21/08/2007 - 22:00

What investors want

21/08/2007 - 22:00


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Amidst the turmoil that has engulfed global stockmarkets, one group of Western Australian investors took an unusual, almost quixotic stand last week.

Amidst the turmoil that has engulfed global stockmarkets, one group of Western Australian investors took an unusual, almost quixotic stand last week.

About 300, mostly elderly, investors went to Alinta Ltd’s scheme meeting to voice their displeasure at the planned sale of what they considered an iconic WA business.

Their stand provides food for thought for company directors and regulators.

The investors weren’t grizzling about the Alinta sale price. Far from it. The bidding war between the successful Babcock & Brown / Singapore Power consortium and the losing Macquarie Bank consortium meant that Alinta shareholders received a premium price for their shares.

The final takeover price was a very healthy 43 per cent premium above the price at which Alinta was trading prior to the takeover speculation.

Despite this, the Alinta shareholders who attended last week’s meeting did not want to sell. They wanted to hang on to a trusty, blue chip stock that delivered solid dividend income, year-in and year-out.

They also wanted Alinta and its portfolio of energy assets to stay in local hands, not sold to investment banks or foreign companies.

One shareholder said the bid was just another sell-out of Australian infrastructure to a foreign company.

Alinta chairman John Akehurst played a dead bat to their protests, claiming in effect that his hands were tied.


Fiduciary duty prevails

Mr Akehurst told the meeting that, ever since the ill-fated management buyout proposal emerged early this year, the directors had a fiduciary duty to seek the best price.

"It was not our intention or our choice to embark down this path, but having received a proposal which may have been of interest, it is the duty of directors to pursue this course of action and maximise (shareholder returns)," he said.

That meant putting up the ‘for sale’ sign and running a competitive auction process.

Mr Akehurst said the value in the Babcock bid was superior to the value that could be created by retaining an independent Alinta.

In other words, the directors didn’t really have any choice in the matter, notwithstanding the vocal protects of many small shareholders.


A different conclusion

Over in Malaga, the directors of scaffolding company PCH Group Ltd, led by chairman Bill Ryan, have also been grappling with their fiduciary duties.

English company Cape plc has spent several months pursuing PCH and recently said it was prepared to consider a takeover at $1.30 cash per share, well above the prevailing share price.

The board rejected Cape’s overtures, insisting PCH has a great outlook and, with time, would achieve an even better result for shareholders. It’s a brave stance by the board, which might be proven horribly wrong in a year or two.

The low risk option would have been to accept the Cape proposal and walk away with a fistful of dollars.

Complicating the story is a restrictive agreement Cape signed before entering due diligence.

The agreement precludes Cape from launching a hostile takeover within the next 12 months.

GRD Ltd’s board of directors, led by chairman Richard Court, took a different tack when the company was approached by Transfield Services Ltd.

GRD rejected a Transfield request to conduct due diligence based on an indicative purchase price of $2.70 to $2.75 per share.

Like PCH, the indicative price was well above the prevailing share price.

The GRD board concluded that Transfield had underestimated the group’s future potential, particularly the strategic fit between its Minproc engineering arm and its Global Renewable waste management business.

They have also taken the brave step of rejecting a potential takeover offer at a premium price in favour of building value themselves over coming years.

‘Short-termism’ is one of the biggest threats to good business management and it can be hard for directors of listed companies to resist that pressure.

Let us hope that the directors of PCH and GRD are proven correct.

If they live up to their own lofty expectations, their shareholders – and importantly the business community in WA – will be the winners.


Corporate social responsibility

While lawyers typically err in favour of a narrow definition of directors’ responsibilities, the reality is that directors often have to take a broader view.

The debate over corporate social responsibility illustrates this point.

If all companies adopted a narrow, short-term focus on maximizing shareholders returns, they would dispense with most, if not all, of their social, environmental and community programs.

They haven’t done that because good corporate citizenship equates to good business practice.

It helps to attract and retain staff, it contributes to a positive and constructive corporate culture, and it  fosters support from policy makers and the community at large.


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