Winery sale ordered at $1m extra

High-profile split: Greg Hay, left, and Lindsay McLachlan with trophies from the 2010 Air New Zealand Wine Awards

The owner of a Central Otago winery is appealing a High Court decision requiring it to buy out a fellow shareholder for $1 million more than it originally offered.

Lindsay McLachlan and Greg Hay are both directors of Peregrine Wines.

Peregrine Wines produced its first vintage in 1998 and says on its website that during “its short history it has been an impressive high achiever, with its wines winning numerous prestigious awards and trophies around the world”.

Hay’s family trust owns a 25.14 per cent stake of Peregrine Wines and Peregrine Estate, directed by McLachlan, owns the rest.

In March 2013, according to a recent High Court decision, Hay approached McLachlan and advised that his family trust wished to sell its shares and invited Peregrine Estate to make an offer for them.

McLachlan, on behalf of Peregrine Estate, offered $1.57m.

This was not acceptable to Mr Hay and his co-trustee so they decided to invoke a clause of Peregrine Wines’ constitution that provided a procedure for the sale of shares by one shareholder to another.

McLachlan was not prepared to pay the trust’s nominated selling price of $3.25 million but confirmed that Peregrine Estate would buy the shares at ‘‘fair value’’, to be fixed in keeping with the winery’s constitution.

A valuer, Julie Millar, of BDO in Christchurch, set this ‘‘fair value’’ at $2.62 million.

Peregrine Estate did not buy the shares at this price and hired its own adviser to assess the fair value. That adviser came up with a value of $1.275 million.

Hay and his fellow trustee then went to the High Court in Invercargill, seeking summary judgement on Peregrine Estate’s contractual obligation to buy the shares at the ‘‘fair value’’ that was fixed under the constitution.

Associate Judge John Matthews, in a decision released publicly last week, says both sides focused not on what fair value amounted to, but on whether or not Peregrine Estate was bound by Millar’s valuation.

The trustees’ lawyer, Nic Soper, argued Peregrine Wines’ constitution and the Companies Act required a transfer of shares from the trustees to Peregrine Estate to take place at ‘‘fair value’’.

Peregrine Wines’ constitution provided a contractually binding method for establishing fair value which both parties were required to follow, he says.

Both sides engaged in that process, fair value was established and that was binding on the parties, Soper argues.

However, Peregrine Estate’s lawyer, Trevor Shiels QC, says the valuation is ‘‘flawed and unenforceable’’.

He argues Millar did not make a decision on minority discount, which was a key element of the valuation.

A minority discount is a reduction made to the value of a shareholding when it does not provide any control of the entity in question.

Associate Judge Matthews, in his decision, says it’s not arguable that Millar’s $2.62m figure was ‘‘other than the fair value’’ required under Peregrine Wines’ constitution.

The judge also found trustees had established Millar’s valuation bound both sides for the purposes of the company’s constitution.

He entered judgement in favour of the trustees, entitling them to enforce the transfer of shares for the payment of $2.62m.

Shiels says an appeal has been filed but no date has been set.

The New Zealand Herald