The Age March 14, 2012
Ian McIllwraith has been a long term PaperlinX watcher. He writes the Insider column in Business Day published in Melbourne's The Age, the Sydney Morning Herald and all Fairfax dailies in the capital cities.
IMO, his thoughts on PaperlinX are always well researched.
His original commentary can be viewed here. I've taken the liberty of adding to the original article. McIllwraith's comments are in white interspersed with mine in {green}.
IF PAPERLINX chairman Harry Boon loses his board seat at next week's shareholder meeting, it will not be without a fight.
Boon, who in Insider's opinion was brave to pick up the chairman's role last August {I'd say 'brave' is being polite. To me it was more like greedy, indulgent, over-reaching and neglectful of his responsibilities to the poor suffering shareholders at Hastie Group.} when founding chairman David Meiklejohn took his superannuation cheque and headed out the door, has become the focus of disgruntled share and hybrid preference stock investors in the euro-centric paper merchant that has an Australian listing through an accident of birth.
{Here I must disagree - PaperlinX was no accident. I've long believed that Amcor spun off PaperlinX to rid itself of a problem business and in doing so was able to spin off other problems too.
This is fully explained under Dismal Facts here, compiled in late 2011 when PaperlinX had a market cap of $97 million, not the low of $40 million before Andrew Price arrived.
The PaperlinX vs Amcor performances beggar belief.
Excuses have been in abundance at PaperlinX for nearly a decade. Either Amcor sold an absolute dog of a business, or PaperlinX inherited inadequate management from Amcor or both.
If you think this logic is unreasonable, consider that around the same time BHP spun off BlueScope Steel with near identical outcomes for BlueScope shareholders}
As such, the requisitions up for voting on next week are, first, Boon's removal, and second, the appointment of maverick investor Andrew Price as his replacement.
Technically, Price could already be sitting in the boardroom because Boon and his co-directors apparently offered him the chance to fill an existing gap - but he apparently declined.
{Andrew Price has advised me this is fact}
Insider suspects that the outcome next week could well be that wonderful piece of business jargon - the ''win-win''. That would be Boon keeps his seat, and Price gets one, too.
{This outcome would be a total surprise to anyone who's met Andrew Price. It is inconsistent with his personality, original requisition to oust Harry Boon and subsequent public and private statements.
I suspect this is what the woeful waverers want, like an each way bet. The irrefutable fact is that the board of PaperlinX is a stacked deck.
If it wasn't a stacked deck, then individual directors wouldn't condone the persistent abuses of corporate governance, Board Policy and Company Constitution by their co-directors
- see 4 Years of Governance Abuse by Harry Boone and Breach of Constitution by Mike McConnell
It's all fully documented for anyone who cares to read the Annual Reports in detail.
Does anyone seriously believe that Andrew Price and his supporters, who have stumped up many millions of dollars and now control 60-70,000,000 shares, wish to be held to ransom by Harry Boon who owns a miserable 21,000 shares.
Under this scenario, Boon supported by his sycophants, would win every board vote by 5:1. Hardly a Board environment for Company saving changes.
To put these 21,000 shares into context, Harry Boon is currently paid $1 million per annum in directors' fees.}
That outcome is in spite of the way that the resolutions have been worded on the voting papers. Insider has seen many similar moves to oust directors, but the phrasing of resolutions is usually an ''either or'' formula - where the appointment of a new director is dependent on removal of the old.
The second resolution nominating Price is specifically worded that he be appointed ''in place of Mr Harry Boon''. Of course, resolutions can be modified, but that wording makes it difficult for institutional investors to have an each-way bet by voting against dumping Boon, and in favour of bringing in Price. Logic suggests that you cannot appoint Price in Boon's stead unless Boon is gone.
Insider hears Boon has been out on the hustings trying to win the support of his three biggest investors - Simon Marais' Orbis, Geoff Bazzan at Maple-Brown Abbott and Kent Jensen at Schroders.
Orbis has already been identified as a supporter of Price's gambit, and Boon readily acknowledges he has one very unhappy shareholder that has seen its investment decimated.
{The behaviour of Maple-Brown Abbott (MBA) and Schroders is incomprehensible. Why don't they just back the man with 'skin in the game' and get on with other more meaningful pursuits?
Allow me to share some research I undertook in early 2012 on the losses of Orbis and MBA.
From substantial shareholder filings with the ASX, I analysed every purchase and sale of PPX by Orbis and MBA. It isn't 100% accurate, say only 99%.
I calculated that up to Jan 13, 2012 Orbis had bought 111.4 million shares in PaperlinX at an average cost of $0.694. The estimated loss at Jan 13, 2012 was $70.1 million when PPX was trading at 6.5 cents. See detailed figures here at Key Shareholders/TABLE 2
At recent prices that loss is now circa $64 million. Orbis wants change. We support this view.
It's no secret that MBA supports Harry Boon, and I'm reliably informed they have already voted in his favour. Using the same date of Jan 2012, I calculated that MBA had bought 12.36% of PaperlinX by investing $189 million at an average price of $2.52.
At 6.5 cents, just before Andrew Price arrived, this gave a loss of 97.4% or $184 million thereabouts. Gulp! Double gulp!!
It gets worse.
If buying at an average of $2.52 then selling at less than 10 cents isn't bad enough, MBA now vote for Boon to continue with more of the same. Bring it on Harry, we love you dearly.
This is after selling down from 12.36% to 8.05% in the four weeks immediately before Andrew Price declared his hand. Guess who they were probably selling to - Andrew Price and his mates. Don't you love irony.
Why did MBA recently sell over 4% of PaperlinX at less than 10 cents? Because they liked the company. More likely because they thought the share price was going lower.
I'm confused and confess I don't fully understand how these 'professional' fund managers think. Perhaps you will if you read the MBA investment philosophy here. It's seductively simple when written down on one screen.
Must be hard to implement. If you need further guidance, you could always call Geoff Bazzan, mentioned above, who is an Executive Director and Head of Asia Pacific Equities.
Put simply, Orbis drops circa $64 million and wants a change of management. MBA drops about $180 million and says 'carry on'. Go figure.
Price has promised speedy and swingeing action to reduce costs at PaperlinX - apparently including sending him, his family and maybe even his Svengali-like adviser, Laurence Rodny, to Europe to head up the restructuring.
{This seems a good plan to me. I know from discussion that Andrew Price isn't carrying any excess baggage and could go anywhere to get the job done. See here for more info soon.
As for describing Laurence Rodny as 'Svengali-like', I'm not so sure. I've met him.
He's a hard headed businessman with few airs and graces, at least they weren't apparent to me over breakfast at the Price war camp hotel. A facts and figures man - my kind of guy.}
Boon is trying to persuade investors what already seems to have been sold to the company's bankers - recovery is happening.
{Try asking the opinion of the 400 guys and gals who attended the PICT lunch in London on Friday, 9 March - see here.}
As such, Dutch bank ING is letting PaperlinX keep €15 million of the €45 million from selling its Italian business to Lecta Group.
Word in the industry is that there is a second leg to Paperlinx's deal with Lecta - that it has also agreed to source product from that group, at ''sensible'' prices, for other parts of its European paper selling and distribution.
Original at: The Age
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