Orbis vs PaperlinX

Posted January 23, 2012                                                      Twitter: @PaperlinXsuX 
          This blog is the personal opinion of the author and not investment advice.
It was a busy Week #10 for SuX and PIGS, culminating in the much publicised meeting between representatives of PIGS and the Responsible Entity (RE). 

If you’re on our mailing list you’d have received PIGS Bulletin #2 by now, otherwise it’s available here soon.

This morning’s press revealed fighting words by Orbis. See here.

The AFR headline reads "Orbis seeks sale of PaperlinX assets”, but hang on, that’s exactly what Simon Marais didn’t want back on Jan 5, just 18 days ago. At that time he was reported in the AFR as saying:

Mr Marais said a break up does not make sense for equity holders.

“The moment you break the company up, you realise the value,” he said. “This doesn’t make sense for equity holders to do that because they can’t get back any money since bond holders get paid first.”
See full details here.

On reading today’s article, the headline could easily have been: Orbis wants Marchant sacked i.e. no Europe logically means no Marchant; or simply Orbis attacks PaperlinX. 

Orbis does seem conflicted.

At a glance, here’s how PaperlinX-suX saw Week #10.

1.            Orbis exposed

2.            Key takeouts from PIGS Bulletin #2

3.            What did Mr Market say last week?

4.            Good news for PXUPA holders

5.            Where to from here – onward and upward

6.            Where do we sit at the negotiating table?

7.            PaperlinX stumbles yet again, oh dear

8.            More debunking of Marchant’s vision

9.            RE vs PXUPA Holders vs Auditor and PaperlinX

10.       Private Equity – is it an ‘Offer’ or a ‘Proposal’?

11.       What’s ahead short term?

1 Orbis exposed

This week started on Saturday with The Australian exposing double standards by the management and staff at Orbis.

Management at Orbis bags PXUPA yet three of its analysts invest in them. Go figure.

This conflict was originally posted here,

2 Key takeouts from PIGS Bulletin #2

There is one overriding message; PaperlinX can run but it cannot hide.

Thanks to agitations by PaperlinX-SuX and PIGS, keen interest by the financial press and independent financial advisors; everything is now coming out into the open.

It beggars belief that PaperlinX could have condoned a PE proposal of $0.09/$21.85 that circumvented Change of Control triggers in the PDS. Shame, shame and more shame on PaperlinX.

Maybe this proposal wasn’t an ambit claim but simply testing to check the alertness of PXUPA holders, and the resources of SuX and PIGS. Cynical yes, but an easy way to potentially save $75-100M.

Anyway, the RE’s ASX Release on Thursday clarified matters for everyone.

3 What did Mr Market say last week?

The hybrids enjoyed an outstanding week to 20 Jan 2012, clearly outperforming ordinary shares PPX.

Weekly Price Change		Comment
PXUPA	+14.48%	Highest weekly close since Fri Nov 18, 2011 (9 weeks). Looking strong.
PPX	+7.69%	Second lowest all-time weekly close. Lowest ever was last week. Looking weak.
XJO	+1.04%

4 Good news for PXUPA holders

More press commentary means more supporters for PIGS.

Some of our supporters may feel anxious with all the press commentary; however it creates an underlying positive for PXUPA holders. There is a direct correlation between press coverage, good or bad, and voluntary registration of supporters.

5 Where to from here – onward and upward

PIGS is within sight of the crucial 25% blocking figure, principally from voluntary investor registrations. This is before approaching institutional or custodial holders; or centres of influence such as brokers and financial planners with large numbers of identified clients holding PXUPA.

PIGS continues to gain voluntary support from private investors of all sizes, and from virtually everywhere around the globe.

This isn’t surprising because since inception in November 2011, the audience of www.PaperlinX-suX.com, as measured by pageviews per region, has been:

OZ & NZ	52.86%
North America	23.36%
UK & Europe	21.65%
ROW	2.13%
	100.00%

The audience is larger than my wildest expectations. Who are they? We don’t know but it certainly reflects the PaperlinX global footprint; so it looks like clients, competitors and employees are interested too.

6 Where do we sit at the negotiating table?

While we have no reserved seat, our position is stronger than most people think, which probably accounts for the sensational claims made by Orbis in the AFR on January 23, 2012.

If this gets down to a battle between PPX and PXUPA holders, we believe we currently hold the stronger hand. PPX holders appear to be solely represented by Orbis, being one holder with 18.29% voting power. We beat that on both counts.

7 PaperlinX stumbles yet again, oh dear

Has Jarrod Poole, Manager Corporate Affairs, has caught the No New News affliction? If No New News means nothing to you, please read PaperlinX in Denial here published Nov 19, 2011.

Here is Jarrod’s written response to an investor’s question, which subsequently came to our attention.

