NZX didn't mean to 'entice' Ralec with 'approved-ish' investment plan, witness says

NZX was not trying to entice Clear's vendors into selling it the business with false promises about the agri-portal, Wellington's High Court has heard.

The stock market operator is suing Dominic Pym, Grant Thomas, and their companiesRalec Commodities and Ralec Interactive for providing "wildly inaccurate" forecasts prior to NZX buying the Australian grain trading platform in 2009. Ralec's counterclaim says NZX and former chief Mark Weldon under-funded the business, meaning it couldn't meet earn-out targets.

NZX bought Clear for A$7 million in October 2009, with two earn-outs of A$7 million tied to performance. The initial target for the first earn-out was trading of 1.5 million tonnes of grain by June 30, 2010. If that was missed, Ralec could still get the earn-out, provided Clear reached 3 million tonnes by June 2011 or 4.5 million tonnes by June 2012. The second earn-out payment was based on NZX being able to create a successful agri-portal.

Rachael Newsome, who was NZX's corporate counsel at the time of the Clear acquisition, was cross-examined today by Ralec counsel Georgia Berlic.

The meaning of "commitment", which has been a sticking point between NZX and Ralec, was raised by Berlic in the context of an offer letter sent to Thomas and Pym on Aug. 7, 2009, which Newsome had drafted but which Weldon had approved and signed.

Newsome had not attended the Aug. 6 board meeting but said she had drafted the letter based on what her colleagues Heather Kirkham, Rachael Cross and Mark Weldon had told her happened at the board meeting.

The letter said the NZX board "yesterday committed to a substantial commitment in the agri-portal in the medium term on top of the purchase of the Clear assets. This commitment will ensure the successful execution of the agri-portal."

Newsome said in answer to an earlier question that as a lawyer she was "usually careful" about using the term 'committed'. She said that while Cross had told her the board had only "approved-ish" the commitment to the agri-portal, the use of the term in that letter reflected what she had been told by Weldon, Cross and Kirkham at a meeting that morning.

Berlic also asked about the $100 million sum mentioned in NZX's internal documents in relation to the agri-portal, which Ralec has argued was a commitment to capital expenditure but NZX has maintained was a speculative figure it never formally committed to spending.

"By committing to the strategy, it was understood we didn't have all the tools needed to execute the strategy currently in our stable, so we would need to spend money to build it," Newsome said.

Newsome denied the letter was designed to "entice" the vendors into the deal with NZX and was drafted to emphasise the potential upside, as Berlic suggested.

"It was important to show the vendors what they could benefit from this deal," Berlic said. "It was the key to persuade them. At no stage did you or anyone in the due diligence team tell the vendors you considered the agri-portal strategy to be flexible, did you?"

Newsome agreed NZX hadn't told Thomas or Pym that, but said it would be very unusual for them to have done so.

The 1.5 million tonne grain trading target for the first of two earn-outs was also brought up, with Berlic suggesting that the number had been created by NZX's due diligence team as Newsome could not recall Thomas or Pym giving the number. Newsome denied this, saying she specifically recalled Thomas and Pym mentioning the number.

When Berlic questioned Newsome about a request by Thomas for $5 million for marketing, Newsome said she didn't take it seriously and didn't mention it to Weldon,

"This is in the context of your company just having entered into a sale and purchase agreement where you have an obligation to resource and finance this business," Berlic said. "The new employee has just expressed a statement about funding and resourcing he believes is required for the success of the business and you didn't take it seriously."

Newsome replied: "In the context - Tommo is quite a specific personality. He's a big guy, he calls you doll, we were having a chat. 'Ahh, we want to fly these guys in, have a big five star hotel thing, sponsor an AFL team, rah rah rah' - I mean, of course I didn't take it seriously. Five million dollars is a huge number."

The trial is expected to last up to eleven weeks and has so far cost NZX between $9 and $10 million.

(BusinessDesk)