Brian Gaynor: Tower's largesse back to bite directors

Tower's non-executive directors, and former directors, have more to worry about than the company's financial state and proposed recapitalisation.

An important Market Surveillance Panel ruling may mean that these directors will have to repay more than $2.8 million in fees and retirement allowances paid to them by Tower and its subsidiaries. The panel's decision could also have serious implications for other listed issuers and their directors.

At Tower's annual meeting on March 22, 2000, shareholders approved the following resolution: "To consider and, if thought fit, authorise by way of ordinary resolution an increase of $130,000 to the annual remuneration paid to Tower's eight non-executive directors collectively to $360,000 per annum".

This meant that the group's eight non-executive directors could be paid no more than $360,000 unless approved by an ordinary resolution of shareholders.

But as the accompanying table shows, Tower's main board non-executive directors have been paid well in excess of $360,000. In 2000 they received $624,866, in 2001 their remuneration was $722,874 and last year $651,275. Some of this was because of the appointment of two additional non-executive directors but most of it was in the form of fees and retirement allowances paid to main board directors for sitting on Tower subsidiary boards (directors received retirement allowances from the subsidiaries as well as the main board).

The Shareholders Association asked the panel to investigate whether Tower had overpaid directors and breached the listing rules.

In a landmark decision the panel concluded "that as an issuer Tower should be regarded as including its subsidiaries under listing rule 1.1.5. Were the definition not so extended, then the intention of listing rule 3.5.1 that the remuneration of directors be approved by shareholders would be frustrated by the use of separate legal personalities of the issuer. In brief, listing rule 3.5.1 would be ineffective because issuers could circumvent the rule through the use of subsidiaries."

The decision implies that Tower needs shareholder approval for remuneration paid to the outside directors of its subsidiary companies.

These directors were paid $976,676 in 2002, $650,591 in 2001 and $539,374 in 2000.

The panel decided that Tower had breached the listing rules by overpaying directors in the 2002 year but it had acted in accordance with legal advice.

The regulators' remedy is to require Tower "to seek approval for payments made to its directors covering group board and subsidiaries at its next annual general meeting".

The decision has important ramifications including:

* The Shareholders Association complaint was for the three-year period but the panel's decision covers only the 2002 year. If shareholder ratification is required for the full three years, and this ratification is not received, Tower's main board directors will have to pay back about $650,000.

* As directors' retirement allowances have been based on three years' remuneration and this figure includes money that had not been approved by shareholders then some directors may also have to return a proportion of their golden goodbye.

* If approval is required for the payment of fees to the outside directors of subsidiary boards, and this approval is not received, then these directors will have to repay $2.17 million received over the past three years. This figure includes retirement allowances.

This is not a trivial issue.

The listing rules say that directors' remuneration must be approved by shareholders and the panel has decided that this includes fees paid to directors of subsidiary companies.

Rubicon

Why is GPG not paying its bills?

Note 8 to the Rubicon accounts shows that it is owed $344,000 by GPG under the Takeovers Code. This relates to GPG's unsuccessful attempt to acquire a 50 per cent controlling interest in Rubicon last year.

The annual report shows there is no love lost between Rubicon and GPG. Profiles of GPG's Gary Weiss and Tony Gibbs are much smaller than those of the other seven directors.

Weiss and Gibbs may not be re-elected to the board at the annual meeting, particularly if Perry Corporation can still vote its 19.8 per cent. GPG, which owns 20 per cent of Rubicon, might have to make another takeover offer if it wants to maintain its board representation.

Ryman Healthcare

A share placement by Ryman Healthcare's main shareholders should have positive implications for its sharemarket performance.

Ryman was listed in 1999 after the release of a prospectus that contained an indicative issue price between $1.50 and $1.80 a share.

There was limited interest in the float and 20 million new shares were issued at $1.35, well below the indicative price range.

After the allotment Ryman had 100 million shares on issue, with Emerald Capital and Ngai Tahu Equities holding 20 per cent each and John Ryder and the Kevin Hickman Trust 19.2 per cent each.

There were no significant institutional shareholders.

The company failed to achieve its $14.1 million net profit forecast and investor interest was limited.

Two weeks ago the four main shareholders sold some or all their shareholdings to individuals and institutions at $1.55 a share. Following the sale Emerald and Ngai Tahu have 16 per cent each, the Kevin Hickman Trust 15.2 per cent and John Ryder has sold out completely.

Ryman's recently released annual report shows that the company had net earnings of $15.3 million for the March year, the first time it has achieved its 1999 prospectus forecast. The retirement village operator had operating cash flows of $39.8 million and a relatively strong balance sheet.

The board has an optimistic view of the future and chairman Dr David Kerr wrote: "The directors are very positive about the prospects for the business. We are forecasting steady earnings growth in the 2004 financial year, and further growth in the ensuing years."

The share sale to institutional investors will improve Ryman's sharemarket liquidity and create more broker attention. At $1.78 the company doesn't look expensive as it has a historic price/earnings ratio of 12 and a dividend yield of 4.2 per cent (with no imputation credits).

Pacific Retail

Pacific Retail's annual report is a timely reminder that the bad habits of the 1980s haven't disappeared.

The report reveals that the company has developed a new investment arm and has become involved in retail-related property investment and development.

The retail group, which is 72.5 per cent owned by Eric Watson, has acquired 1.31 per cent of Burns Philp, which is controlled by Graeme Hart. It would appear that this investment cost $7.4 million and an unrealised gain of $900,000 has been included in March 2003 year earnings.

These disclosures bring back memories of the 1980s when most companies had property development and investment divisions. These investment arms usually purchased shares in other listed companies.

The Burns Philp acquisition is difficult to understand as Pacific Retail does not pay a dividend and 2003 net earnings were only $18.2 million, on gross revenue of $605 million, compared with management forecasts of $23.3 million, on revenue of $566 million.

Pacific Retail's disappointing performance may be partly attributed to the distractions caused by the start-up of its new property development and investment activities.

* Disclosure of interest: none.

* Email Brian Gaynor