Sir Ron must be ruing listing on exchange

VIEWPOINT

OPINION: Graeme Hart couldn't be more different from the typical Kiwi investor. While most of us are marking time with our investments and ignoring some surprisingly good profit results because of fears over the global economic outlook, Mr Hart, our greatest risk taker and wealthiest citizen, undertook his biggest deal, borrowing up to $7 billion to buy another big United States company to add to his global packaging empire.

In stark contrast, Sir Ron Brierley, arguably our most easily recognised investment figure, appeared apprehensive as he arrived to face tetchy Auckland institutional shareholders in his investment company Guinness Peat Group. He was about to try to convince them to back a proposed plan to split the company's Australian assets into a separate company.

How times have changed.

Once, Sir Ron would have been courted by the same people for his acknowledged investment skills. Now many are strongly criticising the proposal and the recent poor performance of GPG, which has been hobbled by the purchase of Coats, the world's biggest threadmaker.

They want changes and for Sir Ron to deliver on repeated promises to return value to shareholders. However, doing this is difficult as GPG, being London based, faces major tax and other complications in unravelling itself.

A public row, leading to the departure of dissident New Zealand director Tony Gibbs, hasn't helped the situation - though unlike the fate handed out to Labour's Chris Carter, Mr Gibbs has been allowed to keep some of the income goodies of his previous GPG relationship, including chairing its major investments in Turners and Growers and Tower.

Sir Ron wouldn't be in this position had he followed Mr Hart's example and made sure he isn't answerable to shareholders.

Mr Hart's favourite strategy is to buy a public company like Carter Holt Harvey or Goodman Fielder and get rid of querulous shareholders fast. This allows him to borrow substantial sums without having to explain anything to shareholders. He then restructures the companies, largely out of the public eye, while linking them to similar businesses to maximise earnings. He then waits for the optimum time to sell.

It's a different story for an investment company bound by the rules of the Stock Exchange. Learning from its predecessor Brierley Investments' problems with debt, GPG has avoided massive borrowing and maintained cash reserves.

After spending millions upgrading Coats, mainly out of income, so that it is now in a stronger financial position, GPG is being harried by institutional managers to sell it.

It is a fallacy that institutions are long-term investors: They are under constant pressure for competitive reasons to produce the best quarterly returns. So they want GPG to quit Coats quickly, even if a bigger profit can be secured later.

Sir Ron and Gary Weiss, the chief of the Australian company, want to isolate Coats, probably relist it on the Stock Exchange and quit it at an optimum time. This could be in two years, when the global economy improves. Dr Weiss, who drove the Coats' restructuring, has been working towards listing by ensuring it has been issuing properly audited accounts to Stock Exchange standards, though this is not required of a 100 per cent subsidiary.

This is the broad outline of the plans as disclosed by the company in the past. However, thanks to a confidentiality agreement that all participants at the Auckland meeting agreed to sign, it is not known if these ideas have changed.

Signing such an agreement is highly unusual. It has to be assumed that either there was little new revealed at the meeting as the share price barely changed, or those attending honoured the secrecy agreement to ensure they didn't break insider trading laws.

But should the company's thousands of small investors be left in the dark? It is common for companies to have private meetings with analysts and institutions. Some brokers also host occasional gatherings where larger shareholders quiz directors. However, price-sensitive information that would breach Stock Exchange disclosure rules shouldn't be revealed.

What seems especially unusual was for GPG to invite representatives of the New Zealand Shareholders Association to the meeting and that they signed the confidentiality agreement. I thought this body was formed to look after the interests of small shareholders and pressure directors into making the fullest possible disclosure in the interests of a fully informed market.

In the past the association has been critical of GPG for holding its annual meetings in London, because its small Kiwi shareholders couldn't attend and ask questions.

Oddly, the association is now assisting GPG in keeping any developments under wraps.

Small shareholders should be kept in the loop. Numerically they still dominate the share register. They have always been Sir Ron's biggest supporters at Brierley Investments and GPG. For years institutions wouldn't invest in these companies, either because they didn't approve of their strategies or regarded them as competitors.

Ironically it now looks as if the institutions may call the shots on GPG's future. This remains cloudy as directors may revise their current proposal extensively as it has not been enthusiastically endorsed in this country.

I'll bet Sir Ron wishes he had followed Mr Hart's business model and never bothered with the headaches and constraints of Stock Exchange listing.

- © Fairfax NZ News