Vital unitholders get a pointless vote while major issues stay up in air

Published 20 November 2011

Vital Healthcare Property Trust unitholders will be able to vote on a resolution, at the annual meeting called for 6 December, to ask their trustee to sack the manager – except the institutions that proposed it have pretty much sold out.


Unitholders won’t be able to vote on internalising management – OnePath (NZ) Ltd, the ANZ National Bank Ltd subsidiary which owns Vital Healthcare Management Ltd, put a proposal in April for a $14 million buyout, ran into heavy criticism, got negotiated down to $8 million then pulled the proposal in September.


Unitholders will also not be able to vote on a proposal from Ascot Property Management Ltd to buy the management contract then internalise it in a second step. Vital’s 2 independent directors, Bill Thurston & Graeme Horsley, reckoned there were aspects of Ascot’s proposal which would breach the Securities Act, and Ascot hadn’t come back to change their view. Ascot said the independent directors and management reckoned Ascot should pay to determine that question, but Ascot thought otherwise.


On 2 November, the main campaigner for sacking the manager, the Accident Compensation Corp, sold down to a zero stake, providing the bulk of the 6.2% stake acquired by 3 entities controlled by Paul Dalla Lana, of Toronto – NorthWest Value Partners Inc, NorthWest Real Estate Investment Trust & NorthWest Operating Trust.


Mr Dalla Lana bought in at $1.20/share, a price not achieved since last November though it got to $1.19 on 28 June, a few days after Ascot announced its offer to buy the management contract so it could internalise management.


 He’s built up a large portfolio of medical-related properties and established a number of real estate investment trusts in Canada, some with a healthcare emphasis.


 ACC had already reduced its holding from 9.1% to 5.5% in September, selling to another ANZ National subsidiary, AUT Investments Ltd, which took its Vital stake from zero to 9% – a blocking stake. ACC, The Guardians of NZ Superannuation and Westpac Banking Corp & BT Private Selection (a unit trust managed by Westpac-owned BT Funds Management (NZ) Ltd) held a combined 15% when they called in early June for the manager to be sacked. Now they hold a combined 1.5%.


Ascot directors Sandy Maier, David Glenn & Craig Priscott reckoned they could achieve a management buyout for $4.5 million, including a success fee, and got close to 20% support. In a letter to Vital unitholders on Friday, they fired some parting shots at Vital’s independent directors: “Ascot was very disappointed to hear that ANZ/OnePath no longer intended to progress the internalisation of the trust and does not believe the purchase of what for practical purposes is a blocking stake by ANZ is in the interests of Vital unitholders. Rather, we believe they are the actions of an incumbent manager concerned to insulate itself from the threat of unitholder activism – at significant cost to Vital unitholders.


“Since the time that Ascot submitted its proposal, the independent directors of Vital have sought to undermine it. The hostility culminated in their lawyers sending Ascot a letter alleging that for technical legal reasons they were unable to submit the Ascot proposal to the meeting of unitholders without an exemption from the Financial Markets Authority. OnePath’s view was that they were under no obligation to seek an exemption and that the trust should not have to bear the cost of applying for one.


“In our opinion, the refusal of OnePath to obtain an exemption (assuming one is even necessary) is prejudicial to the rights of the unitholders that signed our proposal and is in direct conflict with its own duties as the manager of the trust.


“We also believe the position adopted by OnePath raises significant policy issues for the New Zealand market as a whole. In effect, OnePath is relying on a self-serving legal opinion to deny a large number of Vital unitholders their rights under both the Unit Trusts Act & Vital’s trust deed.


“Furthermore, during the delay by OnePath in calling the unitholder meeting – it has been more than 4 months since we requested a meeting ‘as soon as reasonably possible’ – various other events have occurred which have resulted in the landscape being quite different to what it was when the Ascot proposal was conceived.


“In particular, regardless of the outcome of the legal issues mentioned above, the purchase of the 9% stake by ANZ – which could be freely voted against our proposal – means that our proposal is no longer viable from a practical perspective, given the approval threshold required to be reached for it to be successful.


“Where to from here? Given the above, it appears that OnePath is not putting the Ascot proposal to investors at the forthcoming meeting. We believe this is a real slap in the face for those – nearly 20% of – unitholders who signed the Ascot proposal in the first instance. We believe these unitholders should make their feelings clear at the upcoming meeting.


“Ascot entered this process because we believed that the original $14 million price to be paid to the manager was far too high. This position was vindicated when even the independent directors withdrew their support under heavy investor criticism. We didn’t believe the internalisation was worthwhile at the $14 million price – and we still don’t. In that sense this process has been at least partially successful.


“A large part of this success was due to you, the supporting unitholders. Although it is a shame that the Ascot proposal has been overtaken by events – especially the purchase of the 9% stake by ANZ and the stance taken by OnePath to block the Ascot proposal – your support has been instrumental in forcing the independent directors & OnePath to abandon the $14 million price that was originally proposed.


“We suspect this issue is not dead & buried and may raise its head again in the future, in which case Ascot may reconsider its position. In the meantime we will remain on the sidelines as interested observers and look forward to the fee reductions promised by the manager in the December prospectus.”


The independent directors said they still believed internalisation &/or corporatisation was in the best interests of unitholders and would look to re-engage with OnePath in 2012.


Earlier stories:

4 November 2011: Canadian investor Dalla Lana buys ACC out of Vital Healthcare

26 September 2011: ANZ pays $1.83 million above market for Vital units after $2 million difference over management price

23 September 2011: ANZ halts Vital internalisation after lifting trust stake to 9%

23 September 2011: ANZ puts 9% of Vital into new subsidiary, including some of ACC’s stake

31 August 2011: Talks resume on Vital Healthcare management buyout

31 August 2011: Argosy internalisation settled

30 August 2011: Internalisation vote wins at Argosy

4 August 2011: Vital directors & OnePath can’t agree price, Ascot dismisses scare tactics

29 July 2011: OnePath management sell-off totally unstuck

24 June 2011: Maier & mates produce buyout offer as trust managers’ independents reject OnePath prices

27 April 2011: $14 million buyout price on Vital management contract


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Attribution: Meeting notice, Ascot letter, story written by Bob Dey for the Bob Dey Property Report.

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