22/01/2002 - 21:00

Headaches continue from failed merger

22/01/2002 - 21:00


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IT is difficult to know which of the two prospective partners would’ve been more disappointed, at the time, by the failure of merger negotiations between Hotham Wines and Barrington Estate.

Headaches continue from failed merger

IT is difficult to know which of the two prospective partners would’ve been more disappointed, at the time, by the failure of merger negotiations between Hotham Wines and Barrington Estate.

The public collapse of their union late last year has created headaches for both.

For Barrington, it has raised concerns in the market that the rapid growth of the group may have caused it financial pain, not to mention revealing the rift between major shareholders.

But then again, Hotham’s shareholders may have more cause to rue the day that Barrington pulled the pin on their merger.

The deal, which would have given Barrington shareholders 75 per cent of the merged group, valued Hotham at 15 cents a share.

While that was half the subscription price at Hotham’s listing a year earlier, the figure looks very attractive today, when the WA wine group has literally put up the white flag and surrendered to new management.

Shareholders who bought in at 30 cents a share have put their faith in a rescue bid by a consortium led by WA wine industry heavyweight Mike Calneggia.

A continuation of the current asset sell-off is planned in an effort to control debt.

Hotham will become a wine investment company – some in the industry are already calling it a vague form of vulture fund – positioned to take advantage of rationalisation in the wine industry.

Mr Calneggia said he and his partners, including Tony Taylor, fresh from being on the target’s side at Nautronix, will pay $1.8 million for 34 per cent of the company.

That equals a market capitalisation well below the $23 million, which the prospectus outlined ahead of listing in December 2000.

The company is hoping to raise $5.4 million through the markets to fund the restructuring, including a placement of 16 million shares at four cents each to Mr Calneggia and his associates.

Hotham shares have traded around 9 cents each this week.

Mr Calneggia said he believed Hotham had net assets of about $10 million but that did not mean he had got into the company cheaply.

He said it was a case of manning the “bilge pumps” as he sought to dispose of assets and restructure Hotham into more of a wine investment company, relieving it from crippling debt of around $10 million.

A helpful point is that Hotham is heavy in whites at a time when there is some demand for these varieties.

Mr Calneggia said he had been keeping a close eye on Hotham for about a year, but he thinks the mistakes that brought the company unstuck started long before the late 2000 IPO and could be found right at the beginning, when the company entered the industry with a vineyard in the obscure Wandering area.

He believes several assets owned by the company have some value on their own but should never have been part of the group.

Apparently the company recognised this before the white knight’s arrival, having long ago considered Wandering superfluous, and more recently putting all its vineyard assets up for sale.

It hoped it could get $8.3 million for the 98-hectare Bridgeland site, which it bought for $5.4 million in 1999 from a failed tax-effective investment consortium, which included recently ousted Hotham managing director Evan Cross.

Also put on the market was Alexandra Bridge Estate, a 78ha site which had been vended in to Hotham by the Brown family for 20.8 million shares at 30 cents each.

At current trading (9 cents a share) that stake would be worth about $1.8 million compared with $6.2 million before listing.

Wildwood was sold last year for $2.9 million, $600,000 below its purchase price.

The auditors, who also provided an independent expert’s report for the Hotham prospectus, also recognised that there were issues in this year’s annual report.


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