PaperlinX SuX!

Posting #362

Posted December 12, 2012 Twitter: @PaperlinXsuX

How and why PaperlinX was bound to fail from day one, losing $2b in a decade of denial.

As this is my second last post (no bugles please) suX will attempt to join some of the dots in this riches to rags story called PaperlinX.

This is a 'big picture' view of events over a decade. It is the personal opinion of the author and isn't investment advice.

A classic ROFL.
George W looks on,
unknowingly.

What is ROFL?

Rolling On the Floor Laughing, ROFL, is commonly used to express that you are laughing so hard that you are rolling on the floor.

ROFL is used in text and the new media.

Does George W remind you of anyone at PaperlinX? He should.

ROFL best describes what the world of fine paper has been doing about PaperlinX and its bumpkins from down under for a decade.

Where is PaperlinX today? The 2002-03 extravagances of Bunzl and Buhrmann are still a costly legacy. All that has changed is that a problem has been identified, but not solved.

Possibly PaperlinX will be forced to return to its roots, Australia and New Zealand, and rebuild again.

Just for the record. suX and Andrew Price are natural adversaries (PXUPA vs. PPX) however reality necessitated an alliance to effect change at board level and beyond.

We both acknowledged this to ensure there was something left to fight over post Boon/Marchant. It worked. More in the last posting.

Suffice to say, everyone wants Price and the new board to succeed - suX just doesn't want it to occur at the expense of the PXUPA hybrid holders.

Truth behind ROFL: ask the people who know the inside stories.

You've probably debated this topic: If you could invite any guests to a dinner party, dead or alive; who would you invite? The usual responses are the obvious; Adolf Hitler, Winston Churchill, Oscar Wilde, Jesus etc.

For suX, totally absorbed by PaperlinX, it would be these eleven folk as they've all been closely involved with this riches to rags story.

Many have benefited from PaperlinX, and some have lost heavily. Others still await an outcome.

I'll also share with you some questions I'd like to ask each of them, preferably after a few drinks.

Later I'll briefly revisit some key turning points in history and try to connect the dots, which will explain some of the questions.

First, allow me to introduce my eleven guests:

(1) Harry Boon:

Non-executive director from May 5, 2008.
Non-executive chairman from September 1, 2011.
Narrowly survived a challenge to his chairmanship launched on February 3, 2012.
Dumped in a boardroom coup on September 18, 2012.

An undeniably shaky tenure as chairman of PaperlinX for just over a year, the second half being marred by the collapse of another ASX company of which he'd been a non-executive director for seven years.

2012 was his annus horribilis. For Harry, the worst must have been this assessment by the normally conservative Australian Shareholders' Association (ASA):

"... the ASA is troubled by the billions which have been lost at Paperlinx and Hastie and believes Mr Boon’s public company director career should conclude." see here.

Seems he put others, besides PXUPA holders, seriously offside.

Questions for Harry Boon:

Why did you need or want so many directorships?
Why didn't you engage with the hybrid holders from day one?
When did you accept that Toby Marchant was a mistake?
Why did you consent to Milton Keynes?
Why did you let Chris Creighton, arguably the most successful senior executive in the Group, go with sale of the USA operations?

(2) Toby Marchant:

Inherited by PaperlinX with the acquisition of Buhrmann's Paper Merchanting Division on November 1, 2003.
Rapidly rose through the ranks to become CEO and MD on November 1, 2010 (7 years).
Sacked on July 17, 2012.
624 wasted days.

Question for Toby Marchant:

Did you ever lead a paper business that made profits? The brevity of "Yes" or "No" will suffice.

(3) David Meiklejohn:

Chairman 2000 - August 31, 2011 (11.5 years).
Appointed Chairman of PaperlinX by Amcor.
He had been a Director of Amcor since 1985 and its Chief Financial Officer since 1981 (19 years).
He played a significant role at the Melbourne Cricket Club (home to the world famous MCG) where he'd been a Committee Member since 1987; Treasurer, 1992-2001; Vice-President 2001-2007; and President, 2007-11.
While he was President of the MCC, the market cap of PaperlinX under his concurrent Chairmanship fell 85% from $1.617 billion (Dec 2006) to $247 million (Dec 2010).
What a glorious corporate epitaph.

