We’ve added another lively review of the Village Roadshow AGM, this one from shareholder Dominic Moawad.

This would be the mantra for the meeting.

The 900 million-dollar line of credit the company was still arranging was “unique”. The combined salary of the top 8 executives (10 million) may seem obscenely generous for such a small company, but Robert was again assuring shareholders that this was because they were “unique”.

And I’m sure the sort of pain the Kirby brothers said they felt because of their loss of dividend for the year was “unique” given the generous 2 million dollar salaries they pay themselves.

It’s always cringe time when someone pulling in that sort of money talks about understanding the “pain” of a pensioner who relies on that dividend for an income stream.

Unique, unique, unique

The meeting itself struck me as unique. As a holder of preference shares for a few months, it was my first meeting. Coming into the huge car park at Hollywood on the Gold Coast, I was greeted by the sight of kids holding the Notices of Meeting, with their parents dressed prepared for a long day of excitement.

As you can imagine, the visitors’ table was packed with partners and children filling in forms! Many of these people sat in the meeting for a half-hour or so and began walking out to enjoy the free refreshments and the rest of the day on the Lethal Weapon and Wild Wild West rides.

The speech

Robert Kirby gave his speech to shareholders, and urged us all to hold on and hang in there so that their investment in movies starts to pay off. We were treated to a trailer of upcoming movies, which Robert Kirby says shows how all the pain will pay off.

The pain to shareholders has been the cutting off of dividend payments to ordinary shareholders.

This is because Village wants to have a 900 million dollar line of credit (instead of 700 million) due to the half funding of the two Matrix films (Village’s share is a whopping $165 US Million according to Variety Magazine) as well as the production of other films including TROY (historical epic starring Brad Pitt and Eric Bana) and the sequel to Oceans Eleven.

The facility has yet to be finalised, the details will be confidential. The “rocket” for earnings this year after a slow start however will be THE MATRIX sequels. Opening in May, these star wars; films for the post-modern generation are the lynchpin for Village’s hopes.

Question time

Questions were then open to shareholders.

The first person was the Crikey representative:

1. Contingent Liability to the Tax Department. Village thinks its contingent liability is nowhere near what the tax department says it is. In fact, the liability is closer to 85 million dollars.

2. Political Donations. Crikey has commented on the ‘good work’ (from a shareholder’s perspective) Village Roadshow has done to protect its interests, especially in radio. Kirby was challenged to stop making donations and reveal political donations in the Annual Report like other companies are now beginning to do. Kirby said that they would continue paying up to political parties and would consider inserting the details in the report.

3. Independent directors/audit committee. The shareholder also commented that the number of independent directors on the board was less than 50% and that Village did not meet best practice standards. Kirby said that they were working on an appointment soon.

4. Executive Remuneration. The shareholder made a comparison between Village and Boral in terms of executive remuneration. Village pays the Kirby brothers 2 million each, and six other executives get 1 million each. That’s 10 million in a company that barely turns over 400 million dollars. Kirby’s response was that Boral is a different company. Yes it is. It turns over billions of dollars. Kirby said that because village was ‘unique’ and international, it had to pay to keep the “artistic” talent required to make truly great films. One wonders whether that talent read the script for PLUTO NASH. So basically, shareholders have to endure these huge salaries for a pay-off that’s five years down the track if some of the movies are successful.

Stuff the dividend, we want free entry

No one clapped or cheered for any of the questions at the AGM except for the man who got up and said that because Village abandoned the dividend, they should consider introducing a card entitling the shareholder to free admission to the park. This would be in addition to the book of goodies all shareholders receive annually.

QCs’ opinions and shafting preference shareholders

Or “How to keep the company in family hands 101” or “All Gain/No Pain”

Finally, someone asked a question about Preference shares. Why are these shares are trading at a 40% discount to ordinary shares and if you don’t pay a dividend next year, won’t these shares become voting shares? Kirby couldn’t give a reason for the big difference in value between the two classes of shares.

Nor could he guarantee that a dividend would be declared on preference shares next year. This is an issue that has a huge impact on the future of the company should VRL not pay a dividend on A preference shares.

Half the company’s shares are A preference. They do not carry voting rights. The Kirby’s don’t own any preference shares. However, the Kirby’s practically exercise control of VRL because they hold most of the ordinary (voting) shares. The company constitution says this about A pref shares:

“an A class preference share shall confer no right to vote at any annual general meeting except… during a period during which any dividend payable on the A class preference share is more than 6 months in arrears”

The conclusion: If 6 months in arrears, 200 million non-voting shares become voting shares, and the Kirby’s have half the vote they had before.

On the question of voting in a pref shares came a startling revelation from Kirby who was absolutely adamant that no, the shares wouldn’t become voting shares if they were not paid next year. Peter Foo (i think) explained that a dividend was not in arrears if it was not DECLARED.

While A pref shareholders should be paid 10.175c per year, if they were not declared for the year, they’re not in arrears. This work of genius was backed up by QC advice that Roadshow obtained.

However, my reading of the VRL constitution states clearly the way in which A preference shares must be handed out. There is no such word as “declared” in the text. In fact, the words say:

“the right to receive in priority to all other classes of shares a non cumulative dividend payable annually in respect of each financial year…”

This is a right to receive annually. To me, even if not declared, the right is to receive the dividend and if it is not received it is in arrears. Maybe I’m missing something, but I’d like to see how the QC’s advised on this one.

Obviously, everyone bought the shares on the assumption that the Kirby’s would pay up, because if they didn’t, they wouldn’t have control of the company. If my conclusion is correct, you can see why preference shares are wildly undervalued. Ordinary shareholders do not have a dividend and do not really exercise any effective control. Preference Shareholders do not exercise control but at least they get a big dividend (over 10%). If I’m wrong, then the preference shares will probably stay under the value of ordinary shares.

But there’s also the issue of this being a really insincere grab for power that I think underlies what the family is doing to the company. They are not willing to sacrifice their own control when they make mistakes. They are punishing shareholders for their mistakes.

I’m thinking that perhaps one of the conditions of the 900 million-dollar line of credit could be that the company should not pay dividends (though we won’t find out because it is ‘confidential and unique’).

And when someone says: “hang on a minute, if you stop paying dividends on preference shares, those shares become voting shares”, they turn around and come up with a clever answer that to me shows they thought long and hard about how they could retain control of the company even if they were so inept they couldn’t afford to pay a dividend.

What that says about accountability is disturbing. Like all shareholders I’m hoping the Matrix pays off big time, and we won’t be asking these questions next year.

Post meeting

After the meeting, we were lead to the refreshments area. The poor waiters couldn’t keep up with the hordes of people attacking the table for the free sandwiches and pastries. The families knew that if they didn’t feed their kids here, they’d be paying the 10 dollars for a hamburger meal.

As for me, I spent the rest of the afternoon on the Lethal Weapon ride, the Scooby Doo roller-coaster (surprisingly good) and went three times on the Wild Wild West ride to cool down.

It’s pretty hard to stay p*ssed off with a company when they have for an AGM a venue that can reduce adults to little kids.

Peter Fray

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