David Ryan is one of the more controversial figures in corporate Australia. Criticised after his tenure as the CEO of Adsteam Marine (which he allegedly left in a “perilous financial state”), Ryan jumped onto the board of the then rapidly growing ABC Learning Centres. Ryan was chairman of ABC’s audit committee over a four-year period during which the company was widely alleged to have produced grossly incorrect financial information to shareholders and lenders. Despite ABC’s collapse amid alleged accounting irregularities, Ryan was re-appointed as the chairman of Transurban and as a director of Lend Lease in 2008.
If that wasn’t bad enough, in the last week it has gotten far worse for Ryan.
Listed toll-road company Transurban (which Ryan still chairs) had been in the cross-hairs of its three major shareholders, Australian-based fund manager CP2 and two Canadian groups (the Ontario Teachers Pension Plan board and Canada Pension Plan Investment Board. Last November, the consortium launched a bid for the company at $5.25 per share, which was quickly rejected by the Transurban board. The bid was pitched at a 25% premium to Transurban’s recent VWAP.
After rejecting the bid, Transurban remained in a state of purgatory — that was until May 10 this year when it was the successful bidder for the Lane Cove Tunnel in Sydney. The Lane Cove toll road was being sold after its developer Connector Motorways (which consisted of Leighton, Mirvac and the Hong Kong billionaire Li Ka-shing) lost more than a billion dollars on the investment. Transurban was able to pick up Lane Cove for $630 million — substantially less than what Connector Motorways paid to build the road (and far less than what Transurban itself bid initially).
However, the consortium wanting to takeover Transurban was not especially pleased with the deal. First, it is understood that the Canadians thought Transurban was paying too much for Lane Cove. Second, the shareholders were even less impressed with the fact that Transurban was raising $542.3 million by way of a renounceable entitlement offer in new equity to fund the acquisition. That the equity was being raised at a price of only $4.60 per share (well below the consortium’s offer of $5.25 per share) added to their anger. There was also speculation that the Canadian Pension funds were not able to participate in the equity raising due to internal requirements.
The shareholders then refused (or were unable) to participate in the discounted capital raising and promptly launched a sweetened, $5.57 per share cash takeover bid for Transurban. Despite the takeover bid representing a 21% premium to what the Transurban directors sold its shares for the prior week, the board told shareholders that “the proposed price of $5.57 [was] an inadequate price for control of Transurban given its performance and prospects”.
Upon the rejection, one of the consortium members and major shareholders of Transurban — the Ontario Teachers Pension Plan — sold its shares in Transurban. The removal of the “takeover premium” caused Transurban shares to tank to only $4.38 per share. Clearly, the market does not believe that the bid was inadequate.
CP2 boss Peter Doherty didn’t hide his displeasure for the actions of the Transurban board, stating that “we are both collectively shocked that a company can behave in this manners [we] are just wondering what the rest of the shareholder base is thinking”.
However, the Transurban debacle merely added to Ryan’s mounting woes, with the former ABC Audit Committee chairman rocked by the news that ABC’s administrator, Ferrier Hodgson, last week claimed that the company may have been insolvent by mid-2007. Admittedly, Ferrier Hodgson’s investigation didn’t seem overly complex, with the firm noting that during 2007 and 2008, ABC may have had only 30 or 40 cents of “current assets” for every $1 of current liabilities. Any investor could have realised as much by simply opening ABC’s 2007 annual report.
If ABC is found to have traded while insolvent, its directors, including Ryan and founder Eddy Groves, may be liable for civil penalties (of up to $200,000), liable to pay compensation to creditors and possibly face criminal charges if dishonesty is found to be a factor in the insolvent trading.
Some would claim that Transurban shareholders only have themselves to blame for their predicament. Despite a strong recommendation against his reappointment by corporate governance adviser RiskMetrics, 57% of Transurban shareholders voted to re-appoint Ryan as the company’s chairman in 2008 — after ABC had collapsed.