Investment columnist for the NZ Herald

Brian Gaynor: Weldon wrong choice for MediaWorks

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Hard-driving management style is unsuited to broadcaster.
Former MediaWorks chief executive Mark Weldon (left). Photo / Dean Purcell
Former MediaWorks chief executive Mark Weldon (left). Photo / Dean Purcell

Mark Weldon looked exhausted and dejected as he chaired a special meeting of shareholders of NZX-listed GeoOp on Thursday morning, the day after his resignation as MediaWorks' chief executive.

The life of a CEO can be tough and Weldon's demeanour at the GeoOp meeting clearly showed that the MediaWorks job had got the better of him. He walked away from a potential bonus of up to $20 million because of internal and external criticism, particularly after the announced resignation of Hilary Barry.

It clearly showed that Weldon's style of management was not suited to MediaWorks and the company's owners will probably have to open their chequebook to resuscitate the television and radio company.

Weldon's earlier experience at the NZX indicated that he might have potential problems at MediaWorks, a high-profile broadcaster.

The former New Zealand Olympic swimmer began his New Zealand management career as chief executive of NZX, the sharemarket operator, on June 4, 2002.

He was a breath of fresh air for an organisation that had been frustratingly docile and backward-looking.

The late Lloyd Morrison, who was a strong opponent of a proposed takeover of the NZX by the ASX, was primarily responsible for convincing Weldon to return from New York.

Weldon, who was tough and demanding, had a punishing work schedule and he expected his senior executives to follow suit.

His early NZX annual reports contained photographs and biographies of the senior management team but these gradually disappeared as most of these experienced executives left. Weldon was very well remunerated and NZX shareholders approved a generous share scheme for him at the 2007 annual meeting.

The CEO announced his retirement in October 2011 and left seven months later after an external replacement had been found. Almost all the senior executives who worked with Weldon in his earlier NZX years had left the company before him.

Shortly after his mid-2012 departure, Weldon sold $12.54 million of NZX shares at an average price of $1.32, well above the company's current share price.

There is nothing wrong with a departed chief executive selling all of his or her shares but it does annoy shareholders, particularly when they have been issued on generous terms in expectation that the recipients will develop a robust long-term growth strategy for the company.

A breath of fresh air for an organisation [NZX] that had been frustratingly docile and backward looking.

NZX's share price peaked just after Weldon's departure, partly because he had kept an extremely tight lid on costs, particularly staffing. The incoming chief executive had to increase the company's cost base in order to identify, and generate, new growth opportunities.

Weldon wasn't tough in the same sense as Al Dunlap, the infamous US turnaround specialist and corporate downsizer, also known as "Chainsaw Al". However, he was an extremely hard-driving and hardworking CEO with a management style that was more based on a tough business approach towards employees than a soft personal approach.

Weldon was appointed chief executive of MediaWorks, a company with a poor financial history, in August 2014.

TV3 Network was incorporated in October 1987 as the country's first commercial television operator. It went to air on November 28, 1989 - six months before Sky Television - and listed on the NZX seven days later after issuing shares to the public at $2.50 each.

The shares briefly traded above $2.50 but were worth less than 10c when the broadcaster went bankrupt and delisted in mid-1990.

Westpac converted most of its loans to equity, TV3 continued to broadcast while in receivership and a Canadian group progressively bought 100 per cent of the company from Westpac between 1991 and 1998.

The broadcaster acquired a number of radio stations in the late 1990s and early 2000s and changed its name to MediaWorks. It relisted on the NZX in July 2004 after the sale of a 30 per cent stake by the controlling Canadian group at $1.53 a share.

The Canadian group sold its 70 per cent stake to Ironbridge Capital, a Sydney-based private equity firm, for $2.43 a share. Ironbridge acquired the remaining 30 per cent from the public through two takeover offers.

MediaWorks delisted from the NZX on October 15, 2007.

Ironbridge, the new 100 per cent owners, geared MediaWorks up to its eyeballs with the company's debt surging from $165 million before the 2007 acquisition to $769 million immediately afterwards. As a result, MediaWorks' annual interest costs soared from $13.8 million to $92.8 million with the latter figure excluding $14 million of capitalised interest. This was a crazy strategy and, unsurprisingly, MediaWorks was placed in receivership for the second time on June 18, 2013 after drowning in a sea of debt. Ironbridge and its financiers suffered huge losses, as did sharemarket investors and Westpac more than 20 years earlier.

The company was reconstituted in August 2013 with new shareholders, mainly banks and private equity firms, and only $90 million of debt.

One of the more interesting aspects of the born-again MediaWorks was the following board and management scheme: "The scheme is a share-based cash-settlement scheme which will be triggered on an 'exit event', being the realisation of the investment in the operating entities by the majority of shareholders. The obligation will be determined based on the increase in equity value of the group from November 8, 2013 to the date of the 'exit event'. This increase in equity value is deemed to be the economic value added by the directors and senior management."

Under this arrangement, the directors and executives could expect to receive up to 10 per cent of the increase in value from the base date to an "exit event", normally a trade sale or an IPO.

This column believes the potential board and senior executive bonus could have been up to $40 million, representing up to 10 per cent of the difference between the company's September 2014 valuation of $207 million and returning its value to $608 million as it was at the time of acquisition by Ironbridge in 2007.

There was a possibility of Weldon receiving up to $20 million, or 50 per cent of the increase in value derived through an "exit event".

To achieve an exit target in excess of $600 million, Weldon would have to cut costs and increase revenue. He would have to adopt a tough business approach, particularly as far as the high-cost, high-salaries news and current affairs operations were concerned. Thus, John Campbell had to go, along with a number of other well-known presenters.

These current affairs programmes were replaced by low-cost reality shows populated by inexpensive "B grade" celebrities.

But there is a huge difference between the NZX and a high-profile national broadcaster. NZX executives departed quietly whereas journalists have high public profiles, they generally support one another and have outlets to express discontent.

Ironically, the announced resignation of Hilary Barry was the end of the line for Weldon as her positive personal attributes are more appealing to the public than the CEO's tough business approach. Barry is now in a very strong position to renegotiate a much more lucrative contract at MediaWorks and to have an influence over some of the decisions at the broadcaster.

This wasn't the anticipated outcome when the MediaWorks board appointed Weldon as chief executive nearly two years ago.

- NZ Herald

Brian Gaynor is an executive director of Milford Asset Management.

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Investment columnist for the NZ Herald

Brian Gaynor has written a weekly investment column for the Weekend Herald since April 1997. He has a particular passion for the NZX and its regulation. He has experienced - and suffered through - the non-regulated period prior to the establishment of the Securities Commission in 1978 and the Commission’s weak stewardship until it was replaced by the FMA in 2011. He is also a Portfolio Manager at Milford Asset Management.

Read more by Brian Gaynor

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