Origin took its time. Sometimes you have to wonder about the performance of company boards and management — no, make that, you should always worry about whether they are up to the task. After all, it’s our super money funding their adventures. Take Origin Energy. For years now, its board and managing director, Grant King, have obsessed about everything from unions, to costs, to all things greenhouse and climate change, and they charged deeply into the coal-seam gas and liquified natural gas (LNG) sector in Queensland, waving through billions of dollars. But for the past year, their revenue and profits have been disappearing out the door as global oil and gas prices fall and the $24 billion LNG project in central Queensland became a bigger and bigger debt burden and millstone on the balance sheet.
Ratings groups have reacted by lowering Origin’s credit standing, but for months now, the board and management have denied that any more action needs to be taken, especially a share issue to raise more capital. Origin seemed to be content that the roughly $2.4 billion of measures already taken would help it through. But suddenly, yesterday, out popped what can only be an emergency funding and restructuring package designed to stop any more credit downgrades (to junk, which would be very expensive) and end questions about the company’s viability. The shares are down nearly 48% so far this year and it was that message (and the pounding given to Glencore in the past couple of weeks) that seems to have changed thinking. So the board produced a $4.7 billion rescue package of measures, including a $2.5 billion entitlement share issue at $4 a share (a massive 34% discount to the closing price of $6.10, always a sign of the desperation of a board) designed to stave off critics and creditors. Seeing Origin is valued at $6.7 billion and it has $12 billion in debt, something had to give, and it was the board’s nerve. In the end, it was a decisive move from chairman Gordon Cairns, who is also chair of another basket case, Woolworths. — Glenn Dyer
Shareholders are going to be stiffed. With the dividend slashed for the next two years to save money, shareholders are going to feel the brunt of the savings. Employees will also go, as will contractors (we don’t know the numbers yet). The package includes up to $800 million in asset sales, much of it in the Cooper and Perth Basins. There will be $1 billion in spending cuts, but the 40% cut in dividend for the next two years means shareholders are going to pay a high cost for the illogical optimism of the board and senior management. (In fact, dividends to shareholders will be cut to 20 cents a share for the next two years, saving $420 million of cash flow.) That compares with 50 cents a share payout in 2014-15.
If the recent Myer retail issue is any guide, when shareholders failed to contribute even a fraction of what they were entitled to, Origin shareholders won’t subscribe to the issue. After all, why would they pay that $4 a share when their existing holdings have lost that and more this year? Now will the board have the guts to cut its own fees and the salaries and conditions of the senior managers, including King? But the board did resist calls from some big institutional shareholders for the company to drop the dividend altogether and not have a fundraising — a misguided logic there. — Glenn Dyer
Amplify silenced. Another News Corp idea has crashed, burned and was shuffled out the New York offices of the company overnight, at the end of the first quarter (handy for accounting reasons). The idea was the Amplify online education system, promoted by Joel Klein. Amplify was News’ digital education division and was built around Wireless Generation — a company News had paid US$390 million for back in 2010.
Overnight, News said it had completed its disposal of the business. News first signalled that Amplify was marginal a year ago by raising a possible impairment loss against it in its accounts. In the June 30 results announcement, News revealed it was negotiating its sale and was taking a US$371 million write-down. And then, this morning, News announced that Amplify had left the building. According to the statement, the buyers are a group of unnamed private investors who are backing Amplify’s management in a buyout of the business. News’ total investment has topped the US$1 billion mark since 2010. And the toll on staff is substantial with around 500 people being given their pink slips overnight by News. That’s around 40% of Amplify’s 1200 employees. So now we have another online triumph that tops the MySpace disaster, which cost News more than half a billion dollars. — Glenn Dyer