Monday, 13 August 2012

Dirty Letter from Hancock Prospectin​g should have you questionin​g Gina Rinehart's motivations

The increasingly bitter war for Fairfax media took another turn when Gina Rinehart's Hancock Prospecting sent a letter to ALL shareholders of Fairfax which outlined their case for change and what they wanted to achieve.  Normally it is clear why the person agitating for change is doing so
  • Often it is a large activist fund manager who has taken a position and who wants the board to change direction so that their bet pays off
  • Other times it is a shareholder who is trying to push a particular agenda - I did a post on these types of people later
With Gina Rinehart (Australia's richest person and the richest woman in the world) it is hard to say.  There has been much speculation including
  • Wanting to influence journalistic content so she appears more favourably in the news (this is widely speculated in the media and investment community)
  • An activist shareholder trying to enhance the value of their shareholding (what Rinehart is trying to portray herself as)
So here is a brief outline of what she wants for her 15% shareholding in the company
  • 3 board seats (2 for her and an 'experienced independent director') out of a board of 12
  • KPI's for the chairman personally including increasing the share price from the current value of ~$0.52 to $0.87 prior to the AGM which is only a few months away.  If these are not met they ask that the Chairman resign
  • The ability of directors to comment publicly on the state of the company.  Currently only the Chairman and the Managing Director are allowed to make public statements about the company
  • Want to be able to share board minutes and materials with outside parties
Why I think her requests are ridiculous

If Gina Rinehart wants control of Fairfax she should make a bid
  • Although the letter says that she does not want control of Fairfax, having 25% of directors in her pocket before any contentious issues arise puts her in a very powerful negotiating position
  • If Gina Rinehart wants to control Fairfax she should make a public market bid.  That would be one way of making sure the share price reaches $0.87 before the AGM.  She however is trying to gain effective control of the company without doing this
Asking for a Chairman of a company to resign if the share price does not reach a certain level is ridiculous
  • While the Chairman has a fair amount of influence over the company, it really is the management team which determines how well the company is doing
  • Final responsibility should and does lie with the Managing Director and the Chairman however they can no more control the share price than they can people's opinon of the company.  Even if they turn operating performance around there is no guarantee that the share price will move at all
  • This is purely playing on small shareholders' dissatisfaction with the share price performance. 
Wants directors to be able to publicly comment on the state of the company
  • I think requiring all media communications to go through the Chairman is a perfectly acceptable way of operating - it helps the company keep it's message on track.  If there are disagreements the relevant directors should resign and then they are free to speak publicly
  • Gina Rinehart does not want this because in the event she does get her directors nominated to the board, she is probably going to try and make a public case for all the people who do not agree with her to be kicked off the Fairfax board (thus getting back to the effective control point)
Want to be able to share board conversations and minutes with external parties
  • This is just ridiculous.  The way they phrase their argument is that it allows directors to get independent advice.  HOWEVER what it would allow is for directors to share the information with the public, with the media or with anyone else which would destroy the company's ability to keep their business dealings private
Why I think Gina Rinehart should NOT get a seat on the Fairfax board

She will not sign the editorial charter of independence
  • In the letter the shareholders she says that the disagreements with the current board were never about the charter of Independence.  If this is the case surely it would be much better for her to sign the charter once and for all
  • HOWEVER she has refused to do this indicating that her intentions are to control the news and influence public opinion to her point of view
Gina Rinehart has no experience running a publishing company nor of turning ailing companies (like Fairfax) around
  • I am a long suffering Fairfax shareholder - if I thought Gina Rinehart would bring some sort of relevant experience to the Fairfax board that would help get the company out of the doldrums then I would want her in an instant. 
  • However she has NO experience in the journalism industry (she inherited a mining company and vast tenements from her father) and she has NO experience in turning around an ailing company - I do not see what she brings to the table
  • Further share has not made public any suggestions for making Fairfax a better operating company and so her suggestion that she wants to act in the interests of ALL shareholders is a little suspect
The tactics Gina Rinehart is using are not appealing
  • She singles out and continually attacks the chairman personally in the letter (as he is very publicly against her using her shareholding to force her way onto the board).  Playing the man has never been something which inspires confidence in me.
    • To touch briefly on one point that gets repeated a lot - she constantly refers to the fact that the Chairman only has 0.004% of the shares in the company - most corporate officers are not born with rich parents who give them the ability to invest significant amounts of money - I have no problem with the Chairman not owning a ridiculously large stake as long as his current compensation is structured so that his interests are aligned with mine
  • The arguments she uses are bordering on absurd (see my comments above) and are designed to appeal to those who do not understand how share markets and share prices work. 
  • Media reports suggests that she is not a person that I would trust with my financial matters (see this link)
Although I do not vote in many AGM's - I will make sure that I am voting against Gina Rinehart's proposals

Do you think she is doing the right thing?  Are you so disenchanted with the board that you don't mind if she takes control of the board without paying you a control premium?  Comment below and let me know!

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