Arbitrage fund sits on sidelines

Bancorp's merger and arbitrage fund is sitting on the sidelines although takeover activity is ripe in the market.

Thursday, April 15th 2004, 12:31AM

by Jenny Ruth

While a couple of high profile takeover offers are preoccupying the New Zealand market the first investment fund deliberately established to exploit takeovers and corporate restructurings is having to sit on the sidelines.

Merchant bank Bancorp managing director Craig Brownie says his company has extended the offer period for its unlisted unit trust, the Bancorp Merger Arbitrage Fund, until May 14 and that it won't be investing any money until the offer closes.

Brownie won't say how much the fund has raised to date, but says he doesn't expect it will raise as much as the $20 million target set - Bancorp had allowed for over-subscriptions up to $30 million.

Bancorp set no minimum target for the fund, but Brownie says it always had the option of returning funds to investors if the amount of money attracted wasn't cost effective.

Nevertheless, he says he is confident the fund will get off the ground and that the company is currently talking to "high net worth investors."

Given that this is Bancorp's first foray into retail funds management and that it doesn't have a distribution network of its own, the fund's targets always seemed ambitious.

"Our intention was always to get the fund established and to be able to come back to the market with a track record of returns in about 12 months time," Brownie says.

The fund has also attracted criticism of its fee structure. Bancorp is aiming for returns between 12% and 15% and has structured its fees to provide an incentive to boost returns. Up to 6% a year, Bancorp's fee is a flat 2.5% of net asset value. But it will pocket 20% of anything earned above 6%.

Although the fund isn't investing yet, Brownie provides some idea of what it is likely to do once started.

"We would be quite interested in Tenon (the former Fletcher Forests), but we would be less interested in the Wrightson deal," he says.

Former Fonterra boss Craig Norgate has announced his intention to offer $1.50 a share through Rural Portfolio Investment, the investment company he jointly owns with Dunedin's McConnon family, to take a controlling 50.1% stake in Wrightson. He is also offering sellers the option of accepting redeemable preference shares in an RPI company as full or partial payment. Wrightson shares are currently trading at $1.41.

Tenon's major shareholder Rubicon, which also came out of the Fletcher Challenge stable, is offering $1.85 a share for 50.1% of Tenon but Tenon says its shares are worth between $2.06 and $2.32 each. They are currently trading at $1.93. Rubicon currently owns just under 20% of Tenon.

Brownie says he is also interested in a few Australian deals, particularly the situation surrounding Austalia's TAB. Both Tabcorp and Unitab have lodged bids of around $A2billion ($NZ2.3 billion) for Tab.

Bancorp's fund will only invest in takeover targets once a firm offer has been announced.

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