Tesla Motors Inc.
NASDAQ – November 17
Consistently touted by management as a crucial and nearly self-evident step toward creating a fully integrated renewable energy enterprise, the proposed tie-up of SolarCity and Tesla has faced no shortage of criticism since negotiations became public in June. While certain of those critiques have focused on the viability of the central strategic narrative – that residential and commercial consumers are interested in the unified product platform promoted as the very future of Tesla – others have drawn attention to the byzantine mire of personal and financial connections between the otherwise unrelated business interests of Tesla founder Elon Musk. Placed in context with SolarCity’s struggling operations and rapidly mounting debt – as well as Mr. Musk’s substantial shareholding in both firms — concern has arisen that the arrangement is less a strategic coup and more an attempt by one Musk-affiliated enterprise to bail out another.
Platinum Asset Management Limited
Australian Securities Exchange – November 17
Vetting financial statements requires a deep understanding of a company’s business and accounting structure – and an objective perspective. Balancing those two qualities can be tricky, as the appointment of Anne Loveridge to Platinum Asset Management’s board and audit committee illustrates. The 2015 recipient of the Women in Financial Services’ Woman of the Year award certainly has the first part covered: she recently retired as senior partner of PricewaterhouseCoopers, Platinum’s external auditor, and signed off on PwC’s audit of Platinum from 2009 to 2013. But this close (some might say cozy) relationship raises questions about whether the auditor, and audit committee, can remain impartial. In addition, the board’s failure to clearly set out the extent of her involvement in auditing the Company raises questions about the type of disclosure that shareholders should reasonably expect for a nominee. Ms. Loveridge’s appointment isn’t the only reason shareholders may be questioning the continued independence of the auditor: PwC has collected more from Platinum for non-audit services, principally taxation, than for audit services in each of the past nine years.
Billabong International Limited
Australian Securities Exchange – November 22
As any surfer knows there is usually a long wait between good waves. The board of Billabong appears to be applying this belief to its new incentive plan, which scraps traditional external performance hurdles in favor of time-based options. While the granting of options sans performance conditions is common practice in the U.S. (where Billabong’s MD/CEO is based), it is a rather significant departure from Australian market practice. Many investors may view the change as a backwards step, especially for a company that has had a checkered past in respect to its governance practices. However, it is evident from the less than stellar share price performance that the old incentive structure may not have been driving performance and that change was required. A simplified incentive structure focused on riding the share price wave (of options with a premium exercise price) may be what the executive team needs – a return to their inner surfer mentality. For there is little else in the world as simplistic as a surfer waiting for one last good wave.
Estia Health Limited
Australian Securities Exchange – November 23
Given that the aged care sector in Australia is estimated to derive around 70% of its revenue from the government, largescale funding cuts in 2016 have presented the industry with very challenging conditions. Estia, which only listed in 2014, has probably been hit the hardest with two significant downgrades to its initial earnings guidance and a 60% drop in its share price since the start of the year. The poor financial results were followed by the resignation of CEO Paul Gregersen and the appointment of independent NED Norah Barlow as acting CEO. The beleaguered company was dealt a further blow just days after the board reached an agreement in principle with Ms. Barlow, with Estia being served a non-compliance notice from The Department of Health over poor standards at one of its NSW facilities.
The pressure is on for Ms. Barlow, with the expectation that her leadership and extensive industry experience will help the company weather the storm. While some investors suggest that many of the recently listed aged care providers were overvalued at the time of their IPOs, hope remains that an aging population and increasing demand for care facilities will unlock the value for companies and investors in this sector in the long term.
Ainsworth Game Technology Limited
Australian Securities Exchange – November 15
Earlier this year, Ainsworth’s independent directors recommended that shareholders support a change of control transaction which gave the Company’s founder and executive chairman, Leonard Ainsworth, a 35% premium on his majority shareholding – but didn’t provide minority shareholders with a share of the jackpot. The unusual situation came about when the 93 year-old Ainsworth announced to the board that he intended to sell the vast majority of his shares to Novomatic AG, and only Novomatic AG. The independent NEDs may not have had much leverage, but shareholders have nonetheless questioned why they recommended supporting a transfer structure that effectively eliminated Novomatic’s obligation to make a fully priced offer to minority investors in the future. Indeed, the hedge fund Fortress Investment Group managed to postpone the special meeting held to vote on the transaction, although it was ultimately approved by 62% of participating shareholders one month later. For its part, the board is optimistic about potential synergies resulting from Novomatic’s ownership and maintains its belief that the future is bright; shareholders will have to hope they’re right, given that they didn’t get to take advantage of Mr. Ainsworth’s control premium and likely won’t get another opportunity for some time.
Williams Companies, Inc.
New York Stock Exchange – November 23
When facing a contested board election, companies often try to find a compromise with dissident shareholders in advance of the meeting, the extent of which usually depends on the size of the shareholders’ stake, the strength of its rationale, and the perceived effectiveness of the board by other shareholders.
For Williams Companies, the board was in a state of disarray after a proposed merger fell through in June and a subsequent vote to remove CEO Alan Armstrong narrowly failed, prompting the resignation of six of the 13-strong board, including representatives of hedge fund managers Corvex Management and Soroban Capital Partners. This prompted Corvex, whose stake in Williams is a key component of its portfolio, to send a letter to shareholders signalling its plan to nominate a slate of its own employees for election at this year’s meeting, with the intention that they would subsequently resign and pave the way for new independent representation on the board. Williams responded rapidly with the announcement of three new director appointments, which were publicly praised by Corvex. Two further appointments came a month later, as well as an announcement that three incumbent directors would step down at the meeting.
Corvex has remained quiet since that time and the matter appears to be settled for now. But the turnover at Williams serves as a reminder that an investor group holding less than 10% of a company’s stock can prompt significant change, especially when a company may be perceived as being slow to act.