Allied Farmers' plan to buy the loan books of troubled Hanover Finance and its subsidiary United Finance has caught some Hanover investors by surprise.
The proposed $400m deal comes a week after Hanover warned investors they won't get back all of the $554 million they're owed.
Allied Farmers, a rural services firm, says that if the deal is approved by shareholders, Hanover debenture holders will get about 78c in the dollar back, and United Finance holders about 90c.
One Hanover investor told Radio New Zealand that the deal had taken her by surprise. "I can't see why anybody would want to buy something that was not doing very well," she said. "$400 million's a lot of money."
Other investors also expressed surprise that anyone would be interested in Hanover's assets.
But investment analyst Brian Gaynor, of Milford Asset Management, says the deal is potentially a good one for Hanover investors.
Company went from $13m profit to $102m loss
Hanover lost $102 million in the year to June, compared with a $13m profit the previous year. The company's audited accounts show its bad and doubtful debts jumped to $309 million.
Last week, Hanover's 16,500 investors were warned that they were likely to get only 70% of the $554 million they were owed because of a deterioration in the commercial property market.
Allied Farmers says the deal requires approval from its shareholders, as well as investors in Hanover and United Finance.
If approved, Hanover's and United Finance's investors will get shares in Allied Farmers, and good loans will be transferred to Allied Nationwide Finance, the finance arm of Allied Farmers. Bad loans will be put into a new unit.
A 'win-win situation for all'
Allied Farmers chairman John Loughlin says that although most of the loans fall into the category of underperforming, the deal is a win-win situation for all.
"We're giving fair value in the transaction, and we're getting fair value, and ... we'll be in a better position in a consequence," he says.
Hanover owners Mark Hotchin and Eric Watson put property assets and $10.5 million as shareholder support into Hanover, which will be transferred to Allied, Mr Loughlin says.
Hanover Finance chairman David Henry says the company has commissioned an independent expert to evaluate the deal for its shareholders.