The collapse of diversified engineering firm Hastie is calamitous on so many levels.
Thousands of employees could potentially be left without jobs. Suppliers and customers will be left in the lurch. Projects may need to be postponed, delayed or cancelled.
And a group of very wealthy investors have been left scratching their heads.
The two most prominent Hastie shareholders were investment firm Lazard – backed by veteran investor John Wyllie – and Thorney Investments, the vehicle owned by the Pratt family and run by star investor Alex Waislitz.
While both groups are well versed in the vagaries of the market, losing out on this investment will sting, mainly because Lazard and Thorney were not long-suffering shareholders who had no choice but to hang onto their stakes in the hope things would turn around.
Lazard only became Hastie’s cornerstone investor in June last year, after the struggling group slashed its debt by $145 million and raised $160 million in an equity raising.
Thorney emerged as an investor a month later, grabbing a 9.6 per cent stake as part of the capital raising and investing around $18 million at a share price of $1.40 (adjusted for a one-for-10 stock split that occurred in November last year).
On July 27, the day Thorney lodged its initial substantial shareholder notice, Hastie’s share price touched $1.65.
It was to be the highest price the Thorney team would see.
The bad news out of Hastie never really stopped. Profit downgrades, breaches of loan covenants, huge writedowns and finally, a $20 million accounting scandal that apparently went undetected for the best part of three years.
Class action lawyers have been circling Hastie for months and there have been suggestions that big investors like Thorney and Lazard could be lining up legal claims of their own.
That’s possible, but whether a wing of the Pratt family will be willing to go through this process and punt on recouping some of its losses is doubtful.
Besides, investing in small and mid-cap companies does bring with it certain risks. Thorney might have faltered with Hastie, but it has played successfully in this end of the market for many years with spectacular results.
Take biotech company Mesoblast, in which Thorney was a pre-IPO seed investor. The company’s shares have jumped from 80 cents back in 2004 to $6.43 and Thorney’s stake is worth an impressive $111 million.
Thorney and its subsidiary Tiga Trading are regularly in the market buying and selling and it’s no surprise their actions are watched closely.
Let’s take a peek inside the Thorney portfolio by examining a few of the companies in which Thorney has traded recently.
In the weeks before watching Hastie sink, Thorney was selling down part of its holding in ATM operator Customers Limited, offloading three million shares during the month of May and netting somewhere around $3 million. Customers’ share price had been under some pressure over the past two years, dropping from just under $3 in early 2010 to around $1.25. However, Thorney has been an investor for around six years and bought in around the 20 cent mark (adjusted for share splits) when Customers was struggling. Over the journey, this has been a very solid investment for Waislitz.
Struggling offshore engineering business, Neptune Marine has also given Thorney plenty of trouble over the last five years. The investment firm first became a substantial shareholder on June 15, 2007, when Neptune shares were sitting at 79 cents. The shares would climb to over $1.20 a few months later, but have since fallen steadily and now sit at just 3 cents. Thorney has stuck by the company, however, and in March told the market that it had increased its stake from 8.73 per cent to 10.68 per cent. The stock jumped shortly after Thorney’s announcement, but at 3 cents it remains a long way from putting a smile on Waislitz’s face.
Labour hire company, Skilled Group appeared on the Thorney radar in August 2009, when Waislitz took part in a capital raising and emerged with an 8 per cent stake at $1.50 a share. Thorney bought another $2.3 million in May 2010 at $1.29. Since then, Skilled’s fortunes have slowly improved as skills shortages have worsened, and the stock price has lifted to around $2.30. In mid-May, Thorney revealed it had sold a tick over 2.6 million shares, netting over $5.5 million. Thorney retains a stake of 9.29 per cent worth just under $50 million.
Telecommunications and utilities services company, Service Stream is perhaps best known as the company that won the contract to run the federal government’s Do Not Call Register, but it has also been a long-time part of Thorney’s portfolio. Waislitz’s investment vehicle first appeared as a substantial shareholder in 2007 when Service Stream’s share price was hovering well above $2.00, but a cash-burning diversification strategy saw the share price dip as low as 26 cents in early 2010. The company received another jolt in September last year when a change to the way Telstra dealt with contractors saw Service Stream lose $100 million and a third of its market value. But Thorney stepped in a month later, increasing its stake from 12.5 per cent to 13.5 per cent in a show of support and patience.
John Wylie, managing director of Lazard in Australia, is an investor in Australian Independent Business Media, publisher of Business Spectator.