IT’S a little known and, to some, surprising fact that septuagenarian business knight Ron Brierley once won a most-beautiful-baby competition in Wellington before going on to hone his entrepreneurial skills as a stamp trader at school.
Decades later, the chairman of activist investor Guinness Peat Group is again starting to show a similar level of urgency to the debt collection notices he used to send — under the impressive moniker of Kiwi Stamp Company — to the nonplussed parents of late-paying students.
GPG, in this month alone, has lobbed two takeovers: one for the 19.9 per cent-owned agricultural business Tandou, which has morphed into a trader of water rights; and the other for the 70 per cent of wealth manager MMC Contrarian that it does not already own.
The latter play has pitted Sir Ron against Melbourne internet entrepreneur and 5.6 per cent MMC holder Nicholas Bolton, who famously extracted $4.5 million from construction giant Leighton earlier this year by threatening to wind up the Airport Link toll road project in Brisbane.
If Sir Ron, now 72, had not been in Britain and unavailable for comment, he would no doubt chafe at any suggestion that Bolton, in his late 20s, deserves to be mentioned in the same breath.
In any event, the recent spate of activity by GPG, albeit at the small-cap end of the scale, has enlivened speculation of a serious comeback by the 1980s corporate raider.
Long-time lieutenant Gary Weiss is far more circumspect.
He acknowledges that the quick procession of offers for Tandou as well as MMC — valued at $68m by GPG’s 48c per share offer — has created the impression of “heightened activity”.
“Certainly, as the economic environment has stabilised, we have been able to refocus our attention on working our portfolio for both (asset) realisations and enhancing existing positions, while also actively looking for new investment opportunities,” Weiss says.
GPG has a bit of work to do on that score — a situation that is certainly not lost on analysts in his country of birth.
The Brierley aura, built around the audacious investment style of GPG antecedents Brierley Investments (BIL) and Industrial Equity in the 1980s and 1970s, still counts for a lot with retail investors.
However, First NZ Capital Securities analyst Greg Main cites an array of institutional concerns about GPG, not least its pound stg. 24m ($44m) loss for the June half year, which was admittedly an improvement from the previous pound stg. 42m loss.
“There’s a perception Sir Ron has lost a bit of his Midas touch, the institutional market has grown a bit weary of management, and there’s a view that GPG overreached with its Coats investment, just like BIL did with Thistle Hotels in the UK,” Main says. “And there’s still a lot of cash ($615m) in the group.
“Hindsight is a wonderful thing but there have been a lot of company recapitalisations, and you could make a case for GPG to have taken out a couple of targets. Of course, when you’re in the middle of it, you always think the asset will be cheaper tomorrow.”
The $543m holding in British-based Coats, a global supplier of sewing thread to the apparel and other industries, dominates the diverse $1.94 billion GPG portfolio.
The realisation of the investment in Coats, which was hit by a dramatic collapse in global demand in the last quarter of last year due to the economic crisis, will be the ultimate test for GPG, according to Main.
Weiss concedes that Coats is a significant investment, and has taken longer than expected to turn around.
“But we believe much of the turnaround work of this world-class company has already been effected, and as Coats’s markets recover, we expect the earnings of the business will demonstrate the substantial progress which has been achieved,” he says.
Sir Ron has seen the business cycle turn many times before, sometimes with unexpected results.
His most formidable achievement was to build BIL from scratch into New Zealand’s largest company — a feat recognised by his fellow directors in 1986, at the company’s 25th annual meeting, with a video tribute that included snatches of the Hallelujah Chorus. They were probably only half-joking.
A year later, however, the cycle turned, and viciously so, with the collapse of global markets. The curtain abruptly fell on an era when Sir Ron had been bracketed with other corporate raiders such as Robert Holmes a Court, Larry Adler and John Spalvins of Adelaide Steamship Co. The final ignominy was a BIL palace coup in 1990 that forced him out.
As he exited, however, Sir Ron negotiated a transition that installed him as chairman of GPG — an unwanted cashbox in BIL’s top-heavy portfolio that had enjoyed better days as a British merchant bank. BIL facilitated the parting of ways by selling its GPG holding to retail investors. Sir Ron, then, was back in control, albeit with “limited funds and no scope for extravagance”, as he later admitted.
The formula has not changed much over the years: seek out undervalued companies with turnaround potential, and then agitate from the sidelines or in-house. If the target board is intransigent, go public.
A classic example in July was CSR, in which GPG has a 4.7 per cent interest. Valued at more than $100m, the CSR stake is by far the company’s biggest holding in a portfolio that includes aluminium fabricator Capral, homebuilder AV Jennings, Babcock & Brown Power, Capilano Honey and the last surviving Adsteam unit, Tooth & Co. Across the Tasman, GPG’s 35 per cent stake in the Tower financial group is slightly bigger.
Weiss excoriated CSR’s directors at the annual meeting for making no real attempt to explore GPG’s proposal for a demerger of the sugar business, as well as the sale of its aluminium interests. Instead, CSR had proceeded with an inferior proposal, also to demerge, according to GPG.
In recognition of the task ahead, Sir Ron has revised his plans for retirement, which was to coincide with a substantial return of value to GPG shareholders next year. The chairman said last month it was now not possible to adhere to the 2010 timetable, as another “poor” result was expected for the year to December.
“Sharemarket conditions have greatly improved in recent months, but we anticipate further repercussions from the credit crisis, with opportunities to emerge which will be more favourable than overinvesting (now),” Sir Ron said. If ever there was a signal to watch this space, that was undoubtedly it.
No comments:
Post a Comment