Independent chairman pits himself against Jesse Lu’s man
Trans Tasman Properties Ltd’s battle with Dr Gary Weiss & Tony Gibbs of GPG plc has hardly begun in New Zealand. But in Australia, after a crusade over corporate management and the calculation for payment of a bonus at TTP’s 50% owned Australian Growth Properties Ltd, Dr Weiss chalked up a moral victory on Monday.
AGP’s independent chairman, Rod McGeoch, told the company’s annual meeting in Sydney that if the manager didn’t improve the company’s performance it would be ousted. In any case, the manager should “reconsider its fees,” he said.
AGP was set up in 1997 to take over Trans Tasman’s Australian assets, which it has been able to sell or develop to greater advantage than was possible under Trans Tasman’s financial restrictions.
Trans Tasman was set up in 1995 to ensure the survival of 2 quite different assets of Hong Kong investor Jesse Lu, his major stakes in Seabil NZ Ltd and Tasman Properties Ltd. AGP has traded at a discount to asset value, Trans Tasman at a greater discount.
Both Trans Tasman & AGP are controlled by Mr Lu, managing director of SEA Holdings Ltd of Hong Kong, through its 54.8% stake in Trans Tasman. Mr Lu’s man in Australasia is Don Fletcher, executive chairman of Trans Tasman, a director of AGP and a director of AGP Management Ltd, which was contracted as manager of AGP from June 2000. The contract manager, essentially the same people as were there before, took over from themselves as inside managers.
So the independent chairman has given notice that the majority shareholder — or at least his man in Australasia — is not managing competently where he lives, which is Australia. On this side of the Tasman, management is internal and mostly conducted locally.
Paramor has quickly made name for Fielding business
Greg Paramor, director of James Fielding Investments Ltd — which has quickly made a name for itself in the acquisition of management contracts in Australia, including taking over MTM Funds Management Ltd, the manager of the MTM office & entertainment trusts — joined GPG in taking a collective 11.2% of AGP, and in laying siege to the majority & management interests.
Mr McGeoch told the Australian company’s shareholders on Monday GPG had asked that James Fielding be considered as an alternative manager. James Fielding had given a presentation to the board, but Mr McGeoch said Trans Tasman’s directors couldn’t support the appointment of James Fielding as manager for reasons connected to its association with GPG.
$13 million profit on $300 million shareholders’ funds inadequate
“There is a dispute as to the mechanisms for appointment of a new manager to replace the existing manager. GPG holds the view that only the independent directors should vote to appoint a new manager. I disagree. GPG believes the company has represented that to be the position. I have undertaken to obtain legal advice within the next 14 days in an endeavour to resolve the issue,” Mr McGeoch said.
“The manager has largely driven the formulation of strategy but the board has played its part in adopting that strategy. The board is of the view that the financial performance of the company is not where it should be. $A13 million of profit on shareholders’ funds of $A300 million must be improved upon.
“The manager has been asked to reconsider its fees and revise its strategy. The board has encouraged the manager to extend the breadth of its strategy into wider aspects of property & property services.
“The independent directors have decided to give the manager that opportunity. If that strategy does not have the potential to produce the kind of returns the market would expect then I believe the independent directors will have no choice but to serve a notice of termination.
“There is nothing personal in these kinds of decisions but the board has to make decisions that drive shareholder wealth,” Mr McGeoch said.
Ample growth opportunity
There’s plenty of opportunity to grow the company’s value. Mr McGeoch said the company had enough undrawn facilities to enable it to make investments of $A80-90 million. “The board & management believe that holding central business district properties is unlikely to generate the type of return expected from the marketplace,” he said.
Congratulations have to go to Dr Weiss for a highly successful campaign. Expect Mr Paramor to take charge any day — except for 1 thing. Mr Lu has to overcome the trait among Asian listed company majority owners to regard the parent and all entities trailing beneath it as a personal fiefdom. In a personal fiefdom, the other shareholders pay for the privilege of having the owner’s representative at the helm.
For Mr Lu, employing Mr Fletcher entirely on his own account would be at least 3 times as expensive as it is now. However, both Trans Tasman & AGP have been able to go through significant changes in the past 18 months.
AGP changed strategy in 2000
In 2000, AGP announced its strategy would be to hold 363 & 345 George St and sell out of passive assets. In 2001 it sold 5 properties for $A92 million.
Mr McGeoch said last year’s share buyback & bonus issues increased undiluted net asset value to A110.8c/share. That compares to the A100c issue price in 1997, A106.2c asset value at the end of 2000 and A104.c at the end of 2001, as shown in the annual report, a share price today of A78c and a price a year ago of A59c.
Net property income rose last year from $A8.1 million to $A28.9 million, interest-bearing debt fell from $A217.4 million to $A151 million, and profit rose 29% to $13.7 million.
Auditor Andersen also tenant
AGP has extra complications in that its auditor, Arthur Andersen, is also a tenant at the start of a long lease at 363 George St and is likely to merge with the company tax advisor, Ernst & Young.
“A proposal for Arthur Andersen and Ernst & Young to merge is being voted on this week. The decision will be known on Friday and if favourable the merger takes place next Monday 20 May.
“Ernst and Young are the company’s tax advisors and will remain so. The company has a policy of separating its tax advisors from its auditors and if the merger happens the company will move to appoint another major firm.”
Mr McGeoch said AGP had a 6-month bank guarantee on the Andersen lease, which was for 10 years and had 8 years to run. He understood Ernst & Young would still require the space if the merger proceeded, but that Ernst & Young was also intending to move into a building which hasn’t been finished.
“There is a view that if the lease was surrendered the company would be able to lease on better terms,” Mr McGeoch said.