We’ve been waiting for the right moment to reveal a previously
unreported flaw in Australia’s corporate voting system, and childcare
king Eddie Groves has presented the perfect opportunity.

The ABC Learning notice of meeting came through yesterday for an EGM in
Brisbane on 7 June to approve seven resolutions including two that
relate to $600 million worth of share placements with professionals to fund further takeovers in Australia and the US.

The first placement of 44.1 million shares at $7.30 apiece to
institutions on 9 May
comprised 12.47% of the company’s shares and this has to be approved by
shareholders in order for a second placement of 38.1 million shares,
10.74% of the expanded capital base, to proceed on 14 June.

The Corporations Law only allows up to 15% of a company’s capital to be
placed with new shareholders in any 12 month period without shareholder
approval.

Recipients of those shares will be ineligible to vote on the resolution
but this can be difficult to track. Shares get turned over every day so how on earth will the auditor and
share registry outfit Link Market Services (the old ASX-Perpetual) know which shares can’t be voted?

The other complexity comes when a fund manager accepts shares in a
placement on behalf of a range of superannuation clients,
who usually control the voting. How does the likes of AMP instruct its
superannuation clients as to which of the ABC Learning shares are for
them and what proportion of them are from the placement and can’t be voted?

It will also be interesting to see whether Eddie or his wife can vote
their 37 million shares given that Eddie is now a shareholder in
Austock, the small broking outfit which has handled the company’s
capital raisings over the years and collected a tidy fee from the
latest $600 million raising. This sort of conflict of interest really
shouldn’t be tolerated.

Interestingly, there’s no mention of any share purchase plan for us
smaller shareholders to allow us to pick up more stock at $7.30,
although now that the stock has fallen from a record high of $8.50 in
March to $7.42 this afternoon, the opportunity cost from being diluted
by the big boys isn’t so great.

Eddie has also taken the opportunity to seek approval for a range of
equity incentive schemes at the EGM, so there’s enough action to
justify spending $400 on flights, trains and car parking to have a
decent sparring session with the lad who will have moved up the BRW Rich List when the 2006 version comes out later this week.

As president of the local parent-run kinder, how could I miss an
opportunity to lock horns with the man who built the world’s biggest
child care company and has his chief benefactor, former Federal
children’s minister Larry Anthony, sitting on the board with him?