Executive Summary: October 20, 2009
By Scott rochfort | smh.com.au | 20 October
The well-dressed adventure man ... James Strong.
CBD
Rolled and ousted: the boss who wouldn't go away
The former executive chairman of the oil and gas explorer Drillsearch Energy, Peter Penfold Simpson, is a difficult man to budge.
Despite tendering his resignation to Drillsearch following a shareholder putsch this year, Simpson is still chief executive of the group's 79.5 per cent-owned Canadian oil and gas venture, Circumpacific Energy.
This is despite the resignation, which Simpson even read out to an extraordinary shareholder meeting in June, also relating to Circumpacific (aka CER).
But Simpson's letter was never processed at CER's Calgary head office. Two days after Simpson read out his resignation, his lawyers argued he resigned as the "president" of CER, not as a "director".
"We understand that there is some confusion about whether or not our client has also resigned as a director of Circumpacific," the letter from the lawyers said.
He was then installed as chief executive. Since then, CER has been chugging along with Simpson and without the input of its main shareholder.
Last month the company noted how it had to manage CER "in the interests of all shareholders, not merely Drillsearch".
This was in response to Drillsearch's call for a meeting next month to remove Simpson and two allies from the board.
About "20.5 per cent of share capital in Circumpacific is owned by a diverse range of over 220 other shareholders, the majority of whom are unrelated to Drillsearch," CER protested in a media release.
Simpson told CBD last night he always intended to quit the CER board at the November meeting. "I would have appreciated the time to do an orderly handover," he said.
"We can't leave without there being independent directors and people in place." But Drillsearch is concerned Simpson could farm out some of the assets before the meeting.
Tell him to go
The Drillsearch matter now looks set to get an airing in the Canadian courts.
"Despite the Simpson resignation having been provided to the defendant CER, the defendant Simpson has continued to purport to act as a director of the defendant CER, and the defendant CER has failed to make timely public disclosure of the Simpson resignation," the statement of claim lodged by Drillsearch last week at the Supreme Court of British Columbia says.
The filing notes that Simpson and two of his fellow directors, Roger Tidmarsh and Paul Johns, pushed on with plans to sell CER assets and raise capital.
Drillsearch also claims Simpson, who hails from the whitegoods dynasty, has been attempting to claim payments for his "management services".
Aside from being born into the Simpson dynasty, Peter adopted his middle name, Penfold, from the famous wine-making family.
Casual bow-ties
Was Kathmandu's chairman, James Strong, wearing a bow tie when he climbed Antarctica's Mount Vinson?
Rather than go into detail about the finances of the soon-to-be-listed Kathmandu yesterday, a bow tie-free Strong appeared more interested in spruiking its clothing range.
"Just from a personal view I had a happy customer association with Kathmandu for over 20 years," said Strong at a media spruiking of the Kathmandu listing.
He noted how he wore Kathmandu clothing in 1991 when he climbed Mount Vinson and the "same gear" on a trip to West Papua and the US.
Not to mention a whitewater rafting trip and a trek. "On these expeditions we wore Kathmandu fleeces, and I can tell you that I still have them and use them today.
So I am giving a personal guarantee as to Kathmandu's products in terms of quality and longevity."
To prove his allegiance to other clothing makers he has once chaired, Strong was sporting a pair of Rip Curl shoes at the briefing.
He resigned as Rip Curl chairman last year. Goldman Sachs and Quadrant Private Equity do not appear so entranced by the longevity of Kathmandu's clothing.
They have signalled they each could sell their 48.6 per cent stakes into the float.
English reward
The uptick in foreign students visiting our shores continues to line the pockets of Rod Jones, the chief executive and co-founder of Navitas.
Jones's total remuneration jumped 19 per cent to $1.43 million, which included a $694,613 cash bonus.
The company, which helps foreign students build up enough English skills to gain admission into universities in Australia, Britain and Canada, also paid Jones $8 million in fully franked dividends from last financial year.
Jones collected another $7.5 million recently by reducing his stake to about $190 million. Not bad for an ex-public servant who also scored a free trip to Monte Carlo as Australia's entrant for the 2009 World Entrepreneur of the Year award.
The ex-Monash Uni man Peter Campbell, who sits on the Navitas board, is also doing well from the stream of overseas students.
He still has about $70 million of shares after flogging $3.1 million worth of stock in August.
Navitas's co-founder and director, Peter Larsen, also pocketed $7.75 million in August by selling down his stake to about $100 million.
Former Macquarie Uni chancellor Di Yerbury, who resigned as a director last year, had no shares in Navitas.
October crash
It seems some analysts are still hopeful Wall Street will be able to stage a crash before October ends (the favoured month for sharemarket crashes).
On the anniversary of the 1987 stockmarket crash yesterday, one of the US's best known technical analysts, Jake Bernstein, was in Sydney to share his forecast that the Dow Jones index was about to keel over.
"The correction should be massive but it will be shortlived," Bernstein told CBD. Bernstein has written 41 books and publishes a newsletter on market trends based on data since 1900.
He believes the Dow could tank by as much as 1000 points any day now before staging a recovery early next year, when it could rally to 12,500.
But Bernstein reckons the market might have more to worry about than sharemarket crashes.
Looking longer term, he says: "We better fasten our seatbelts. We're going to see inflation that we haven't seen for many years."
