It’s hard to feel any sympathy for Ron Walker, the embattled Fairfax Media chairman: he’s worth $400 million, had a good innings and is an inveterate name dropper.
He’s also not the right person to chair a major media company either, but that doesn’t mean the campaign launched against him by John B Fairfax, some institutions and no doubt many journalists at the company, is wholly right.
If anything the sack-Ron movement is characterised by hindsight investing, poor disclosure and rampant self interest: many of the things critics claim of Walker.
Take the way the Fairfax family’s Marinya Media yesterday revealed that it was going to vote its 9.7% stake in the company against the re-election of the company’s chairman, 70-year-old Ron Walker, a decision that came out late afternoon and out of the blue.
But it wasn’t conveyed to the stock exchange, as all statements of its kind should be. After all it was an announcement with considerable interest to the market. And yet Fairfax Media said in its announcement at 5.52pm that it had received the Marinya Media statement, and attached it to its one paragraph statement.
The disclosure by Marinya Media was tardy: the reports first appeared on the Fairfax news websites.
The statement from the Fairfax camp came as a complete shock to everyone, including Walker. It obviously stunned the rest of the board.
But not for long with Walker friend David Evans (the former Nine Network, Skase and Murdoch media executive) bagging John B Fairfax in a statement to The Sydney Morning Herald and The Age with a comment as inflammatory as those from Marinya Media and Mr Fairfax.
”John B Fairfax bought his brother and sister’s stock back from them, then he had a margin call from Commsec for $400 million-plus. He secured a loan by pledging the Fairfax stock without disclosing this to the board,” Mr Evans told the Herald last night. ”Shorts [short sellers] and hedge funds carved up the stock to the tune of $2. The board insisted that he remedy that, he secured a loan from elsewhere to remedy it.”
The Financial Review, which originally set off the story by revealing growing institutional unease with Walker continuing as chairman, seems to have missed the Evans statement in its reports this morning. Or, if it did speak to him, it chose not to put him on the record.
“I find the Fairfaxes’ move to be utterly perplexing. I don’t understand it, I don’t know what their thinking is, I don’t know where they’re coming from, and if they wanted to make a move that would damage the company, then that’s what they’ve done. I’m horrified,” Evans said from his Melbourne home.”
”Ron Walker is not only deserving of re-election as a director of the company, but is deserving of leading the company for as long as he would like to lead the company,” the SMH reported Evans saying.
The broadsheets spoke to Walker, who returned fire at John B Fairfax.
“John B Fairfax’s comments about corporate governance are hypocrisy at its worst, when you consider that he deceived the board in not disclosing he had a margin loan on hundreds of millions of dollars worth of shares that caused our share price to drop at the hands of hedge funds and short sellers,” he said.”
Seeing he was taken completely by surprise by the Fairfax attack, it was an effective reply. He’d obviously been speaking to Evans.
The SMH said Evans said he had spoken to institutional investors last night, and that they were overwhelmingly positive about Walker’s leadership.
Obviously he’s speaking to the wrong institutions because the depth on unhappiness about Walker’s performance as chairman, is pretty wide and deep.
But there is considerable truth in the comments from Walker and Evans about the way the Fairfax interests were forced to refinance a margin loan on their holdings during the depths of the crunch earlier in the year. Disclosure was inadequate.
But it looks as though the company could be up for a whole batch of new directors if the institutions vote with John B Fairfax.
The question, however, comes down to the performance of Ron Walker as chair. As objectionable as he is to many people, there is the hint of some very selective thinking going on, especially among institutions who took up the deeply discounted emergency share offer earlier this year at 75 cents a share and have nearly doubled their money in seven months with the shares about $1.70 yesterday. Nice work.
And now, having locked away fat losses (after no doubt helping short the shares by lending them as a fee) the same institutions are now prepared to make Walker walk the plank. Why didn’t they have the guts to do it in February as a price for supporting the issue.
Or was John B Fairfax, the logical replacement then, too compromised by the huge margin call on Marinya’s holding and therefore distracted?
Much of the institutional unease is about some of the purchases Fairfax made, but Walker has been chairman since 2005 and the big shareholders have had plenty of opportunity to stand up at annual meetings and voice their criticisms. But they have declined.
Some critics of Fairfax have concentrated on the journalist side where standards have slipped as cost cuts have deepened, but many of the journalists at Fairfax are precious souls who need a reminder that they are in a new century, not the 1970s.
Of all the deals he allowed to be done, two stand out: the $2.8 billion cash and shares deal to merge with Rural Press (which was really a backdoor takeover by John B Fairfax and the acquisition of Southern Cross, which brought the Southern Star TV production business (since sold for a loss) and the radio stations (such as 2UE and 3AW), which are moderate performers. Together they cost about $480 million and all up the Rural Press and the Southern Cross deals cost $3.3 billion and boosted Fairfax’s borrowing and leverage.
At all stages, the institutions could have sunk these deals, but they said nothing, so what we have now is a case of hindsight investing. Southern Cross should not have been done because by November 2007, when it was being done, the credit crunch was well under way and conditions in markets were worsening. But there was no radar operating in the Fairfax boardroom, so all stand convicted on this one, including John B Fairfax.
Rural Press was done a year earlier when times were very different, so no criticism, but no one on the board stopped to point out that Fairfax was merely increasing its exposure to print, which even then was feeling the pressure from the internet.
Fairfax’s real problems were created in the previous regime of Fred Hilmer. He didn’t buy a stake in Seek.com, he neglected the online car business that then leaked to the likes of carsales.com.au. The departed David Kirk did buy the Trade Me business in NZ, which has helped boost Fairfax’s online presence in that country to where it is the leader.
Perhaps the most egregious of all the decisions of the Fairfax board was to pay former CEO Hilmer a $4.5 million golden handshake in 2005. But that was one of the last decisions of the Dean Wills-chaired board, not Ron Walker. But Walker was obviously in favour of it, along with the rest of the board, which convicts most of those who now look like opposition John B Fairfax. To the end the board of the company remains a mob who can’t see straight or shoot accurately.
Finally, Fairfax got mugged by the credit crunch and recession, as did a lot of other companies, including that supposed expert in media things, Rupert Murdoch, as did many of the really clever analysts, brokers and investment banks, not to mention the institutions who are still charging their clients a fee for losing hundreds of millions of dollars of value in the crunch.