01/07/2010 - 00:00

Volatility spreads to boardrooms

01/07/2010 - 00:00

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THE dampening effect of post-crash market volatility on conventional merger and acquisition activity has left many playmakers looking to backdoor opportunities for corporate action.

Volatility spreads to boardrooms

THE dampening effect of post-crash market volatility on conventional merger and acquisition activity has left many playmakers looking to backdoor opportunities for corporate action.

Since the global financial crisis took hold in late 2008, a steady stream of company boards have found themselves in the cross hairs of ‘dissident shareholders’ supposedly unhappy with the way management has performed through the downturn.

These typically manifested as formal demands by shareholders owning at least 5 per cent for a general meeting to vote on the make-up of the board, generally to toss out existing directors and replace them with others nominated by the agitators, thereby gaining control without the hassle of making a bid.

Alternatively, pressure from a company’s bigger shareholders is sometimes enough to secure change without the spectacle of an adversarial public meeting.

This week, Western Australian mining identity and Consolidated Minerals founder Michael Kiernan and son James quit the board of Stirling Resources, which had become the centrepiece of his attempts to build a new WA mining house.

The move came just two weeks after Stirling announced plans to consolidate its major stakes in junior miners Matilda Minerals and Redbank Copper, and refloat the failed Monarch Gold as Swan Gold Mining.

It also came amid reports that Austrian metals trader DCM DECOmetal, which owns 53 per cent of Stirling, had demanded the Kiernans exit the board.

Stirling shares have been hit hard since the resource super profits tax was announced, which it blamed for delaying the float of Swan Gold and the stock’s decline from 12 cents in early May to current levels around 5 cents.

Mr Kiernan said the need for change had been “mutually agreed” and welcomed DCM’s reaffirmed support for Stirling.

The Stirling shakeup comes just a month after a small group of investors in junior manganese miner Mesa Minerals withdrew its call for a second general meeting to roll the board after failing with an initial attempt in March. The group was linked to Mesa’s estranged joint venture partner in the stalled Ant Hill mine, and wanted to force a rapprochement.

While the first attempt went down to the wire, the second became impossible when Mesa agreed to a friendly takeover offer from mining and plant engineering group Mineral Resources.

Other local attempted shareholder-led coups this year include an ongoing campaign to replace directors of WA explorer Padbury Mining with a team led by Tony Sage, and a negotiated board handover at struggling telco Datamotion Asia Pacific in March.

The second half of 2009 was even more active, with the board of explorer Peel Resources successfully defending an attempted board takeover backed by shareholder Stirling Resources and its then chief Michael Kiernan in December.

A month earlier, shareholders in Farooq Khan’s Queste Communications defeated a push by other investors to appoint two independent directors to the board, just three months after dissident investors in Sydney-based Bentley Capital failed to win sufficient votes to remove Mr Khan as a director of the listed investment firm.

The boards of junior explorers Indago Resources, Blaze International and Buka Gold also changed after agitation by shareholders keen to secure control of the companies.

Lavan Legal corporate counsel David Sanders, an adviser in many such battles, said shareholder-led actions had been on the rise since the GFC, largely at the smaller end of the listed sector, which had been most affected by declining post-crash investor interest.

Mr Sanders said these sometimes reflected investor dissatisfaction with a company’s performance, but were often a change-of-control scenario without requirement for a takeover bid to be made.

“There was a huge amount of listings leading up to (the GFC) so there were lots of little companies that still had money in the bank and people effectively wanting to nab the cash, which prompted either board spills or fights over control,” he said.

 

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