Ann: GENERAL: MTF: Turners ordinary share offer and Heartland proposal

• Release Date: 14/10/15 09:09
• Summary: GENERAL: MTF: Turners ordinary share offer and Heartland proposal
• Price Sensitive: No
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					MTF
14/10/2015 09:09
GENERAL
NOT PRICE SENSITIVE
REL: 0909 HRS Motor Trade Finances Limited

GENERAL: MTF: Turners ordinary share offer and Heartland proposal

Turners unsolicited ordinary share offer and Heartland proposal

This notice has two key purposes:

o To summarise your Board's consideration of various matters relevant to the
Turners Finance Limited (Turners) offer
o To inform you of a new proposal received 13 October 2015 from Heartland New
Zealand Limited (Heartland).

The most urgent of these matters is the offer from Turners, for which the
last date of acceptance is 17 October 2015. If ordinary shareholders are
considering accepting the offer, we urge you to give careful consideration to
all matters relevant to your decision. The Board recognises that individual
ordinary shareholders' circumstances vary and suggests that you seek your own
advice from an appropriately qualified professional adviser if you are in
doubt as to any aspect of Turners' offer and/or the proposal from Heartland
discussed below.

Turners offer:

We informed you on 15 September 2015 regarding the offer ordinary
shareholders received from Turners.  Turners is offering $1.15 per ordinary
share and is seeking to acquire up to 20% of MTF's ordinary shares.  The last
date for accepting the Turners offer is 17 October 2015.

As set out in our letter to ordinary shareholders of 21 September 2015, the
following situation exists in regard to the Turners offer:
o Turners has been a shareholder of MTF since 2004 and currently provides
around 10% of the monthly sales volume of MTF.
o Turners and its parent company operate in the financial services market
with interests in motor vehicle finance (Dorchester Finance and Oxford
Finance), motor vehicle insurance (Mainstream) and debt management (EC
Credit).
o Turners currently holds less shares than it is required to hold under its
originator obligations to reflect its growing loan book. Accordingly, the
Board welcomes Turners' interest in acquiring more shares to meet its
obligations under its originator agreement (currently less than 5%).
o If Turners receives acceptances representing 10% or less of MTF shares, the
transfer of shares must be registered by the Board.
o If Turners receives acceptances which, if registered, would cause it to
hold greater than 10%, the approval of both the Board and a special
resolution of ordinary shareholders at a meeting on the matter is required
before those shares can be held by Turners.
o We note that Turners is considering making offers to take over run-off
ledgers from non-originating shareholders. As Turners noted in its letter to
shareholders dated 9 October 2015, the Board will not agree to such transfers
as part of Turners current unsolicited cash offer.

The Board is yet to form a view on the merits of Turners owning more than 10%
of the voting shares or in regard to Turner's suggestion of accepting
constraints on the voting rights of ordinary shares in excess of 10%.  We
will communicate with you further on this issue should the acceptances
received by Turners take it above the 10% limit.

The Board's view of the value of MTF ordinary shares:

We undertook in our earlier letter to write to you again regarding our view
on the value being presented by Turners' offer.

Since that letter, the Board of MTF, having taken advice, has formed a view
on a fair value range for MTF ordinary shares and believes the Turners' offer
is materially below that range.  The Board believes that a fair value range
for MTF ordinary shares (where the acquisition does not allow the acquirer to
control MTF) is $1.39 to $1.71 per share.   Our view takes into account a
number of factors, but primarily reflects the following:
o The Board expects to pay a final dividend in regard to the 2015 financial
year of 7 cents per ordinary share - most likely to be paid in November.
This will bring the total for the 2015 financial year to 13 cents per
ordinary share.
o This is in line with a policy of paying around 50% of MTF's underlying
profit after tax by way of dividend.
o Subject to normal prudential concerns, the board expects to continue this
policy in the near term.
o While the future cannot be predicted with certainty, the board currently
expects to grow underlying profit over the coming years.  As such we expect
the absolute level of dividend will increase over time in line with profit.

Accordingly, we note that the Turners unconditional offer of $1.15 per
ordinary share is below the bottom of our valuation range.

However, the Board notes that the Turners offer is higher than the range in
which MTF ordinary shares have been trading over the last 12 months.  The
majority of trades over that period have been in the range from 90c to $1.00
per share.  In the absence of any other unconditional offers being likely,
the Turners' offer does present an opportunity for dry shareholders, who no
longer originate loans with MTF, and who are looking to sell MTF shares in a
timely manner at a price that has not been attainable since the ordinary
shares were issued in 2009.

Similarly, in the absence of any other unconditional offer being likely,
originating shareholders who hold excess shares (relative to their
requirements under their originator agreement) may see value in the
opportunity to sell shares into the Turners offer.

Possible takeover offer from Heartland:

In response to Turners' offer to MTF shareholders, the Board and ordinary
shareholders received a letter dated 18 September 2015 from Heartland New
Zealand Limited expressing interest in making a full takeover offer for MTF.

Yesterday Heartland sent us a further letter confirming that it remains
interested in pursuing a full takeover offer for MTF and states it would be
likely to offer more than $1.50 per share if it did so.  However, making such
an offer would be subject to a significant due diligence process.

Given the conditionality of Heartland's interest in MTF, the Board is not
currently able to provide any assurance or advice regarding whether a full
takeover offer from Heartland (or any other party) will be forthcoming, what
price any offer might involve, or whether other terms of any proposal would
be acceptable (especially in regard to protecting the commission levels
enjoyed by MTF dealers and franchisees).  We cannot see the period of time
for resolving these issues being less than four weeks and it is far from
certain that any offer would arise at the end of that period.

Given this material uncertainty, the current possibility of such an offer
being made does not provide sufficient cause for the Board to advise
shareholders who otherwise might accept the Turners offer to not do so.

