Following an extensive nine-month process to sell itself, Asciano pulled out a proverbial rabbit last week when it announced a $2.35 billion underwritten capital raising to alleviate short-term debt concerns. The capital raising includes $1.92 billion from institutional investors (of which, $1.35 billion is conditional upon shareholder approval) and a retail offer worth $428 million. In addition, Asciano will undertake a controversial $194 million placement directly to CEO, Mark Rowsthorn to allow him to maintain his 10.92 percent stake in the company.

Asciano plans to use the monies raised to pay down debt — the company has $2.66 billion of short-term debt maturing in the coming year. While the deal provides Asciano with the ability to remain solvent and within its banking covenants, it was substantially dilutive to Asciano’s existing shareholders, with the placement occurring at $1.10 per security.

On one hand, the capital raising and Asciano continued independence represents a substantial win for the Asciano board, led by former Financial Review ‘Young Director of the Year’, Tim Poole and Rowsthorn. On the other, it solidifies the foolishness of Asciano’s decision to reject an offer worth $4.40 per share from TPG Capital and Global Infrastructure Partners less than a year ago. (Asciano also didn’t endear itself to shareholders when it undertook an ill-fated takeover of Brambles, which cost the company more than $100 million).

Despite the dilution (Asciano is raising two billion of dollars at a quarter of the price offered by private equity a year earlier), Rowsthorn sung the praises of the deal to Alan Kohler on Inside Business, noting:

The result that we have achieved over the last week in particular in raising the $2.350 billion is a terrific result for the company for the company. It really gives us an opportunity to restructure our balance sheet and get on with life as a semi ordinary company going forward.

However, it was the decision to provide a placement directly to Rowsthorn which has raised the ire Asciano investors. The son of former Toll Chairman, Peter Rowsthorn (who acquired Toll through a leveraged buy-out of Peko Wallsend’s logistics assets with Paul Little in 1986, before its stock-market listing in 1993), Mark Rowsthorn would become CEO of Asciano after its acrimonious split from Toll, still run by Little. It is believed that one of the reasons for the split was a breakdown in the relationship between Little and the younger Rowsthorn.

Notwithstanding the criticism of the $194 million placement, Rowsthorn appeared unperturbed, telling Kohler that:

I’ve been able to just keep my pro rata rights in the company and I think that’s an important thing. And certainly from the underwriters perspective and the major shareholders, it’s just a vote of confidence in me going forward in the company.

It appears that one man’s vote of confidence is another’s last roll of the dice — investors had little choice but to participate in the dilatory capital raising. Without it, Asciano still faced a fire-sale of its key assets or worse — possible insolvency. Further, some have criticized the deal which allows Rowsthorn an exclusive right to maintain his existing stake in the company while retail shareholders see their stakes badly diluted by the massive raising.

As to the matter of how Rowsthorn will finance the $195 million placement — he was keeping silent, claiming that it was “a personal issue and it’s work in progress” (although Rowsthorn yesterday stated that he would not use margin loans to fund the purchase). Rowsthorn’s finances took a large hit this year as Asciano’s share price plummeted. According to BRW, the Rowsthorn’s net-worth (which is combined by BRW with his father) fell to $573 million this year, from $1.08 billion in 2008. However, only around $90 million of the Rowsthorn’s assets remain in Asciano shares, with the majority believed to be invested in property, including a lucrative development site across from Southern Cross railway station in Melbourne.

Rowsthorn also won’t be able to rely on a lucrative short-term bonus from Asciano this year. Last October, after considerable pressure from institutional investors (only 65 percent of votes cast supported Asciano’s 2008 Remuneration Report), Rowsthorn agreed to forgo $750,000 from his maximum $1.26 million short-term bonus for 2009, after the ill-fated raid on Brambles’ share register. Some suggested that Rowsthorn’s at of generosity was little more than a publicity stunt, given the CEO would have been hard-pressed to claim a short-term bonus while the market capitalisation of the company he managed had fallen from $6 billion to $320 million.

Asciano is currently trading at around $1.36 per share, well below its peak of $11.43 shortly after it was spun-off from Toll, but above its low of $0.40 reached last year amidst fears that the company was facing insolvency.

Disclosure: The writer has a ‘short’ economic interest in AIO securities.

Peter Fray

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