Takeovers Panel raises red flags over Benjamin Hornigold takeover

The Takeovers Panel has made a declaration of unacceptable circumstances regarding the deal, stemming from an ongoing concern about the competitiveness of John Bridgeman's offer.

NSX-listed John Bridgeman is run by former Bond University academic Stuart McAuliffe (pictured) who until recently was also the executive chairman at Benjamin Hornigold, a Brisbane-based investment firm that is suspended on the ASX. 

In early February 2019 the Takeovers Panel made an order blocking John Bridgeman's attempted takeover of Benjamin Hornigold. The Panel considered an unpaid $4.5 million unsecured loan given by Benjamin Hornigold to John Bridgeman, Hornigold's exclusive investment manager, operated as a lock-up device. 

Following the decision, John Bridgeman directed Benjamin Hornigold to place approximately $5.46 million in aggregate foreign currency banknotes with an entity named King's Currency.

John Bridgeman then made an announcement stating it would no longer proceed with its initial takeover attempt of the Brisbane investment firm.

One day later on 6 March 2019, JB Financial Group, an entity that shares a director in common with Benjamin Hornigold, provided John Bridgeman with an unsecured loan facility worth up to $7 million. John Bridgeman then drew down $4.5 million of the loan facility for the purposes of repaying the $4.5 million unsecured loan given by Benjamin Hornigold in accordance with the Takeover Panels' order. This loan was thus repaid.

Fast forward nearly two months to 26 April and John Bridgeman announced its second attempt to takeover Benjamin Hornigold, with offers opening up on 17 May.

In June, a deed of variation was executed by King's Currency that amended the period for the return of the $5.46 million in aggregate foreign currency banknotes from 30 days, providing all banknotes were not returnable until 12 November 2019.

Later that day all of the directors of Benjamin Hornigold resigned, including Stuart McAuliffe, and three new directors were appointed.

Based on the above, the Takeovers Panel has decided to make a declaration of unacceptable circumstances.

"The Panel considered that the circumstances were unacceptable in relation to the affairs of Benjamin Hornigold because the following transactions effectively replaced the loan subject of the Repayment Order and diminished the value of a material and important asset of Benjamin Hornigold, making it less attractive to a potential acquirer and less likely to attract competing proposals to the 2019 Bid (and as a result, diminished the value of Benjamin Hornigold), in effect operating as a lock-up device," says the Takeovers Panel.

As such the Panel is currently considering what final orders it will make regarding the second takeover attempt, including whether it should adjust the initial order made in early February 2019.

Stuart McAuliffe's entanglement with his various firms does not end here. Recently his Henry Morgan fund (ASX: HML), another investment fund named after an infamous pirate, raised concerns about money owing to its manager John Bridgeman, also managed by McAuliffe.

More than $8.3 million in performance fees have been paid by Henry Morgan to John Bridgeman since 2017. At the end of FY19, the company which has been suspended since June 2017, posted a loss of $5.6 million.

Henry Morgan has since warned investors that it may have to pay more to its manager.

"During the financial year a complete review since inception of the company's management fee and performance fee calculations under the company's management services agreement with John Bridgeman Limited has been performed," says Henry Morgan.

"In the course of this review, a question has arisen as to the interpretation of the "high-water mark" for the purposes of the performance fee calculation."

The firm is currently seeking legal advice about the matter.

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