Questions for David Meiklejohn:

Do you think is prudent that people should go straight from CFO to Chairman without first proving themselves as CEO?
As an acknowledged CFO, weren't you ever concerned that PaperlinX's offshore acquisitions were too hasty?
How long can a business destroy value before a chairman accepts responsibility?
Did you know that Ian Wightwick (your Amcor appointed MD) intended resigning in 2003?

(4) Ian Wightwick:

Managing Director 2000 - January 31, 2004.
Ian Wightwick was appointed MD of PaperlinX by Amcor.
He had been with the Amcor group since 1981.
He was appointed Chief Executive of Amcor Printing Papers Group (APPG) in 1998.

APPG, together with Amcor's 42% investment in Spicers Paper Limited, a listed paper merchant, is what became PaperlinX Limited in early 2000.

Questions for Ian Wightwick:

Why did you accept the position of MD when you intended to retire in under four years and there was no obvious succession plan in place?
Did you truly believe you could grow PaperlinX from a modest ANZ business to a global leader in just four years?
Did anyone counsel you that being CEO of a stand alone listed entity is far more complex that being CEO of the same business operating under the wings of a strong parent?
Do you think it's a good look for a senior executive to wear two mobile phones on his belt? (courtesy of a whistle blower in attendance at a senior management meeting in the UK in 2003)

(5) Tim Elliott:

Third generation leader of the conservatively managed Elliott Baxter & Company Limited, Mr EBB.

Question for Tim Elliott:

Tell us truthfully, how much money have you made from PaperlinX's incompetence in the UK alone? To the nearest £10 million will suffice.

(6) Andrew Price:

Barely needs introduction as is known to all by now.
Successful entrepreneur in print management following a career at Spicers Paper, NSW, where he was a colleague of Chris Creighton.
Currently executive director without portfolio, resident in the UK and Europe.

Question for Andrew Price:

Did you fully understand the PXUPA hybrids before embarking on this exercise of "saving" PaperlinX?
Do you accept that the board needs to restore the balance sheet of PaperlinX in 2013?
How does the board intend to achieve this without screwing the hybrid holders?
Given your background in logistics, what plans do you have for Delivery Co?
When will the board release your salary and incentive package?

(7) Chris Creighton:

President of North America, Australia, NZ and Asia (the PaperlinX world ex Europe) until "let go" upon sale of USA operations in June 2012.
32 years of continuous service and considered by good judges to be the best paper merchant around today.

Questions for Chris Creighton:

"Off the record", what would you like to say to the previous boards?
Were you treated fairly on termination, as espoused by Harry Boon at the EGM, or "above and beyond contractual obligations" as espoused by Toby Marchant?
Would you ever work for PaperlinX again?

(8) Lyndsey Cattermole:

Non-executive director from December 21, 2010, until dumped in a boardroom coup on September 18, 2012.
Known to be a strong supporter of Harry Boon and sits on the board of Tatts Group where he is chairman.
Was the only former non-executive director to make a substantial investment in PaperlinX shares.
Successful entrepreneur, all round high achiever and serious A-Lister in Melbourne.

Questions for Lyndsey Cattermole:

Truthfully, why did you ever become a director of PaperlinX when it was obviously on the skids in late 2010?
Did you support Harry Boon till the end?
Are you proud of your time at PaperlinX?

(9) Anthony Habgood:

Anthony Habgood was chairman of Bunzl when it sold its Fine Paper business to PaperlinX in 2002, see here.
From 1991 to 2005, Habgood was Chief Executive, then Chairman of Bunzl, growing turnover from continuing operations from £500 million to £2.9 billion, and improving profits by a factor of 34.
He is widely credited with transforming Bunzl.

At the time of sale, Bunzl Fine Paper had sales of £318m and an operating profit of £15.5m (4.9%) which represented only circa 7% of Bunzl group operating profits.

