As Sydney and Melbourne motorists face dire fuel shortages, investors are seeing deja vu all over again. While the headlines focus on the grounding of 25 of the Cootes truck fleet due to faults detected in brakes, air bags and oil lines, commentators have ignored the fact that Cootes’ parent, McAleese, has been one of the worst floats in Australian history — slumping form $1.47 (when it listed in early December) to only 72 cents yesterday.
McAleese initially delayed its float from October to December after the tragic crash of a Cootes Transport tanker, which rolled and exploded, killing two bystanders and injuring five. A subsequent Four Corners report revealed that Cootes had been using dilapidated vehicles “that shouldn’t have been on the road”. It’s understood that maintenance work on the Cootes fleet was curtailed after the business was bought by private equity firm CHAMP (McAleese purchased Cootes from CHAMP in 2012 for around $300 million). The Mona Vale tragedy wasn’t the first incident involving a Cootes truck — in 2009, a Cootes truck killed a father and his two daughters after bursting into flames.
Despite the clear concerns over the Cootes fleet, McAleese proceeded with the planned float. Yesterday, the company reported that it expected to lose $40 million in the December half. In the company’s prospectus, released less than three months ago, the company forecast net profit after tax of $44.4 million (this forecast was made with full knowledge of the Mona Vale tragedy). That’s quite a turnaround.
The man behind the McAleese float is none other than Mark Rowsthorn. Rowsthorn owns 30% of McAleese (more than 87 million shares) and was the company’s chairman at the time of its float. The McAleese prospectus actually gives specific credit to Rowsthorn for the purchase of Cootes, noting:
“In October 2011, Mark Rowsthorn acquired a substantial interest in McAleese … with the goal of enhancing McAleese Group’s strategy to build leadership positions across a diversified range of transport and logistics markets. Since joining McAleese Group, Mark has worked with existing shareholders and senior management to help identify growth opportunities for the business. In particular the acquisition of IES Group [the holding company for Cootes] in April 2012 …” (emphasis added)
The disaster at McAleese isn’t the first time Rowsthorn has been involved in a shareholder calamity. Rowsthorn was a senior executive at Toll Holdings, before allegedly falling out with CEO Paul Little and becoming managing director of logistics business Asciano (Rowsthorn was the son of former Toll chairman Peter Rowsthorn)
Asciano was initially spun off from Toll for around $10.70 per share in June 2007. In less than two years, under Rowsthorn’s control, its share price slumped to $1 — a fall of more than 90%. Asciano’s woes were largely self-inflicted; despite being burdened with a huge debt load, Rowsthorn undertook a botched takeover of Brambles, costing Asciano $109 million. Humiliatingly for Rowsthorn, the business was forced to undertake a highly dilutive capital raising only months after rejecting the forays of private equity group TPG.
In 2010, when Asciano recorded a loss of $1 billion, Rowsthorn was rewarded with a bonus payment of almost $2 million. When he finally departed the company in 2011, Rowsthorn was paid a further $1.8 million severance. (Since his departure, Asciano’s performance improved markedly under the management of highly respected chairman Malcolm Broomhead and CEO John Mullen).
After a few years in the corporate wilderness, Rowsthorn returned with the McAleese float and yesterday was appointed executive chairman of the business.
*Adam Schwab is the author of Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed, published by John Wiley & Sons in 2010