Got a tip? email srochfort@smh.com.au
Insider
Edited by Jamie Freed
Investors to decide on Energy's future
The fate of Energy Developments is in the hands of its major shareholders after the company's board rejected the idea of entering a $415 million scheme of arrangement with private equity group Pacific Equity Partners (PEP).
Energy Developments is not necessarily adverse to the idea of PEP making a takeover, but its board was not willing to give the support needed to undertake a scheme at the $2.65 a share on offer.
Instead, it would prefer for PEP to canvass the major shareholders, including Infratril, Investors Mutual and BT Financial, to see whether they will support a takeover bid at that price. Energy Developments has also hired an independent expert to provide an indicative valuation of the company, of which 80 per cent is held by the top 10 investors.
Energy Developments, advised by Palladio Partners, has effectively been for sale for about 18 months at the request of some of its major shareholders, but it has yet to seal a deal. Archer Capital, advised by Goldman Sachs JBWere, had offered $2.80 after conducting due diligence, but the conditional bid was never formalised.
And a simultaneous process being run to sell its European business to London's 3i Private Equity fell over yesterday. PEP, advised by UBS, had initially planned to offer $2.80, but it lowered the bid by 15c after conducting due diligence in part due to the declining value of the European business because of currency movements and the uncertainty over completing a sale of those assets.
PEP had planned to buy the entire company but then to offload the European assets to 3i.
In what could represent a sign of the times for private equity, PEP had planned to finance the deal solely by using equity. Apparently it thought the business was geared highly enough already.
Meanwhile, PEP will certainly be interested to see the independent expert's valuation, but based on its past behaviour, it would be unlikely to lodge an offer not recommended by the Energy Developments board, in part because that could spark a bidding war.
Energy Developments shareholders appeared to be punting on the prospect of an offer from PEP or another party, with shares closing 10c higher at $2.51 yesterday.
Busy weekend
Teams from Morgan Stanley and Macquarie Capital spent the weekend scrambling to put together a last-minute $895 million equity raising for Oil Search after it became clear that the board of Abu Dhabi's International Petroleum Investment Corp (IPIC) was unlikely to complete the planned purchase of a 3.5 per cent stake in the PNG LNG project in time for its final investment decision on December 8.
Oil Search had hoped to put the funds from the IPIC sale towards its $US1.3 billion share of the equity component of the $US15 billion capital costs of the ExxonMobil-led project, as Oil Search's chief executive, Peter Botten, has long made clear he did not prefer an equity raising.
However, with only seven weeks remaining before the investment decision – and the need to finalise funding with debt providers in meetings over the next week – once it finally became clear that IPIC was moving too slow, there was little time available to try to cut an alternative deal such as offering the 3.5 per cent stake to Exxon or another joint venture partner.
Additionally, unless Oil Search pulled the equity trigger immediately, its shares would have fallen as the market factored in the prospect of a raising.
Conveniently, Oil Search's shares were trading near all-time highs before it announced the raising at $5.90, a 12 per cent discount to the last closing price of $6.75.
The raising was last night oversubscribed, with preference going to existing institutional investors to allow them to maintain their pro-rata stake.
Oil Search had been unable to do a rights issue in light of the short timeframe, but it has made a share purchase plan of up to $15,000 available to retail investors.
Good return
Kathmandu's private equity owners, Goldman Sachs JBWere and Quadrant Capital, are likely to see a more than threefold return on the value of the equity they injected in 2006 following the float of the outdoor retailer.
Unlike the owners of Myer, TPG and Blum Capital, Kathmandu's owners did not extract any dividends from the business.
The Kathmandu prospectus has listed a midpoint of returns for GSJBW and Quadrant at $NZ261 million ($212 million), excluding the $NZ 85.7 million of the funds raised to be put towards repaying debt and $NZ 15 million of offer fees that will fill the coffers of lead managers GSJBW and Macquarie Capital.
GSJBW and Quadrant bought the business for $NZ275 million in 2006, including the value of the debt pumped into it. Kathmandu's chief financial officer, Mark Todd, yesterday said the business had held up to $NZ200 million of debt at various points.
So assuming there was $NZ75 million of equity involved in the initial purchase, $NZ261 million of proceeds would represent a 250 per cent return on the initial equity investment within 3 years.
In the meantime, the fine print of the Kathmandu prospectus shows that while sales growth has been impressive under private equity ownership, that is primarily from opening new stores rather than sales increases at existing stores.
Like for like sales growth in Australia was just 1.9 per cent last year, while New Zealand was 0.1 per cent, or less than inflation, although it expects that will rise to 3.6 per cent sales growth in Australia and 3 per cent in New Zealand this year.
Briefs
Banking
Barclays holds ANZ The asset management arm of the British banking group Barclays has emerged with a 5 per cent stake in ANZ. The holding – 126.6 million shares – has been built up over the past four months and Barclays has paid, on average, $19.21 for each ANZ share. This compares to yesterday's closing price of $23.73 a share.
Engineering
Downer bond issue Engineering group Downer EDI has approached investors about a possible four-year bond issue of $80 million to $120 million priced about 375 basis points above the current swap rate. The new fund-raising could take place this week.
Resources
Rival bid for Polaris Shares in Polaris Metals rose almost 12 per cent to 75c as a takeover battle for the iron ore miner heated up. The Polaris board had intended to recommend a cash and scrip bid from Perth's Mineral Resources made last week, but it said yesterday a new offer from Lion-Asia Resources of Singapore was now more attractive.
First published by Smh.com.au on October 20 2009
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