Below is the full text of Ian McIlwraith's piece appearing in the Fairfax press today, or see original here.
What do key activist shareholders think?
Andrew Price issued a press release which really said nothing. He doesn't have to say anything. PaperlinX is quiet capable of making its own negative headlines.
Allan Gray, formerly Orbis Investment Management, which owns 18.29 per cent of PaperlinX:
“The board must live and die by how they use the incremental dollar,” Allan Gray analyst Simon Mawhinney said.
SuX suspects this is the public view of All Gray. In private, I'm sure the conversation was far more robust and specific given its MD Simon Marais has publicly called for Toby Marchant's head.
Does anyone really expect the largest single shareholder to simply hang around while Toby spends the money? SuX expects that Price is biding his time. Anyone for four cents?
This Strategic Review screams bye bye Toby.
Published: June 27, 2012 - 3:00AM
PAPERLINX has given its best sign yet that the company is being managed for its bankers first, and shareholders second, announcing that the sale of its US business had killed any lingering hopes investors might have had for a private equity takeover.
Insider wonders whether the ASX might pop the question to PaperlinX's board on whether it could have announced earlier to investors some of the details in yesterday's statement.
Long-suffering shareholders have nurtured a hope, increasingly faint, that the ''whole of company proposal'', pitched at 9¢ an ordinary share and $21.85 for preference stock by private equity group Platinum Capital, might still be alive.
Judging by yesterday's statement the concept was alive all the way until a deal was tied with US competitor Central National-Gotesman Inc: ''As a consequence of today's announcements, PaperlinX is no longer in discussions with any third parties.''
Somehow though, game buyers of the preference stock managed to push it up $1.19 to $9.35 - perhaps on the basis that the company exercised the ''step-up'' clause, which means the dividend rate is now fattened by 2.25 percentage points to the Bank Bill Swap Rate plus 4.65 per cent.
That is very nice in theoretical yield terms, but PaperlinX is not paying a distribution, and has given little sign of plans to do so.
PaperlinX also said the US sale was priced at 7.5 times earnings before interest, tax, depreciation and amortisation, which implies that the operation was making $US10.3 million this year. The company runs a North American division, which includes Canadian operations generating $C450 million of revenue and having 27 per cent of that market.
EBITDA for North America was $14.5 million in 2011, and PaperlinX's most profitable business, and for the December half made about $9.3 million of EBITDA - suggesting the US operation was holding its own in a tough world. Strategically, that means PaperlinX is jettisoning the good to pay the price of trying to fix the bad. While the European operations generate about three times the revenue of North America, they are also the big drag.
Insider wonders how that will play with the disenchanted shareholder group, led by Andrew Price, that tried unsuccessfully to roll chairman Harry Boon off the board in March. The remaining institutional investors, such as Allan Gray's Simon Marais, will no doubt be doing their own calculations on PaperlinX's numbers after yesterday.
The half of the US sale money that does not go to repaying bank debt will pretty much be absorbed in Europe's restructuring. On that note, PaperlinX tried to suggest it is undergoing hefty redundancy programs in Europe and, while it is appreciated that one job lost is significant if it is one's own, it seems odd that the head-count numbers being used date back two years.
It said the number of people to be ''disemployed'' will fall from 5435 in July 2010 to 4500 by July 2014 - not what Insider would judge a great achievement in cost-cutting.