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Cold, hard cash continues to hold its appeal

THERE is a chance that the Spotless Group institutional investors so eager to flog their stock to private equity might have actually stymied a chance for some additional growth in the value of their investments.

THERE is a chance that the Spotless Group institutional investors so eager to flog their stock to private equity might have actually stymied a chance for some additional growth in the value of their investments.

Insider hears that Spotless' boot-wearing boss, Joe Farnik, was definitely casting around for acquisitions to extend his "integrated services" business model.

Back in 2008 Farnik opted to kill off his first such attempt, a takeover offer for Programmed Maintenance Services, when the target's earnings failed to hit a benchmark condition in the bid.

As it turned out, it was the right call, given that Programmed's worth is now about half of what Farnik was offering to pay. Maybe he should have another look?

At any rate, with private equity house Pacific Equity Partners still banging on the door for an audience with Spotless chairman Peter Smedley (above right) the only thing that Farnik would be likely to buy with an acquisition at the moment is a legal action from would-be suitors and he probably has enough brawls on his plate.

Last week Farnik lunched with some significant Spotless shareholders, including those who have taken a bet each way by optioning out their holdings to PEP.

He apparently came away from that comforted with the fact that none of his owners had a problem with the growth story and the drive into new computer systems (and other ideas) that Farnik hopes will enable it to keep 1 per cent more of its sales as earnings before interest and tax.

That may not sound like much, but Spotless' EBIT in 2011, excluding its problematic Braiform plastic hangers business, was a little over $91 million, or about 3.8 per cent, of its $2.42 billion of sales.

Simple maths means that if Farnik can get the cost recoveries and other gains he wants, there is another $24 million or so of EBIT to come through.

So Spotless' fund manager investors would seem to want to sell not because they doubt the strategy, but because there is a potential buyer prepared to pay them in cold, hard cash now for some of the higher profitability yet to be achieved lining their pockets with lots of yummy money that they can then re-invest in groups with share prices at even greater discounts to their underlying worth.

As Michael Corleone once said: "It's not personal, Sonny, it's strictly business."

Funtastic looking chipper

THERE has been precious little fun for Funtastic investors in recent years, so shareholders must have been pleasantly surprised for the company to receive a speeding ticket from the ASX yesterday.

Even better, from an investor perspective, was that the shares retained most of their rise from 4.5? a week ago to 10? yesterday morning even after the query and the company's response.

The shares managed a 1.5? improvement to close at 9? not quite party popper time but Funtastic dropped under 10? a share back in May when it warned of a gloomy profit outlook and has struggled to get close since then.

Funtastic, by the way, explained that the rise was most probably a reflection of it having told the annual meeting last Thursday that it made a profit in the first quarter after its thumping $38 million loss last financial year.

That bottom line blowout was distorted by Funtastic clearly deciding that a crappy year was as good a time as any to take some additional hits to bring inflated asset values back to earth.

Funtastic, like many a supplier in the retail industry, has been a victim of those with the shelf space socialising their losses through either demanding the toy distributor cut its prices or be "de-ranged" (the hyphen is important) and replaced by the retailer's own branded imports. It is enough to make you bite the head off your pillow pet.

Saferoad boss heads off

DANGEROUS business being the boss cocky down at crash barrier and traffic-light maker Saferoad Holdings, with yet another chief executive biting the dust.

Wayne Kibbis, who was put into the top job only last February, "has left the company to pursue other interests", chairman Gary Bertuch said yesterday.

Ten months ago Bertuch was telling shareholders that after an extensive executive search Kibbis was to become CEO, and that founding managing director Darren Hotchkin was stepping aside to become a non-executive director.

The departure of Kibbis is all the more intriguing given that Bertuch was praising him to investors at the end of October for his "fresh marketing ideas and strong internal disciplines". In the interim, non-executive director David Cleland will don the safety jacket and fill the role. It is almost a year to the day since Cleland's appointment to the Saferoads board was unveiled by Hotchkin, meaning he has now survived two CEO regimes.

Lowenstein on the ball

JACK Lowenstein, whose sudden departure from fund manager Hunter Hall caught Insider's eye last week, rang to say his parting from Peter Hall and the rest of the team just hours after the annual meeting was amicable.

Lowenstein, who specialises in picking stocks from a macro global perspective, reckons he needed a break after what has been a tough last couple of years. He is not the only one by a long chalk, with Perpetual's John Sevior the most prominent sabbatical-taker to date.

His departure probably had little to do with funds management performance, given that Hunter Hall's annual report showed that he collected $1.55 million in profit share and bonuses in the past financial year about a third of all the money paid to directors and key executives.

Lowenstein, whose middle name is Theseus, plans to spend the downtime neither slaying minotaurs nor belting a golf ball let alone gardening. He will be pursuing his other avocation of beach volleyball, vowing that once he has improved his game there, he will think about the next step.

insider@fairfaxmedia.com.au

The only thing that Farnik would be likely to buy with an acquisition at the moment is a legal action from would-be suitors and he probably has enough brawls on his plate.


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