Fran O'Sullivan: Tindall's reputation on the line

What's up with Stephen Tindall? The snappy PR operator, who is directly spinning his plan to privatise The Warehouse to financial journalists, wants to cut shareholders out of what could possibly be the most profitable stage in his retail giant's history because it might expose them to "too much risk".

Surely this can't be the same Stephen Tindall who sports a black "I love NZ" T-shirt in the photo on his company's website, sits on the Prime Minister's Growth and Innovation Advisory Board and is one of the key business drivers in the campaign to make Auckland a "world-class city" - all of which presupposes, I would have thought, a degree of faith that his fellow countrymen (who he is rather patronisingly referring to as "mums and dads investors") might also see some upside in continuing to have part of the action as The Warehouse expands its Extra stores and speeds up its move into the competitive grocery sector and basically builds the most powerful retailing combine in New Zealand's financial history.

The fact that The Warehouse's shareholders did not dump the stock in droves after the disastrous foray into Australia was finally crystallised at an $85 million loss and have continued to strongly support the company must indicate they have faith in the new direction being successfully driven by chief executive Ian Morrice.

Why not cut them even further into the game by raising more capital from them to fund the expansion against the Aussie supermarket chains by playing up The Warehouse's uniqueness as a company basically owned and controlled by Kiwis, rather than seeing yet another NZ icon delisted from the stock exchange?

I'm surprised that Tindall is not strongly promoting a risk-embracing attitude among The Warehouse's shareholders by inviting them along for the ride.

If the shareholders believe that Morrice - or his successor - should be given more "skin in the game" to spur that process along as Tindall suggests, I'm sure they wouldn't quibble too much if The Warehouse directors lifted management's incentive levels.

After all - everyone - not just Tindall and his proposed private equity firm partners - would ultimately benefit as the share price firmed as a long-range strategy bore fruit.

So too, would Foodstuffs, the cooperative supermarket chain that had the foresight to buy a 10.1 per cent stake of The Warehouse, and should be asked to bring the particular skills of its CEO, Tony Carter, to bear on the company at boardroom level to help directors strategise.

Tindall says his offer is a fair one priced at 22 per cent premium over average broker valuations, 12.5 per cent above the share price that was in place before he made last Thursday's announcement, and 47 per cent above the price before Foodstuffs acquired its 10.1 per cent stake for $150 million.

But he would, wouldn't he?

Foodstuffs clearly saw value in The Warehouse's strategy when it made its investment. That faith has been rewarded.

When the bid was announced, most market players believed Tindall had under-priced his offer and would have to cut a deal, particularly with Foodstuffs, to complete the takeover. They were looking forward to the directors' independent report which would have had to reveal management forecasts which are likely to be much more aggressive than the company has so far released.

But now there are signs that the Tindall grouping may try and avoid a lengthy control battle under the provisions of the Takeovers Code.

The Warehouse directors are not saying so specifically. But their statement indicates that Tindall and Pacific Equity Partners (PEP) the Australian private equity firm helping to bankroll the takeout, have left open the "possibility of structures other than an offer under the Takeovers Code being proposed".

What the directors are referring to here is a "scheme of arrangement" using the "amalgamation provisions" within the Companies Act to reduce the number of independent shareholders that Tindall and PEP need to get over the line so that they can compulsorily acquire the entire company.

Under the Takeovers Code, they have to get 90 per cent of shareholders to approve the planned offer, instead of the mere 75 per cent shareholder "resolution" required to be passed at a meeting if the scheme of arrangement route is used.

Shareholders were pretty angry when just such a loophole was exploited to acquire Waste Management. But they expect better from Tindall.

Frankly, I don't think Tindall and PEP should choose this route.

First, because legislation to close this loophole is already in the pipeline.

Second, and most importantly, because Tindall has made huge play over the years that the company that he founded is a "values-based" entity.

It's not his property - yet - even if he does enjoy founder status. The other 49 per cent have just as much right to the upside as he does.

The third point is that Tindall - whether he likes it or not - is an iconic figure in NZ business and investing. He needs to be seen to set the public example that goes along with his GIAB positioning.

Fourth, shareholders (if they get a chance) need to test the notion that The Warehouse will be able to operate faster if it is not a public company. Others - like Sir Ron Brierley's iconic GPG - put up with the inconvenience of publishing financial results and reports and still manage to build value.

I've no doubt that Tindall will ultimately succeed. But shareholders should demand much more than the $5.75 a share on offer, and the possible 25 cents signalled if a way can be found to monetise some of the $100 million of available imputation credits that have been accumulated, by using moral persuasion to ensure Tindall and PEP use the Takeovers Code provisions.

They need to remember Tindall's maxim, "everyone loves and deserves a bargain", and make sure they get one.