Margin calls, director dealings, Kohler and WA News
March 10, 2008
Dear Mayne Report subscribers,
it might be a public holiday down here in Victoria, but the chaos on the markets continues unabated.
Today we've got stories about James Packer's great legal mate Chris Murphy apparently copping a big margin call at Challenger Financial Services, two stories on some shocking research about directors dealings in shares, some more insight into the process behind the board spill at WA News and a bouquet for Alan Kohler's great share liquidation strategy as my losses from persistent buying keep mounting.
Do ya best, Stephen Mayne
it might be a public holiday down here in Victoria, but the chaos on the markets continues unabated.
Today we've got stories about James Packer's great legal mate Chris Murphy apparently copping a big margin call at Challenger Financial Services, two stories on some shocking research about directors dealings in shares, some more insight into the process behind the board spill at WA News and a bouquet for Alan Kohler's great share liquidation strategy as my losses from persistent buying keep mounting.
Do ya best, Stephen Mayne
Dodgy director share dealings
Recently established governance research house Regnan has released some interesting research on director and senior executive share dealings. Check out the press release and full position paper.
These four key findings are pretty damning:
The likes of Caliburn's Peter Hunt recently claimed that insider trading is completely out of control in Australia and ASIC has confessed to needing some high profile prosecutions.
The ASIC jail list that we maintain only includes the following entries on insider trading:
1. PR man Murray Evan Williams, 4 Oct 1996: 18 months periodic detention and fined $50,000 following insider trading charges in relation to the purchase of shares in Australis Media.
2. Simon Gautier Hannes, 17 Sept 1999: Executive director of Macquarie Bank got 2.1 years for insider trading on $2 million of TNT securities and structuring withdrawals to avoid the reporting requirements under the Financial Transactions Act. In December 2002 the court affirmed the guilty verdict and Hannes received 2.5 years.
3. Kenneth John Firns, 14 April 2000: 14 months for insider trading in 1995 of mining company Carpenter Pacific Resources NL. Conviction and sentence quashed on 22 May 2001.
4. Rene Walter Rivkin, 28 May 2003: Nine months of periodic weekend detention and a fine of $30,000. Rivkin was sentenced for insider trading.
5. Maxwell John Sweetman, 17 Dec 2004: 18 months imprisonment on each charge to be served concurrently for two charges of insider trading in the shares of Harts Australasia. He was a former Executive Director of the company.
It really is time the book was thrown at all this dodgy trading and we should start with cleaning up the regulation of board and senior executive trading.
These four key findings are pretty damning:
- More than a third of Australia's 200 largest listed companies failed to comply with the Corporations Act - notifying changes in directors' interests more than 14 calendar days after the event.
- Nearly half of Australia's 200 largest listed companies breached the Listing Rules of the Australian Securities Exchange (ASX) - notifying the market of director trades more than five business days after the event.
- Directors of 32 of Australia's 200 largest listed companies actively purchased shares within eight weeks prior to a material earnings upgrade or takeover announcement – a 40 % increase from 2004.
- Directors of 23 of Australia's 200 largest listed companies actively traded shares during the period between books-close and results-release – a 15 % increase from the 2005 study.
The likes of Caliburn's Peter Hunt recently claimed that insider trading is completely out of control in Australia and ASIC has confessed to needing some high profile prosecutions.
The ASIC jail list that we maintain only includes the following entries on insider trading:
1. PR man Murray Evan Williams, 4 Oct 1996: 18 months periodic detention and fined $50,000 following insider trading charges in relation to the purchase of shares in Australis Media.
2. Simon Gautier Hannes, 17 Sept 1999: Executive director of Macquarie Bank got 2.1 years for insider trading on $2 million of TNT securities and structuring withdrawals to avoid the reporting requirements under the Financial Transactions Act. In December 2002 the court affirmed the guilty verdict and Hannes received 2.5 years.
3. Kenneth John Firns, 14 April 2000: 14 months for insider trading in 1995 of mining company Carpenter Pacific Resources NL. Conviction and sentence quashed on 22 May 2001.
4. Rene Walter Rivkin, 28 May 2003: Nine months of periodic weekend detention and a fine of $30,000. Rivkin was sentenced for insider trading.
5. Maxwell John Sweetman, 17 Dec 2004: 18 months imprisonment on each charge to be served concurrently for two charges of insider trading in the shares of Harts Australasia. He was a former Executive Director of the company.
