Corporate come-uppances: How the mighty have fallen
With the long awaited collapse of the Babcock & Brown virtually all the charlatans have now fallen back to earth, with only Macquarie emerging, severely bruised but for the time being, still standing, writes Adam Schwab.
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The bigger the rise, the harder the fall, and few have fallen further than Australia’s once much loved financial engineers. During the latest debt-fuelled boom, businesspeople posing as “asset originators” rose to prominence using complicated financial structures, “stapled securities” and management fees to build fortunes. But with the long awaited collapse of Babcock & Brown virtually all the players have now fallen back to earth, with only Macquarie emerging, bruised but for the time being still standing.
Here’s a list of the companies who’ve made some costly mistakes in recent times.
Share price rise to peak — 450%. Share price fall from peak — effectively down 100%. Suspended, unlikely to ever trade again
Hasn’t traded on the ASX since January and former CEO, Michael King’s infamous conference call. King told analysts that the business is fine but later slipped in that they would need to raise $550 million. That didn’t go down to well, with the company’s share price losing two-thirds of its value during the call.
Soon after, King was gone and the directors appointed KordaMentha to conduct a de facto liquidation. Jilted major Chris Scott rode in and tried to resurrect some value for himself by flogging off assets to mates and business partners. Michael King is reportedly trying to offload his polo ponies – no word on whether he has been successful. Another former managing director, Phil Adams, is believed to have finishing establishing businesses in Dubai and is hopeful of selling them for $1 billion.
Share price rise to peak — 650%; Share price fall from peak — Down 97%
Like BNB, an overly complex and debt laden financial engineer. Allco was brought undone after the market finally caught wind of its dealings with the related party purchase of Gordon Fell and David Coe’s Rubicon. A couple of weeks later, Rubicon tanked and took down its parent. The directors had no problem paying Coe and Fell $300 million (cash and scrip) for Rubicon. Apparently, Allco director Sir Rod Eddington was too busy collecting his knighthood to be concerned about pesky issues like Allco’s solvency and happily voted in favour of the deal.
Babcock & Brown
Share price rise to peak — 680%; Share price fall from peak — down 93%
Second only to Macquarie, BNB was once worth $10 billion. It is now worth less than a billion and probably won’t be around in a couple of years. Confidence seeped from Babcock during the boom, as the Macquarie mini-me made its executives richer than the real thing. Few, except for BNB shareholders and the banks who are owed $50 billion, will be mourning its death.
ABC Learning Centres
Share price rise to peak — 1760%; Share price fall from peak — down 94%
Fast Eddy Groves has become Broke Eddy Groves as the world’s largest listed childcare empire has fallen into a heap. The main reason for ABC’s downfall is that the business (like pretty much every other listed childcare company) is unprofitable. One thing you can’t doubt about Groves is his willingness to go down with the ship. Despite every hedge fund in Australia (as well as us at Crikey) realising that ABC was an accident waiting to happen, Groves and fellow directors kept buying ABC scrip using margin loans. Groves and his fellow directors then all got margin-called as ABC shares dropped form $8.80 to less than $1.00. No word on whether Groves has recommenced his milk run.
Share price rise to peak — 22%; Share price fall from peak — down 75%
One of the last boutique investment banks to float looked to be one of the most overpriced stocks on the ASX earlier this year. Turns out, it was. Makes most of its money from advising fallen angels like ABC Learning and Timbercorp (Austock collected $26 million from ABC Learning in 2006). Five per cent of the company is owned by Eddy Groves and shares are mostly controlled by some not-very-happy employees. Having some problems with its managed funds which own property leased to ABC Learning. Hitched its star to the wrong wagon.
Share price rise to peak — 400%; Share price fall from peak — down 79%
Timbercorp has been largely cruelled by an adverse tax ruling (the company is going through an appeal process). Not ideal when your business depends on a tax loophole. Founder is closely associated with Austock, which happened to be Timbercorp’s major banker until last year.
Share price rise to peak — over 1000%; Share price fall from peak — down 98%
The first of the dominos to fall has been in intensive care for almost a year. Former CEO, Andrew Scott, was considered a wunderkind and property genius. Sadly, that view was primarily held by Andrew Scott. Scott, with Centro’s completely useless board looking on, lost several billion buying grossly overpriced US shopping centers. Apparently, a US recession and credit crunch didn’t cloud Scott’s optimism. At least Scott had faith in himself. The former Coles Myer property boss had his life savings invested in Centro and lost around $50 million when its share-price collapsed.
Share price rise to peak — 2850%; Share price fall from peak — down 95%
Another property developer which used too much debt and didn’t check to see how the property market was progressing. Can’t sell its properties in its Mount Martha development and even tried bringing legal action against Michael West for defamation. West and Fairfax will be happily relying on the truth defense. Had the rare honour of making a simple arithmetic mistake in its financial report.