Ken Wikeley’s bankruptcy is a massive fall from grace for one of the NZX’s more colourful characters.
However, it is probably being greeted with a wry smile by investors who lost money in many of his NZX-listed companies.
Wikeley has played a major role in a number of NZX backdoor listings, most of which have been major disappointments.
Wikeley’s bankruptcy is yet another reminder that a high percentage of backdoor listings fail. Investors should be careful of these reverse NZX listings, particularly if Wikeley tries to make a comeback in this area after his bankruptcy expires in 2017.
Wikeley first entered the NZX in 1984 when Rainbow Corporation listed following an IPO at 50c a share. This gave the company a sharemarket value of just $7 million.
Rainbow, the brainchild of Craig Heatley and Wikeley, built and operated the Rainbow’s End theme park in Manukau.
The park cost $21 million and attracted 360,000 visitors in 1986.
Heatley and Wikeley, who were both in their 20s, were NZX poster boys in the mid-1980s.
They received more media attention than current participants in The Block, the house renovation television series.
The sharemarket attracted a huge amount of media attention in the 1980s, just as residential property does today.
Back then most investors believed that share prices would never fall just as they now believe house prices will never drop.
Rainbow Corporation was one of the high-flying investment companies of the 1980s and was worth more than $700 million when acquired by Brierley Investments in 1987.
Wikeley became managing director of Rainbow Properties in 1986, an offshoot of Rainbow Corporation that listed by the backdoor route through agriculture machinery supplier A.M. Bisley.
Rainbow Properties subsequently changed its name to PrimeAcq and collapsed in the early 1990s.
The ownership of Rainbow’s End was transferred from Rainbow Corporation to Argus Questar, which was a restructured backdoor listing with roots in NZX-listed British Office Supplies.
Argus Questar also collapsed shortly after the 1987 crash as the theme park experienced a huge decline in visitor numbers.
Subsequently, Wikeley has been involved in a number of listed companies:
He was managing director of NZX-listed Aquaria 21, a backdoor listing through Queen Charlotte Holdings, which originally listed as Regal Salmon. The company built the Shanghai Aquarium and other aquariums in the 1990s. The aquariums experienced huge losses and were sold. Aquaria 21 is now listed as Seadragon after a number of subsequent failed reincarnations.
Wikeley was involved with Strathmore Group in the late 1990s and early 2000s. The company was originally a reverse NZX listing through Australasian Breeding Stables. Strathmore’s share price soared and then dived at the turn of the century and the company is now listed as Vmob Group.
He was also involved in the highly controversial Plus SMS, which was a reverse listing through RetailX. Plus SMS’s sharemarket value soared from .2 million to $262 million between March 2005 and November 2005. The company was worthless when delisted by the NZX in April 2010 for repeated infringements of the listing rules.
Wikeley was declared bankrupt this month after a bitter dispute with his long-time friend and business partner Michael Jacomb.
Jacomb lost money in Plus SMS but decided to invest more than .25 million in Orion Minerals, a NZX backdoor listing through RLV No. 3. Orion Minerals had just paid over $100 million, mostly in the form of new shares, to purchase interests in an iron ore company in Chile.
Jacomb visited Chile where he met Wikeley. The latter convinced him to invest in Edel Metals, a non-listed New Zealand company with Chilean mining aspirations.
To make a long story short Jacomb lent Edel Metals US$1.5 million ($1.9 million) and obtained a personal guarantee for 50 per cent of the loan from Wikeley.
Wikeley and Jacomb then had a bitter falling out and Jacomb chased Wikeley for US$875,768 payable under the personal guarantee plus interest.
The former high flyer has been declared bankrupt in relation to this personal guarantee as he has run out of friends willing to support his optimistic business propositions.
Ironically, Wikeley was unsuccessful in his effort to convince the courts that Jacomb should transfer his Orion Minerals shares to him. Edel Metal’s only remaining director is John Sorenson after Wikeley and Jacomb resigned last year. The company doesn’t appear to have made any progress in Chile.
Meanwhile, Orion Minerals has abandoned its Chilean iron ore aspirations and is now investing in a scrap metal business in Australia.
The company will hold its annual meeting in Auckland on December 9 when shareholders will be asked to re-elect two Shanghai-based directors. The other three directors are chairman Roger Gower, Sean Joyce and another Chinese resident.
The two New Zealand directors have been associated with a large number of backdoor listings.
Orion Minerals’ achievements over the past five years have been as follows:
It has had no revenue.
Directors have received total fees of US$1,401,000.
Gower has received total payments of US$436,000 for fees and other services and Joyce US$343,000.
Meanwhile, Orion Minerals’ cash resources have fallen from US$10 million in June 2009 to US$5.7 million in mid-2014.Who would ever be crazy enough to invest in a backdoor listing, particularly when the board has grandiose plans to invest in a foreign-based project where the independent directors have almost no expertise?
Just Water International
There is considerable disquiet over a number of aspects of the takeover offer for Just Water International, which was established by controlling shareholder Tony Falkenstein in 1989.
Just Water listed on the NZX in June 2004 after an IPO at 50c a share. The share price hit an all-time high of $1.22 in early 2007 but has been on a steady downhill slide since then.
Two parties made indicative offers this May with one of these parties undertaking extensive due diligence which wasn’t revealed to the NZX.
The due diligence party made a conditional offer of 14.6c for each Just Water share but this was topped by a 15c a share offer from Falkenstein, who owns 70.8 per cent of the company through various interests.
The areas of concern are:
Just Water is essentially a cash-flow story with net debt falling from $26 million to $13 million over the past four years.
KordaMentha’s Independent Adviser’s Report takes a cautious view of future prospects whereas the company’s annual report, which was released just two months earlier, was relatively optimistic.
KordaMentha’s valuation is based on management forecasts which do not appear to have been approved by directors. Falkenstein, as an executive director, will have access to these forecasts but they have not been revealed to minority shareholders.
The 15c a share offer is too low when compared with the acquisitions of Australian-based Cool Clear Water and Norwegian Aqua Service by Dublin-based Waterlogic.
The offer for Just Water raises a large number of questions about independent advisers’ reports, disclosures to minority shareholders, the role of independent directors and valuation methodologies.
There is a strong argument that the offer for Just Water International is opportunistic and the independent directors and minority shareholders should be looking for far more than 15c a share.