Haier’s proposed $1.20 a share offer for Fisher & Paykel Appliances has been very cleverly priced. It is probably not high enough to entice all shareholders to accept, but it is high enough to discourage widespread opposition from investors.

The price is a 60 per cent premium on the pre-announcement price of 75c. This compares with normal premiums of 25 per cent to 30 per cent.

The big question is whether $1.20 is sufficient for Haier to achieve 100 per cent. Will Haier raise its offer if it reaches only 80 per cent?

It is inevitable that Fisher & Paykel Appliances will become majority Chinese owned, particularly as Australian investor Allan Gray has agreed to accept in respect of its 17.5 per cent holding.

This is one of the consequences of the New Zealand China Free Trade Agreement.

Our free trade agreement with China, and most other countries, includes an investment section. Chapter 11 of the New Zealand China agreement says that both countries shall accord each other “treatment no less favourable” than that given to any third country as far as investments are concerned.

Free trade agreements are a positive development but we often celebrate the signing of these agreements then take little advantage of them whereas our partners have a greater focus on the opportunities.

We can expect further takeover offers for our listed companies from Chinese and other Asian countries, partly as a consequence of our free trade agreements. That is the down side of trade agreements but it shouldn’t be a net loss to New Zealand as long as we make sure we obtain significant benefits on the trade side.


One of the outcomes of writing this column is the number of interesting queries and requests received.

One of these was in relation to Jacqui Bradley, who was recently found guilty of 75 offences under the Crimes Act.

Bradley operated a Ponzi scheme which defrauded 28 clients of $15.5 million.

Three years ago, I was asked by a lawyer to look at the file of a client who had invested more than $900,000 with B’On Financial Services at the end of 2003. B’On was a company run by Bradley and her deceased husband, Mike.

The investor gave B’On the money to invest in bank deposits for a one year term. The investment agreement contained no information on the name of the bank or the interest rate, but it noted the bank deposit was “backed by capital guarantees as discussed” and the money would be converted into US dollars.

The investment contract was extremely vague and made no mention of B’On’s remuneration, its custodial services, termination arrangements or detailed reporting requirements.

However, it stated that “B’On will comply with international banking practice”.

The first statement – which was for the three months ended March 31, 2004 showed a return of 3.5 per cent, or 14 per cent on an annualised basis.

Subsequent statements quoted these returns;

* March 2005 year, 12.1 per cent

* March 2006 year, 16.1 per cent

* March 2007 year, 14.8 per cent

These statements were brief. There was no account of any fees payable to B’On, the nature of the investments or the interest rate received.

The March 2008 statement showed an annual return of 9.9 per and the portfolio now worth $1.5 million. It had appreciated by nearly $600,000 since the end of 2003 according to B’On, partly because all interest had been reinvested.

The statement for the six months to September 2008 was shorter than usual. It showed a return of exactly 6 per cent for the six month period although this was followed by the following unexplained statements; “August earnings p.a. 15.6 per cent” and “remaining positions yet to close out – may earn further 1.0 per cent to end of October 2008”.

The statement was accompanied by a letter from Jacqui Bradley, who signed all the correspondence with this client.

Bradley wrote “The holding pattern that we employed for funds with a weighting to quality bonds has proved to be an excellent strategy, with the result that your investment is safe and is earning modest gains – approximately equivalent to bank interest rates. The down side to this strategy is lack of liquidity. However this is the price we pay for capital protection, which has proven to be invaluable in these circumstances”.

She concluded “Those investors who keep their emotions in check over the next quarter will be well rewarded. We have said this before, but fear and greed are the two greatest enemies of financial success”.

When the investor tried to get his money out, he received several confusing letters from Jacqui Bradley.

One said that “prior to the GFC the asset allocation was quite different from the position since. The capital guarantee was provided through bonds and the remainder of the portfolio was traded to provide profit, as a futures options trading fund”.

According to Bradley the client’s money was now invested through Brockstar Financial Services – based in Newport Beach, California – in GHZ Funds. These securities, which were called partnership units of GHZ Capital Protected EHF L.P. – were registered in the name of Brockstar, not B’On or its New Zealand client.

B’On provided a copy of the security certificate that looked more like one of those false university degrees sold on the internet, than a genuine security certificate.

My advice to the lawyer was that the investment was probably a sham, and the issue should be pursued aggressively.

This was confirmed when B’On’s liquidator later reported “we have not been able to verify the existence of any investments made with investor funds deposited into the company bank accounts.

“Our review of the company records indicates that investors’ monies received have been utilised to pay other investors and expenses of the company”.

B’On’s corporate profile placed a strong emphasis on image and substance. The company office was on the 34th floor of the Vero Building in Shortland Street, one of Auckland’s most expensive office spaces.

How could the Bradleys afford this when all they could have earned from the $15.5 million under management was around $155,000 a year, based on a 1 per cent fee?

There are important lessons to be learned from the B’On debacle. These include:

* Individuals should invest with an organisation only if the assets are held by a separate custodian. All money should be lodged with this custodian, not with the advisor.

* PIE funds are ideal in this regard because all assets are held by a separate custodian and PIEs are covered by prospectus regulations.

* The management contract and/or prospectus should include details on fees, reporting requirements, the investment mandate, income distribution policies and contract termination arrangements.

Sophisticated investors or habitual investors, generally those with $500,000 or more to invest, have to be particularly careful because promoters can offer them securities that are exempt from some of the requirements of the Securities Act 1978, including formal offer documents and full disclosure.

The Bradleys used this excuse when they refused to disclose the contents of a portfolio because “this is a private fund, with our client fitting into the ‘sophisticated investor’ category”.

The main lesson from the Bradley debacle is that all investors, whether sophisticated or not, should make sure that they know where their money is held and where it is invested.

Disclosure of interest: Brian Gaynor is an executive director of Milford Asset Management, which holds shares in Fisher & Paykel Appliances on behalf of clients.