“The suggested transaction [the December 23 announcement] would be structured such that there would be no Change of Control Event.  It would be as you suggest an off market offer at a given value which each class of holders could accept or not.  If rejected by either class the transaction would not proceed.”

Question 1: How does Jarrod Poole know about “would be structured”; is there more to know than is being made available to the market?

Question 2: It is inconceivable this response would have been made without peer review. Apparently PaperlinX is of the view that the hybrid holders could take or leave it, and fend for themselves.

Yes Dorothy; we would have been dudded, in direct contradiction to the plain English representations made in the Hybrid PDS.

These guys make David Tweed look respectable. Offshore readers may care to Google search {“David Tweed” + share + shark}.

Note: The RE advised us at the meeting it would not lend support to such a transaction.

8 More debunking of Marchant’s vision of accelerated diversification

Regular readers may recall Toby Marchant’s quote in The Australian on Sep 7, 2011 – see here for an excellent interview.

“The new strategy will include accelerating diversification away from simple paper merchandising to create a company capable of investing in a sustainably profitable future.”

It was justified on the basis of higher margins, economies of scale etc. Problem is that everyone is paper merchanting is doing it.

"The growth of Antalis’ businesses on high value-added markets (Packaging, Visual Communications) and in fastgrowing regions (South America, South Africa, Asia) should also help lift the Group’s operating performance."

See more details here.

News: It came to our attention this week that Antalis continues to be aggressive in this area with its acquisition of Ambassador Packaging in the UK. It’s not a large acquisition but confirms the industry trend. Ref here.

Diversification is pure spin by Marchant. The board was dumb to buy this line. It recruits as MD a man with 30 years experience in fine paper, so he goes off diversifying out of paper. In the end this too will be a low margin business.

Some may rebut this with the ‘common client’ argument; however it failed dismally with Fosters’ diversification into wine. Perhaps Lyndsey Cattermole missed this after 10 years as a director of Fosters and now a director of Treasury Wines Estates Ltd.

What will be Toby Marchant’s next trick?

9 Responsible Entity vs PXUPA Holders vs Auditor and PaperlinX

This is an extensive piece and will be dealt with in detail soon.

10 Private Equity – is it an ‘Offer’ or a ‘Proposal’?

And does it matter? Yes.

An offer imposes obligations on the offeror. Proposals are just talk.

The financial press has typically referred to “it” as an “offer”, but this isn’t the case according to James Orr at PaperlinX and he should know. The following is an extract from print industry journal ProPrint on Jan 20, 2012:

Paperlinx executive general manager corporate affairs James Orr told ProPrint it would be wrong to describe the private equity firm's approach as a takeover bid.

"It's not an offer – it's a proposal that's been put that we advised the market of."

Orr said there was no deadline for the private equity firm to finalise any bid.

The 23 December announcement also revealed Paperlinx had received "separate proposals to acquire parts of its business".

Orr said he couldn't reveal how many companies had made proposals.

So what you ask?

What James Orr said is totally correct and is consistent with his previous, and only, public comment. He certainly hasn’t been at pains to correct the popular misinterpretations, except to ProPrint.

Again I smell a rat. Perhaps it suited PaperlinX to permit popular misconceptions to flourish.

James Orr is economical with words. As one who has had numerous written and oral exchanges with him, I advise all to read his comments forensically. I’m sure he doesn’t tell untruths; it’s just difficult to ask him the right question.

Well done to Nick Bendel at ProPrint. Original here.

11 What’s ahead short term?

The next few weeks will be testing times for PaperlinX and ordinary shareholders. Some key events on the agenda are:

PaperlinX will release its half-year figures by late February

1.    What will be the write-downs this time;

2.    Will it breach bank covenants and what will this trigger;

3.    What will be PaperlinX’s NTA as at Dec 31, 2011; and

4.    Who’ll win the quiz for the nearest correct entry for item #3? See quiz entry details here. 

Orbis foreshadows meeting with PaperlinX following its interim results

That will be interesting for two reasons:

1.    It appears that Orbis wants Marchant’s head to roll; and

2.    Orbis has been sending mixed messages to PaperlinX.

Antalis will release its full year accounts in February too

This will be an excellent guide to the European and UK markets for PaperlinX watchers.

Watch the RE

1.    Will the RE revise its valuation of PXUPA as at Dec 31 in light of the PaperlinX half year accounts; and

2.    If so, will it offer a ‘lay person’ explanation of any revised directors’ valuation?

Watch the PPX holders too

1.    How will ordinary shareholders respond to the current and any future proposals – i.e. what will Mr Market say this week;

2.    Will ordinary shareholders leave Orbis to be their sole spokesperson; and

3.    Will Maple-Brown Abbott continue its sell down of PPX from 9.15%?

Remarketing of PXUPA by June 2012

Another headache for PaperlinX, when it least needs one.

And this excludes any new moves by PE. Stay tuned.


This blog is the personal opinion of the author and not investment advice.