Questions for Anthony Habgood:

What do you think of the recent performances of the fine paper industry generally, and PaperlinX specifically? He ROFL.
Seriously, how pleased were you to finally exit the paper business after 100 years? More intense ROFL.

(10) Alfred Heinzel:

President and CEO of Heinzel Holding GmbH of Vienna, Austria.
Heinzel acquired the CEE operations of PaperlinX in 2012.
Heinzel Group makes serious money out of paper, see financial summary here.
Today, its annual net income exceeds PaperlinX's market cap.

Questions for Alfred Heinzel:

As a significant, but not substantial (>5%) shareholder of PaperlinX in March 2012, who did you support at the EGM - Boon or Price, and why?
Do you consider the price you paid for the recent acquisition of the CEE operations of PaperlinX to be a full price, a fair price or a bargain? He ROFL.

(11) Simon Marais:

Managing Director and Portfolio Manager, Allan Gray Australia, formerly Orbis.
Holds 18.29% of PaperlinX and is a Price supporter.
High profile contrarian fund manager voted the Human Headline of FY 2012, and tagged the "CEO slayer" see here for a 'must read' personal profile.
Apparently PaperlinX is his worst investment ever, with losses estimated at circa $70 million.

Questions for Simon Marais:

How did you let Toby Marchant fool you?
Why do you hate the PXUPA hybrid holders when at least two of your senior analysts are long term holders?
What must the new board do to retain your support?

Wine sommelier for the dinner will be none other than Awesome Orr. The man who sees and hears everything yet apparently knows nothing.

Connecting the dots: The dots start in Vienna, in 1888; and revisited there in 2012.

After commencing a haberdashery business in 1854, the Bunzl family relocated to Vienna in 1883 and commenced paper manufacturing in 1888.

Following the occupation and annexation of Austria into Nazi Germany in 1938, the Bunzl family emigrated from Austria with the majority settling in the UK. Tissue Papers Limited was established in the UK in 1940.

Following WWII, the family reclaimed its Austrian assets and in 1952 the UK business became Bunzl Pulp & Paper Ltd. Bunzl has been listed on the London Stock Exchange since 1957 and is a constituent of the FTSE 100 Index.

Bunzl's last link with the paper industry was severed in 2002 with the sale of its fine paper distribution arm to PaperlinX.

These days Bunzl is a global logistics business. Ironic, as one of the key challenges facing all paper merchants is logistics; Andrew Price made his money in print management, which is really a sophisticated form of logistics; and sold that business to Toll Holdings which is Australia's largest transport and logistics group.

Harry Boon was a director of Toll Holdings when Price sold it his print management business, reportedly for a motza; so Boon knew more than most about his nemesis.

Ah, sweet irony abounds in most corporate intrigues.

Despite the adversity of WWII, see details in company histories here or here; the Bunzl story is about survival through persistence and innovation. As seen above, Anthony Habgood was no slouch either.

February 2000. Amcor announced floating a new company on the Australian Stock Exchange to own the paper manufacturing and distribution businesses then conducted by its subsidiary Amcor Printing Papers Group (APPG), as well as its 42% investment in Spicers Paper Limited, a listed paper merchant. The new entity PaperlinX was intended to dominate the Australian paper merchanting business .

A detailed announcement is available here. Two stand out points for the purposes of a serious retrospective ROFL:

"PaperlinX will operate manufacturing and distribution sites in Australia and New Zealand [only] with total sales in excess of $1.5 billion."
"The Board of Amcor has commissioned an independent expert, ING Barings (Australia) Pty Ltd, to prepare a report as to whether the proposal is in the best interests of Amcor shareholders." It certainly was.

2002. With the AUD weak by historical standards, buying just USD 52¢ in the first half of 2002; the PaperlinX board thought this was the time to use a weak currency to buy another offshore business far removed from its previous rapid Pacific Rim expansion.

They chose to buy from Bunzl which was exiting paper after over 100 years in the business.

Clearly Messrs Meiklejohn and Wightwick hadn't read much economic history, and must have thought they were smarter than the Bunzl family and Anthony Habgood. Oh dear.

