A piece of corporate history could be made tomorrow in Melbourne when successful paper industry entrepreneur Andrew Price attempts to replace establishment figure Harry Boon as chairman of the teetering PaperlinX. I’ve spoken to both parties over the past 48 hours and it is clear that this vote will go down to the wire.
Boon, who makes a strong case that he has a good corporate record and is a relative newcomer to the PaperlinX board, is rolling up his sleeves to try and salvage something for shareholders. Price makes an equally compelling case that he is a former successful executive of the company who went off and made his fortune as a paper industry entrepreneur.
Price is being backed by PaperlinX’s largest shareholder, Simon Marais from Orbis Capital, who is arguably the most effective activist fund manager in Australia. The giant South African-born fund manager and Price have both developed a deep understanding of the issues facing PaperlinX and have lost confidence in the board.
The ASA monitor who covers PaperlinX, Geoff Bowd, has produced a considered report but has ultimately recommended a vote against both recommendations.
This is similar to what the two global proxy advisory firms, ISS and CGI Glass Lewis, have recommended. The third and arguably most powerful proxy adviser, locally owned boutique Ownership Matters, hasn’t bothered to weigh in because its clients don’t have a sufficient interest in the beaten-up company and have clearly written off the $1 billion-plus that has been lost.
However, three major funds — Orbis, Maple-Brown-Abbott and Schroders — still speak for about 40% of the voting shares so it is disappointing Dean Paatsch’s Ownership Matters outfit hasn’t stepped up to the plate and made what is a difficult call.
Overall, I’m supporting the ASA position as articulated by monitor Geoff Bowd as follows:
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Shareholders have good reason to be fed up with the performance of PaperlinX. In the past 5 years the share price has fallen from $4 to less than 10 cents and dividend payments have ceased; holders of Preferences Shares have suffered similarly. During that time the ASA has strongly expressed its views and sought change. While recognising that market conditions have been unfavourable, the ASA was early in voicing criticism of financial management which led to breaching of lending covenants and the compulsion to refinance at exorbitantly high costs. We have cited inept financing and management of a major pulp mill upgrade and, ultimately, the fire-sale of that pulp mill and other papermaking assets. We criticised the obscene remuneration of the CEO and sought the early resignation of the Company Chairman and the Chairman of the Audit Committee. We do not resile from the content in or strength of what we have said.
The ASA appreciates that shareholders may feel that “anything new — any change is worth a go”. However, the ASA has considered the principles and implications of the Resolutions and that a change which may be one of “from the frying-pan to the fire” is not a change to make. There may be further developments but at this point we intend to vote undirected proxies against each resolution.
Harry Boon has been a director of PaperlinX since May 2008. During that time the share price has fallen from about $2 to less than 10 cents. However, the inept strategic and financial strategies which have generated the downward spiral in performance were promulgated before his appointment — the share price had already fallen from $4 to $2. While having to accept some “blame” since being a member of the board, it is reasonable to mitigate this. Harry Boon was appointed chairman on September 1, 2011 and following the AGM in October four new directors were confirmed with ASA support.
Harry Boon is now the longest-serving director.
He is also chairman of Tatts Group and a director of Toll Holdings and Hastie Group Ltd. In 2009 he relinquished the chair of Gale Pacific Ltd. He was CEO for Ansell Ltd for many years. The ASA considers that he has a heavy work-load with work-intensive companies and should resign from one directorship. However, notwithstanding this work-load concern, we also recognise that PaperlinX should have a chairman with both proven board and executive experience and this should be balanced against an opportunistic attempt to remove Harry Boon and install an inexperienced executive chairman at this time.
The candidate to replace Harry Boon is Andrew Price. He has an impressive record of executive experience in the Australian paper merchanting, and printing industry, and, entrepreneurial success. He has not been a director of a public company. He has stated publicly that if supported at the general meeting he will be executive chairman. The choice of chairman is a board not a shareholder choice and we can only speculate on the subsequent actions if Andrew Price is elected as a director.
Andrew Price could add skills to PaperlinX but we do not believe it is appropriate for him to seek the position of executive chairman. PaperlinX has an experienced independent chairman and a new board. The ASA will vote undirected proxies against the resolutions.
The ASA is expecting to hold about 2 million undirected proxies at tomorrow’s EGM, which, in a knife-edge vote, could prove decisive. Interested parties should come along to watch the action unfold from 9.30am at the Hilton on the Park in East Melbourne.
*Stephen Mayne is a director of the Australian Shareholders’ Association and was not paid for this item