Poor returns precursor to takeovers

Kimberley Diamond Company Ltd was a consistent poor performer in terms of shareholder returns, and it fell last month to a friendly takeover bid by UK company Gem Diamonds Ltd.

Tap Oil Ltd is another poor performer and it is now being stalked as a potential takeover target by a consortium of private investors led by former Alinta executive Chris Indermaur.

These two examples illustrate the pressure that faces company directors who fail to deliver consistent and competitive returns to their shareholders.

Kimberley was an extreme example. The company was plagued by production problems at its diamond mine, which fed through to its earnings.

Hence, its total shareholder return in the year to June 2007 was minus 41.5 per cent, and in the three years to June it was minus 43.1 per cent.

Its directors supported Gem’s takeover bid, acknowledging that Gem’s technical support should assist the Kimberley mine.

Tap Oil’s total shareholder return, in the year to June, was minus 6.6 per cent, while in the three years to June it was a positive 19.7 per cent.

The private investor consortium that has progressively acquired a 9.1 per cent stake in Tap has not launched a takeover bid, nor has it foreshadowed a bid, but is agitating for board representation and an opportunity to be involved in running the business.

Tap management has rebuffed their overtures, preferring to press on with their own plans to lift the company’s performance.

Other listed WA companies that have delivered poor returns include Tanami Gold NL and biotechnology company pSivida Ltd.