Breaking up hard to do for GPG investors

Executive directors Gary Weiss (left) and Tony Gibbs (right). Photo / Mark Mitchell

The New Zealand investment community has poured cold water on a proposal by Sir Ron Brierley's Guinness Peat Group to split off its Australian business, saying it fails to fulfil promises of a value realisation and only serves to confirm a rift in the board.

GPG yesterday announced plans to split off its Australian assets into a company called GPG Australia that would list on both the New Zealand and Australian stock exchanges.

The move would leave GPG's New Zealand assets - which include a stake in Tower and Turners and Growers, its British investments and global thread-making business Coats - part of parent GPG Plc, which would remain listed on the New Zealand and London stock exchanges.

That business would then be restructured to allow Coats to be floated within two years with the likelihood of the New Zealand and British businesses also being split up over time.

The proposal, for which the full details will not be available until September, relies on gaining regulatory approvals and the thumbs up from shareholders at a vote in November.

But yesterday New Zealand shareholders said it failed to deliver on a promise made by GPG chairman Brierley more than two years ago and reiterated this year to return value to shareholders, and would struggle to gain voter approval.

"It's hard to see how this unlocks any return of value to shareholders at all," said Rickey Ward, domestic equities manager at Tyndall Investment Management, which holds shares in GPG.

"It seems to be heavily biased towards the Australian business. It confirms speculation that the Australian guys wanted to go their own way."

Talk has been rife in the New Zealand market about plans by Australian-based GPG director Gary Weiss to take over the Australian assets - a move which is understood to have not been supported by others on the board.

Ward said very few investment managers got to walk away from an entity with a profitable business.

"Weiss really shouldn't be walking away with an entity like this."

Ward said it was hard to see why shareholders would approve it although the full details had yet to emerge.

Matthew Goodson, portfolio manager for BT Funds Management, said the proposal appeared to be "just reshuffling the cards".

He said it was not obvious how the split was good for shareholders.

"Certainly they haven't covered themselves in glory in Australia. I think they might struggle to get investors' support with that."

Goodson did not believe shareholders would vote for any change in the business without a value return built in.

"They seem to have become increasingly divorced from what shareholders want them to do."

New Zealand Shareholders Association spokesman John Hawkins said the only way to improve value for shareholders was for the share price to improve or for cash to be paid out.

"I don't see this is going to do a great deal either way."

Hawkins said the only positive with the proposal was that it would force the company to front up to New Zealand shareholders who had missed out on having their say at the annual general meeting because it was held in London every year.

"What it really shows is that Gary Weiss has clearly been at odds with the rest of the board."

But Weiss, who intends to become chief executive of the Australian company, said the board had unanimously supported the proposal.

Weiss said the board had looked at a whole range of alternatives for giving value back to shareholders but the concept of selling assets and giving cash back had proved to be "demonstrably negative for shareholders".

"We looked at all the alternatives and the board has made a decision that a separation of Coats today wouldn't be in shareholders' interests."

Weiss said the proposal to split off the Australian business would provider greater transparency and give shareholders an additional piece of paper.

He believed the split would boost the share price of the businesses.

"Anything that reduces the discount that our shares trade at would be a better outcome. I own 20 million shares and I am very conscious of the discount. We are taking this opportunity to narrow that."

Asked how the split would boost the share price, he said: "If you have two pieces of paper trading it's better than today because it gives more flexibility - that can only enhance shareholder value."

Weiss said the remaining GPG business would then be restructured when the market was right to facilitate a sale of Coats which would allow for value enhancing. "This is an important stepping stone to restructuring the business."

Weiss would not say which market Coats would be floated on but noted that its performance had picked up.

GPG New Zealand chief Tony Gibbs said the market would come to its own view whether it was a good deal.

"It is something we have been working on for some time."

Gibbs said he and British director Blake Nixon were determined to see the float of Coats but believed it could not float right now because of world markets.

Gibbs said the proposal was still light on detail because a lot of the details were still being worked through before it could go to shareholders.

He promised there would be new independent directors on the board of the parent company as part of the change but could not say how many or who.

GPG shares closed steady at 66c on the NZX yesterday.

BATTLES ARE NOTHING NEW FOR BRIERLEY

Sir Ron Brierley is no stranger to boardroom scraps. When Brierley Investments, the company he founded in 1961, was at a crossroads in the late 1990s things got pretty heated.

In April 1998 a board meeting was held and was reported at the time to have turned into one of New Zealand's biggest corporate bust-ups - one which left the company without a chairman or chief executive.

A rift had developed between chairman Bob Matthew and chief executive Paul Collins.

Matthew had decided to resign but wanted to take Collins with him.

Collins thought he could survive but the company's Malaysian-based billionaire Tan Sri Quek Leng Chan, who controlled 20 per cent of the company, threatened to call a meeting of shareholders if Collins did not go.

Collins left, with a $4 million exit package, but the coup left the company leaderless.

Brierley director Sir Roger Douglas became executive chairman but the company hit trouble in August when Douglas failed to sell the firm's biggest asset, British hotel chain Thistle.

Douglas stepped down as chairman at a meeting in November, two months before which Brierley had recorded the the biggest loss in New Zealand corporate history.

Shamrock Capital Advisors ousted three directors by whipping up shareholder concern and Quek strengthened his grip.

Sir Ron Brierley had considered making a play for the company he set up but backed out.

Sir Selwyn Cushing, a friend of Brierley, took over as chairman and at the shareholder meeting in November 1999 said Brierley was once again fully involved with Brierley Investments.

The company was said to be back on track and maintained investments here but was effectively lost to New Zealand.