It really is time the book was thrown at all this dodgy trading and we should start with cleaning up the regulation of board and senior executive trading.
Naming and shaming the dodgy board trades
The next challenge is to name and shame those directors which do trade at inappropriate times. For mine, an absolute classic was Fairfax Media chairman Ron Walker who ploughed into Fairfax shares shortly before a profit announcement and just after hosting a board lunch with then Communications Minister Helen Coonan before she publicly revealed the great media ownership free-for-all.
Ron Walker's share purchases announcement is detailed here and this is the time frame of what happened:
July 6 or 7, 2006: Communications Minister Helen Coonan attends Fairfax boardroom lunch hosted by Ron Walker to discuss the coming media free-for-all
Monday, July 10: Walker buys 150,000 Fairfax shares at $3.78
Tuesday, July 11: Walker buys 50,000 shares at $3.78
Wednesday, July 12: Cabinet approves media package and Walker buys 71,000 shares at $3.95. Fairfax shares jump 10c to $3.90.
Thursday, July 12: Cabinet decision announced and Walker buys 100,000 shares at $4.08. Fairfax shares jump 23c to $4.13.
The AFR apparently had this Regnan report as an exclusive and it really should have been on page one. Maybe the embarrassing history of its own chairman's trading pushed it back to page three? Instead, The AFR splashed with a bleat from the director's club calling for more protection against potential litigation.
AICD President John Story, the man who copped a 40% against vote on last year's Suncorp remuneration report and recently ousted AICD CEO Ralph Evans with a questionable process, was quoted as follows: "What's worrying directors or potential directors is the spectre of litigation, the associated reputational damage and the potential for ultimate financial ruin."
Indeed, and what is worrying the investors who are dropping tens of billions at the moment is that these directors are tolerating shocking corporate governance, poor disclosure and completely inappropriate share trading by insiders.
Consider the Regnan finding that a typical director share trade takes 10 days to get disclosed. This is just outrageous when the listing rules specifically require disclosure within 5 days. Why on earth isn't the ASX enforcing this tardy disclosure and calling on government to legislate so that insiders can only trade during specific windows after profit results?
The likes of Macquarie Group and the big banks self-regulate on these board trading issues well, but the rest of the market clearly needs some black letter law to lift standards.
Ron Walker's share purchases announcement is detailed here and this is the time frame of what happened:
July 6 or 7, 2006: Communications Minister Helen Coonan attends Fairfax boardroom lunch hosted by Ron Walker to discuss the coming media free-for-all
Monday, July 10: Walker buys 150,000 Fairfax shares at $3.78
Tuesday, July 11: Walker buys 50,000 shares at $3.78
Wednesday, July 12: Cabinet approves media package and Walker buys 71,000 shares at $3.95. Fairfax shares jump 10c to $3.90.
Thursday, July 12: Cabinet decision announced and Walker buys 100,000 shares at $4.08. Fairfax shares jump 23c to $4.13.
The AFR apparently had this Regnan report as an exclusive and it really should have been on page one. Maybe the embarrassing history of its own chairman's trading pushed it back to page three? Instead, The AFR splashed with a bleat from the director's club calling for more protection against potential litigation.
AICD President John Story, the man who copped a 40% against vote on last year's Suncorp remuneration report and recently ousted AICD CEO Ralph Evans with a questionable process, was quoted as follows: "What's worrying directors or potential directors is the spectre of litigation, the associated reputational damage and the potential for ultimate financial ruin."
Indeed, and what is worrying the investors who are dropping tens of billions at the moment is that these directors are tolerating shocking corporate governance, poor disclosure and completely inappropriate share trading by insiders.
Consider the Regnan finding that a typical director share trade takes 10 days to get disclosed. This is just outrageous when the listing rules specifically require disclosure within 5 days. Why on earth isn't the ASX enforcing this tardy disclosure and calling on government to legislate so that insiders can only trade during specific windows after profit results?
The likes of Macquarie Group and the big banks self-regulate on these board trading issues well, but the rest of the market clearly needs some black letter law to lift standards.
Was Packer's mate Chris Murphy margin called at Challenger?
High flying Sydney criminal lawyer Chris Murphy used to be the biggest punter on Sydney race tracks. Then he made a fortune out of the dotcom boom.
