Forsyth Barr says listing New Zealand Rugby’s (NZR) commercial business on the NZX could raise up to $191 million for the national union without having to give away as much equity as the deal with private equity firm Silver Lake.

The investment house provided the advice to the NZ Rugby Players’ Association (NZRPA), which has been at loggerheads with the union over the 12.5% stake being sold to the US private equity firm.

The association, whose president David Kirk also chairs Forsyth Barr, wrote to the national and provincial unions today with the investment house’s advice, having first pitched the idea a few weeks ago.

“Importantly, Forsyth Barr believe such is the likely demand for an offer of this nature that they will be able to present NZR with a fully underwritten offer, substantially de-risking the capital raising. If preparation is commenced immediately, an IPO could be completed by September/October 2021,” the association said in its letter.

NZR chief executive Mark Robinson criticised the association’s decision to make the counter-proposal public and said sharing information with Forsyth Barr was a breach of trust.

“NZR has no desire to continue to play out an ill-informed ‘my model is better than yours’ debate – nor do we think the public like it – and we would have rather continued to constructively negotiate with Rob Nichol and his board which we have made clear,” Robinson said in a statement.

Cash is king

Forsyth Barr would market such a float as a dividend play, saying NZR’s commercial operations have an attractive financial profile and could achieve a dividend yield of between 5% and 5.5%. That’s in a low-interest-rate environment where the median dividend yield of the benchmark S&P/NZX50 Index is 4.5%.

The proposal would see NZR carve out its commercial operations – similar to the Silver Lake proposal – with a separate board including independent directors, selling a 5% stake to the public to raise between $173m and $191m, with 100% of the non-union shareholders' profits paid out as dividends. 

That values NZR at between $3.47 billion and $3.82b, more than the $3.1b valuation from the Silver Lake deal.

Forsyth Barr estimates the offer would attract between $450m and $650m of bids from institutional investors, broking firms and a public pool.

While the proposal would raise less cash upfront than the $387.5m offered by Silver Lake and accepted by the unions, Forsyth Barr said it could raise enough money to distribute $39m to the unions and NZ Māori Board, provide $50m of working capital to the commercial entity, and lift NZ Rugby’s reserves above its policy target of 40% of costs.

“We believe that a value higher than that of the Silver Lake deal is readily achievable given the favourable yield, strong growth prospects and the opportunity for all New Zealanders to invest in a share of New Zealand rugby,” Forsyth Barr said.

The players’ association said a key feature of the IPO route is the level of control maintained by NZR without curtailing its operational profitability.