And the already rapid Pacific Rim expansion, see 4 Years of Hubris - the Wightwick Years, was fully bedded down; wasn't it?

Not content with the minor yet manageable strategic blunder of Bunzl Fine Paper, they immediately embarked upon further European expansion by buying Buhrmann.

Buhrmann was a massive leap. At June 30, 2003, PaperlinX had a market cap of $1.9 billion and embarked upon a $1.3 billion offshore acquisition with what was still a relatively weak currency at USD 60-65¢.

Apart from momentary extremes of the GFC, the AUD has never revisited USD 60-65¢ since 2003. Still PaperlinX complains about the AUD in its annual reports!

June 2003 was the beginning of the end of PaperlinX. I realise this is a bold assertion, however that's how I read the history.

The ASX announcement PaperlinX to take major strategic step in Europe and presentatio n were dripping with hubris. The type that usually precedes a big fall.

The funded by 75% debt and 25% by issue of new shares, the "New PaperlinX" would now have 10,000 employees in 29 countries with sales of $9 billion.

Messrs Meiklejohn and Wightwick enjoyed solid careers at Amcor, but there was nothing to indicate that at their ages and stages in life they had the experience to take PaperlinX from a niche ANZ business, with sales of $1.5 billion, to a global business in 29 countries with sales of $9 billion, and in three years to boot.

Acquiring Bunzl Fine Paper was imprudent. Acquiring Buhrmann 12 months later was stupidity.

August 14, 2003 - Ian Wightwick resigns. Concurrent with release of the 2003 Preliminary Results, MD Ian Wightwick announced his retirement. Regrettably, today there is no obvious reference to this on the ASX; and no planned successor.

He reportedly took a $1.9 million package for effectively playing 'strategy' games for three years, using OPM, and paying scant attention to implementation. What fun as one's last job.

September 19, 2003 - Share price hits all time high: It's a matter historical record that PaperlinX's adjusted share price hit an all time high of $5:37 on September 19, 2003, as shareholders over-subscribed the share issue to part fund the Buhrmann acquisition.

It's been downhill ever since, closing at 4.1¢ in July 2012. That's a cool -99.2%.

October 2003 defined disaster for all to see.

The October 23, 2003 Managing Director's Address explains exactly why PaperlinX would fail. I specifically refer to paragraphs 7-9 on page 1 and paragraph 4 on page 3.

The big ROFL. Why didn't everyone else see this at the time? Actually, I think many global fine paper players did amid extremely rewarding personal financial ROFL.

The internal blindness is simple. When one person dominates a failing business for so long (11.5 years), and fails to accept their reality; it behoves everyone else to go along to get along.

This allowed certain personalities and business practices to survive and prosper until the money ran out.

Vienna, 2012

When the money runs out the bankers step in. That occurred in 2009-12. Then the vultures and opportunists step in, which happened in 2012.

I find it ironic that the most recent sale of a PaperlinX business was its CEE operations to Heinzel in Vienna. ROFL Mr Heinzel.

Where is PaperlinX today? The extravagances of Bunzl and Buhrmann were still in place until very recently. All that has changed is that a problem has been identified internally, but not solved.

Possibly PaperlinX will be forced to return to its roots, Australia and New Zealand, and rebuild again.

Summa summarum: This is my second last posting as suX.

In future, I'll be devoting my entire energies towards restoring value to PXUPA hybrids through PaperlinX PIGS.

"a committed group of volunteers formed in early 2012 specifically to protect the rights of PaperlinX hybrid investors - particularly those who cannot speak for themselves.

Our objective is to ensure that every vote counts; and that any outcome for PXUPA holders is fair and equitable."

Retirement means no more publishing of leaks from Northampton, unless they're mega juicy. It means no more direct personal attacks and hopefully no more threats of defamation.

Sadly, it also means no more illustrations, like this random selection available at FINIS - No more illustrations like these from suX.

Go on, check it out and have a jolly ROFL one last time. No one will know.

Usque ad Finem

"To the very end"