Such was Murphy's great performance, his Cardiac Jolt vehicle started managing money for other people, including the likes of Russell Crowe.
Murphy has long been a big financial backer of all things Packer, but it looks like his magic touch might have come a cropper in the credit crunch.
Cardiac Jolt has revealed it today sold 15 million Challenger shares for $25.5 million or $1.70 a pop. This represented a premium to Friday's miserable close of $1.60 and helped send the stock soaring 30c today to $1.90 in heavy trade of more than 50 million shares.
If I was a punter, my money would be on James Packer bailing his mate(s) out. Cardiac Jolt has sold 15 million of its 28.6 million Challenger shares. Packer couldn't have bought more than 18 million without making a full takeover bid given that he currently holds 20.6% and can only creep up by 3% every six months.
With the reporting season now over and shares plunging all over the place, one important contributor to confidence has been whether boards, executives or major shareholders have been topping up their stakes.
Lazard and the Singapore Government both added about 2% to their ABC Learning stakes but it didn't make much difference.
Asciano's CEO and largest shareholder Mark Rowsthorn revealed this $2.1 million top up on Friday, which contributed to today's 15% rally. It also helped that chairman Tim Poole spent $185,000 buying another 50,000 last week.
One of the problems with Challenger is that none of the insiders have been supporting the stock since the bullish $96 million half year profit on February 25. It will be very interesting to see who picked up Murphy's stake.
Meanwhile, it should come as no surprise that Australian Pharmaceutical Industries fell another 5% today, because Cardiac Jolt is the second largest shareholder with 10.56% after lifting its stake by 5.2 million shares to 27.17 million last September. The stock was trading at around $2 back then. Today it closed 8.5c lower at $1.62. Oh dear.
Such was Murphy's great performance, his Cardiac Jolt vehicle started managing money for other people, including the likes of Russell Crowe.
Murphy has long been a big financial backer of all things Packer, but it looks like his magic touch might have come a cropper in the credit crunch.
Cardiac Jolt has revealed it today sold 15 million Challenger shares for $25.5 million or $1.70 a pop. This represented a premium to Friday's miserable close of $1.60 and helped send the stock soaring 30c today to $1.90 in heavy trade of more than 50 million shares.
If I was a punter, my money would be on James Packer bailing his mate(s) out. Cardiac Jolt has sold 15 million of its 28.6 million Challenger shares. Packer couldn't have bought more than 18 million without making a full takeover bid given that he currently holds 20.6% and can only creep up by 3% every six months.
With the reporting season now over and shares plunging all over the place, one important contributor to confidence has been whether boards, executives or major shareholders have been topping up their stakes.
Lazard and the Singapore Government both added about 2% to their ABC Learning stakes but it didn't make much difference.
Asciano's CEO and largest shareholder Mark Rowsthorn revealed this $2.1 million top up on Friday, which contributed to today's 15% rally. It also helped that chairman Tim Poole spent $185,000 buying another 50,000 last week.
One of the problems with Challenger is that none of the insiders have been supporting the stock since the bullish $96 million half year profit on February 25. It will be very interesting to see who picked up Murphy's stake.
Meanwhile, it should come as no surprise that Australian Pharmaceutical Industries fell another 5% today, because Cardiac Jolt is the second largest shareholder with 10.56% after lifting its stake by 5.2 million shares to 27.17 million last September. The stock was trading at around $2 back then. Today it closed 8.5c lower at $1.62. Oh dear.
WA News exploring candidate conflicts
The following email lobbed from WA News company secretary Bernard Yates yesterday afternoon:
Dear Sir/Madam
Nomination for the Board of West Australian Newspapers Holdings Limited ("WAN")
We are preparing a Notice of Meeting for an Extraordinary General Meeting of shareholders to be held on 23 April 2008 to consider (amongst other resolutions) the election of you as a director of the company.
The purpose of this letter is to ask you to provide the company with information which may be relevant to a shareholder's decision to vote for or against your election.
Personal information
Please provide a short biography for inclusion in the Notice of Meeting. We need this by close of business tomorrow, Monday 10 March 2008. Your age, educational qualifications and current and past directorships should be included.
Other Relevant Information
Please also provide us with any information which may be relevant to your capacity to act as a director of the company, such as any conflicts of interest.
