shareholder votes are lucky to get a 9 per cent turnout,” Hodge says.
A 75 per cent vote in favour of the change was necessary in each of the 29 Waltus property syndicates, with only two of the syndicates failing to reach that mark.
Weatherston says while the dissident group represents about $3.6 million, it will ask the High Court for any ruling in its favour to apply to all syndicate members who want to exit.
He estimates Waltus may have to spend up to $16 million if all those who voted against the proposal choose to opt out.
Both Moyle and Weatherston say they are not against the amalgamation proposal per se but claim the merger will change the fundamental nature of the investment.
“The amalgamation will turn the investment into a managed fund but a lot of advisers put investors into Waltus because they became co-owners of the properties – that was the beauty of it,” Weatherston says.
“Because of that change we believe that if investors want out, Waltus should buy them out at its own valuation of the shares.”
Moyle says Waltus has made an offer to buy out dissidents but at a price well below its own valuation of each of the syndicates.
“Waltus made an outrageous offer. For example they offered shareholders in the Regalia syndicate $8400 per share whereas under Waltus’ own conversion it has set the value at $9800,” Moyle says.
He says while the dissidents would accept a reasonable out of court settlement from Waltus the real issue concerns the loss of investor rights under the new arrangement.
“Under the syndicate rules, after 10 years any one member could force the properties to be sold but under the amalgamation that can¹t happen,” Moyle says.
He says several of the syndicates are close to the end of that 10 year period.
“Waltus is also attempting to write itself a cast-iron management contract that will last at least 20 years but before it could be sacked with three-months notice by the syndicate.”
Hodge says under a unified company shareholders will benefit from economies of scale, particularly in remortgaging and borrowing potential, while protecting their income streams.
“The merged entity will also be well placed to actively manage its portfolio,” he says.
Weatherston argues that the merged company will just borrow money to protect shareholder income at the expense of capital.
“At the end of 10 years the company will have the same assets but more debt,” he says.
Moyle says Waltus has indicated it will halt the amalgamation if the dissenters are successful in court.
“If we win in the High Court, a lot of investors may thank us in the next two or three years for helping them avoid a mess.”
Hodge says Waltus is taking action that “is unique in New Zealand corporate history” to strengthen the company in a difficult market.
“Amalgamation is the way forward for property syndicates in Australasia,” he says.
