take over offer by "trilogy capital group"

BRISBANE-BASED funds manager Trilogy Capital Group has launched a takeover offer for the management rights to the $970 million City Pacific First Mortgage Fund.

Trilogy claims the offer, prepared in conjunction with corporate adviser Grant Samuel, will help to restore liquidity for the First Mortgage Fund's 15,000 unitholders, who have seen their investments frozen since March.

City Pacific chief executive John Ellis -- who just two weeks ago took over the reins from company founder Phil Sullivan -- yesterday flatly denied the company had received any offer: "I am certainly not aware of any offer received to take over as responsible entity. There has been no approach."

When later told that The Australian had obtained a copy of the 15-page offer document, Mr Ellis admitted he had been approached by Trilogy but said it did not constitute an offer because "I wouldn't consider it".

"A proposal was put to me," Mr Ellis said. "I said I wouldn't consider it so I don't consider that that's an offer."

Mr Ellis said he did not consider the Trilogy proposal because the mortgage fund was "a core element of our business".

Under corporations law, City Pacific is required to act both in the best interests of its shareholders and in the best interests of the unitholders in the fund.

A partner of law firm Minter Ellison, Mr Ellis had been a legal adviser to City Pacific for 11 years until November 12 when he replaced Mr Sullivan as CEO.

Mr Sullivan resigned amid the group's plummeting share price and mounting financial problems.

The First Mortgage Fund operates by raising money from ordinary investors, which it then onlends to companies seeking relatively cheap cash, predominantly property developers.

The fund, which holds about $970 million on behalf of 15,000 investors, became in March one of the first mortgage funds to freeze redemptions after it suffered a surge in property developers defaulting on loans.

The First Mortgage Fund is managed for a fee by the listed City Pacific, which has seen its share price dive from $3.80 to 7c in the last 12 months.

Trilogy, which operates its own Trilogy first Mortgage Fund, made the offer to City Pacific last week and is seeking to gain control of the First Mortgage Fund cash flows.

Under the offer, Trilogy said it would charge an annual management fee of 0.85 per cent of funds under management.

It would charge no other management fees and not introduce poison-pill provisions that could make it difficult for Trilogy to be removed as manager.

"Taking no action will likely lead to further and growing instability for City Pacific," the Trilogy offer said.

Mr Ellis said "once you dig deeper" into proposals such as Trinity's, there were always different elements or fees that were not disclosed. He said City Pacific management had not looked further into the proposal.

"The clear message that is coming through to us is that the vast majority of unitholders have the view that it is not in their best interests to have City Pacific removed as the responsible Entity," Mr Ellis said.

Director Charlie Green of Hunter Green Institutional Broking said the Trinity proposal could offer more liquidity to the income fund investors.

A takeover could bring similar benefits experienced by investors in the formerly frozen MFS Premium Income fund after Wellington Capital took control, he said. "This is an opportunity to create some liquidity where none has existed previously."

Australian Securities Exchange spokesman Matthew Gibbs said City Pacific might be in breach of its continuous disclosure obligations for failing to inform the market of the Trilogy offer.

"Any offer that could reasonably be expected to have an effect on the share price of a company should be immediately disclosed by a company," Mr Gibbs said.

Mr Ellis said City Pacific had met all disclosure requirements.

Trilogy chairman Rodger Bacon declined to comment when contacted yesterday.