Someone must have forgotten to tell Eddie Groves that ABC Learning Centres is no longer a market darling, and that he isn’t considered a wunderkind CEO. Despite its shares falling from $8.80 to only 83 cents, Groves has just seen fit to issue himself, and his wife Le Neve, millions of ABC options at only 23 cents (exercisable at 92 cents).
One must wonder what the Singapore Government, which holds an approximate 14% stake in ABC Learning Centres must be thinking. The Singaporeans bought into Groves’ dream in June 2007 at a price of $7.30. They have subsequently lost more than $350 million on their investment, largely thanks to Groves’ botched US expansion and the companies unprofitable Australian operations.
The options grant, which was announced by ABC last night under the guise of “2009 Executive Director Salary Sacrifice Scheme” is the most appalling transfer of wealth from shareholders to management since the WorldCom and Enron trod the bourse. If ABC shares rebound to $4.00 (which is less than half of what they were trading at last year), Groves will collect more than $19 million. If the shares rebounded to $7.30, that is, to a level that restores the company to the position it was in one year ago and the price Temasek paid, Groves and his wife Le Neve will make almost $51 million.
In its announcement, ABC noted that “the Executive Directors will only obtain financial gain if the share price exceeds $1.15 (the option price [sic] $0.92 plus the option purchase price $0.23).” ABC adopted a 5-day volume weighted average price for the options, which was convenient for Groves, since the usual three-month VWAP would have provided a strike price of more than $2.00.
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ABC has long treated its customers and employees with disdain, but now, it is doling out the same treatment to its long-suffering shareholders, some of whom have watched their holding lose more than 90% of its value.
Institutions simply cannot accept this options grant and must demand the immediate resignation of Eddie and Le Neve Groves. ABC Chairman, David Ryan, the maligned former Adsteam Marine CEO, has lost whatever any shards of credibility he retained by allowing the issue. His tenure as chairmanship of Transurban must also be under serious threat. ABC’s last remaining “independent” director is former Liberal politician, Larry Anthony, who too was effectively appointed by Groves and is about as far from independent as any director could be. (The majority of Anthony’s income comes from his role as a director of ABC).
Crikey contacted ABC spokesperson Andrew Barber, who noted that the terms of the options issue were approved by investors at ABC’s 2007 Annual General Meeting. While the goalposts have certainly shifted since then (ABC’s share price has dropped from around $7.00 at the time of the AGM), ABC claimed to have spoken to some shareholders who were allegedly supportive of “Eddie [Groves] being incentivised to the run the business.”
Of course, there is a difference between an incentive and walking away with the truckload of money thanks to an issue of options at the low point of a company’s share price. The issue of more than six million options to Eddie Groves represents a dark day for corporate governance and one almighty dilutive slap in the face to loyal ABC shareholders.