Yours faithfully
Bernard Yates
Company Secretary
If they are arguing that Kerry Stokes and co have a conflict of interest, I'll probably cop the same treatment as a media critic and internet publisher. It will be very interesting to see if the following platform is accepted, or whether WAN will be added to my list of platform censors:
"Stephen Mayne, age 38. Bcom (Melb). Stephen Mayne is a Walkley Award winning business journalist who has worked for a range of Australian newspapers including the Herald Sun, The Daily Telegraph, The Age and The Australian Financial Review as a reporter, columnist, business editor and chief of staff. He was the founder of www.crikey.com.au, Australia's best known independent ezine, and now publishes the corporate governance ezine www.maynereport.com. Mr Mayne is Australia's leading shareholder advocate and believes the WAN board needs more directors with journalistic and internet experience who are independent of The Seven Network and the incumbent directors. He also believes the company should replace The West Australian's editor, Paul Armstrong, to stabilise the newspaper after an erratic period of mixed performance.”
Nomination for the Board of West Australian Newspapers Holdings Limited ("WAN")
We are preparing a Notice of Meeting for an Extraordinary General Meeting of shareholders to be held on 23 April 2008 to consider (amongst other resolutions) the election of you as a director of the company.
The purpose of this letter is to ask you to provide the company with information which may be relevant to a shareholder's decision to vote for or against your election.
Personal information
Please provide a short biography for inclusion in the Notice of Meeting. We need this by close of business tomorrow, Monday 10 March 2008. Your age, educational qualifications and current and past directorships should be included.
Other Relevant Information
Please also provide us with any information which may be relevant to your capacity to act as a director of the company, such as any conflicts of interest.
Yours faithfully
Bernard Yates
Company Secretary
If they are arguing that Kerry Stokes and co have a conflict of interest, I'll probably cop the same treatment as a media critic and internet publisher. It will be very interesting to see if the following platform is accepted, or whether WAN will be added to my list of platform censors:
"Stephen Mayne, age 38. Bcom (Melb). Stephen Mayne is a Walkley Award winning business journalist who has worked for a range of Australian newspapers including the Herald Sun, The Daily Telegraph, The Age and The Australian Financial Review as a reporter, columnist, business editor and chief of staff. He was the founder of www.crikey.com.au, Australia's best known independent ezine, and now publishes the corporate governance ezine www.maynereport.com. Mr Mayne is Australia's leading shareholder advocate and believes the WAN board needs more directors with journalistic and internet experience who are independent of The Seven Network and the incumbent directors. He also believes the company should replace The West Australian's editor, Paul Armstrong, to stabilise the newspaper after an erratic period of mixed performance.”
Kohler on a roll as market plummets
I had this crack at Alan Kohler on ABC Sydney last Tuesday for the mass liquidation of shares two weeks ago that left his personal super fund with a 55% cash allocation.
For starters, it was a huge backflip on the bullish recommendations coming out of The Eureka Report in recent months and secondly, it looked like pure panic that would frighten his huge flock of followers.
Alas, Kohler has seemingly made one of the great calls because the Australian sharemarket suffered its worst one week fall since October 1987 last week and has continued dropping today.
Kohler's call has probably preserved about 5% of the capital in his super fund. However, if the market suddenly rebounds, it will look like a stupid call so what really matters is when or if Kohler wades back into the market at these lower levels.
Should he be back nibbling away right now? I've done precisely that, putting $500 into each of the following four stocks today: Alliance Resources, Austin Engineering, CP1 Ltd and VDM Group.
Meanwhile, Kohler has produced this facinating column on Business Spectator today exploding a few myths about the size and rationale of short selling and stock lending in the Australian market. Check it out.
For starters, it was a huge backflip on the bullish recommendations coming out of The Eureka Report in recent months and secondly, it looked like pure panic that would frighten his huge flock of followers.
Alas, Kohler has seemingly made one of the great calls because the Australian sharemarket suffered its worst one week fall since October 1987 last week and has continued dropping today.
Kohler's call has probably preserved about 5% of the capital in his super fund. However, if the market suddenly rebounds, it will look like a stupid call so what really matters is when or if Kohler wades back into the market at these lower levels.
Should he be back nibbling away right now? I've done precisely that, putting $500 into each of the following four stocks today: Alliance Resources, Austin Engineering, CP1 Ltd and VDM Group.
Meanwhile, Kohler has produced this facinating column on Business Spectator today exploding a few myths about the size and rationale of short selling and stock lending in the Australian market. Check it out.