Investors packed into the Ellerslie Events Centre yesterday afternoon for a very eventful AGM.   Over the course of three hours the independent directors fought off proposals by the ACC and DNZ Property fund before unit holders were asked to vote.

The resolutions put forward gave unitholders four options.  The first was to internalise the management contract for $20m, which was recommended by the independent directors.  The second was to request the trustee to remove the manager for no cost.  This was put forward by the ACC, NZ Super and BT Private Selection.  The third option was proposed by DNZ Property Fund which would force the manager and trustee to consider alternative proposals including DNZ’s merger proposal.  The fourth option was to vote against the first three and leave OnePath as an external manager.

Independent director Trevor Scott outlaid the benefits of internalisation which included greater management alignment and cost savings of $2.9m annually.  He also believed that the $20m price to be paid for the contract is fair, as recommended by independent advisors Grant Samuel.  The main concerns with this proposal were the high price and the increased gearing or properties sales necessary to fund the transaction.  This proposal was passed with the 264,843,456 voting For and 63,217,862 Against exceeding the 75% majority required.

Ian Purdy from the ACC spoke in favour of the ACC proposal and against the director’s internalisation proposal.  He stated that while they supported internalisation, $20m was far too much to pay a manager who has significantly underperformed the NZX50 since inception.  The $20m payment was likened to paying the pilot of a commercial flight $100 to get off after he had taken a wrong-turn and arrived at the destination late.  In his opinion their proposal to request the trustee to remove the manager would cost far less and commented it would take “a bold trustee” not to carry a request by 50% of voting unitholders.  Trevor Scott believed removal of the manager by the trustee would become very expensive as the manager would retaliate with legal action.  This resolution, requiring a 50% majority was rejected with 77,262,738 voting For and 264,945,028 voting Against.

DNZ chairman Tim Storey spoke out against Argosy management and the independent director’s internalisation proposal.  He implored investors to force the independent directors to conduct another independent report that fully explored alternative proposals including a merger proposal by another property fund.  Trevor Scott pointed out that DNZ would not respond to Grant Samuel’s attempt to discuss the DNZ merger proposal and that DNZ had not put forward any clear offer.  This resolution also failed with 71,033,443 For and 271,074,136 Against.

The worst outcome of this AGM would have been the status-quo where all proposals were rejected.  While paying $20m for the management contract is a lot to pay, the internalisation will occur quickly rather than drawing the out process.  Going forward Argosy will be a more attractive property investment vehicle and DNZ can still make another merger proposal.

William Curtayne

Disclosure of interest: Milford is a shareholder of Argosy Property Trust