Should Heartland present a full takeover offer, following its due diligence
process, the Board will respond to that offer in accordance with its legal
obligations including informing shareholders of the merits of the offer.

There are three other important points to note in regard to any future full
takeover offer that might arise:

o Unless acceptances in excess of 90% were received, allowing the offeror to
compulsorily acquire the outstanding shares, the offer would lapse without
any shareholder being able to sell their shares into the offer (unless the
offeror chose to waive the 90% minimum acceptance condition).
o To the extent that the commission payments received by originating
shareholders are greater than payments originators might receive from a
competing finance provider (i.e. they are 'above-market'), this above-market
element may be at risk in the event of a successful takeover offer as control
of MTF changes and the new owner may seek to maximise returns to equity by
reducing commissions. Accordingly, there is a value to originating
shareholders' control of MTF (and thereby control of the equity/commission
structure) that is not recognised in the value of a dry ordinary share. A
future takeover offer may look to preserve the current arrangements or to
compensate originators for changes the acquirer wishes to make to the
commission structure.  Originators should be aware that, in the latter event,
they would likely receive a value per share that is significantly greater
than our valuation of a dry share. Presently, the Board has not received any
indication from any party that an unconditional offer which includes the
significant premium that would be required to compensate originators for
changes to the commission structure and loss of control is likely.
o The approval of both the Board and a special resolution of ordinary
shareholders at a meeting on the matter is required before a party could hold
more than 10% of MTF's shares. A shareholding by Heartland may also require
amendments to the MTF constitution.

Second Heartland Proposal

In the letter we received from Heartland yesterday, it has now also stated
that it would be prepared to make an offer within a shorter timeframe to MTF
shareholders to acquire between 10% and 20% of the shares in MTF at a price
of $1.50 per share, subject to undertaking a more limited due diligence.
Heartland states this would be confined to confirming that MTF has no actual,
claimed or potential liability under the Credit Contracts and Consumer
Finance Act 2003 (CCCFA) to any customers for "excess" fees charged over
recent years. Heartland expects that this due diligence can be completed
within one week.

Heartland states that any offer by it (including this second proposal) would
be an alternative to Turners offer, not an accompanying offer. Heartland has
stated it would not make any offer to acquire shares in MTF in the event that
Turners obtains acceptances to its offer in excess of 10% of MTF.

The due diligence and offer periods mean that Heartland's offer could not be
made to shareholders or become unconditional before the timeframe for
accepting the Turner's offer had passed.

The Board's view on Heartland's second proposal

The Boards view on the Heartland proposal, based on the information currently
available, is that it is uncertain whether an unconditional offer from
Heartland will arise or, if one does arise, whether it will be allowed:
o The Board has not yet signed a non-disclosure agreement with Heartland to
allow the due diligence to commence and notes that it was unable to agree
confidentiality and process terms with Heartland when it approached MTF in
2014.
o The offer will be contingent on Heartland forming a view on whether MTF has
any actual, claimed or potential liability under the CCCFA to any customers
for "excess" fees charged over recent years.  The Board is not sure whether
Heartland can reasonably form a definitive view on this given the pending
Supreme Court proceedings in relation to the Sportzone case.
o In the Board's view, Heartland's primary interest is in making a full
takeover offer for MTF which, given the due diligence requirements and other
issues that need to be resolved, cannot be made in the near term. Any
acquisition by Turners of a significant shareholding in MTF would reduce the
interest and ability of Heartland to make a successful full offer at a later
date.
o It also seems that the primary purpose of the Heartland's second offer (to
acquire between 10% and 20% of the shares in MTF at a price of $1.50 per
share) is to limit the acceptances that Turners receives, so as to improve
Heartland's ability to make a successful full takeover offer at a later date.

o As the offer is conditional on receiving 10% or more acceptances, it will
require the approval of the Board and ordinary shareholders to be allowed.
The Board's view is that Heartland is a competitor with whom we have no wider
business relationship and the Board is extremely unlikely to recommend a
transaction that allows Heartland to own more than 10% of the voting shares
of MTF (other than as part of a full takeover offer that was being
recommended by the Board for reasons of value).  A shareholding by Heartland
may also require amendments to the MTF constitution.

Given the uncertainty as to whether an actual unconditional offer will arise
from Heartland, whether the acquisition of ordinary shares above 10% would be
allowed by the Board and the required special resolution of ordinary
shareholders, and the fact that the Turners offer will close before any
unconditional offer could be made by Heartland, the Board considers that the
Heartland proposal, on its own, does not currently provide sufficient cause
to recommend to shareholders who would otherwise accept the Turners offer not
to do so.

However, we do note that if Turners' offer succeeds in acquiring
approximately 10% of MTF ordinary shares, such a holding may effectively
block an offer by a party such as Heartland intending to acquire 100% of MTF.
 The Board will necessarily have to consider this as part of its assessment
of the merits of allowing Turners or any other party to acquire in excess of
10% of the shares of MTF.

Other relevant information:
The Board wishes to remind ordinary shareholders that they are under no
obligation to accept any offer and there is no requirement for dry
shareholders, who no longer originate loans with MTF, to sell their shares.

Acceptance of Turners' offer will not guarantee that you will be able to sell
all the shares you agree to sell. When the offer closes, if total acceptances
are greater than the amount that Turners wishes to acquire, or is allowed to
acquire, acceptances will be scaled, taking into account the minimum holdings
required for originating shareholders.
No offer or potential offer discussed in this letter would apply to, nor
would any such offer affect the rights of, MTF perpetual preference shares
(NZDX: MTFHC).

For further information please contact:

Stephen Higgs
Chairman
03 474 9716
End CA:00271695 For:MTF    Type:GENERAL    Time:2015-10-14 09:09:11