THE DISTILLERY: Lynas rage

What is the world coming to this morning? Shareholders are rebelling and at least one credit rating agency is revolting (well, aren't they all?). So while the US loses its stable credit outlook to a Standard & Poor's downgrade, a couple of clever Sydney businessman face a similar downgrading by shareholders. John Kinghorn is being opposed in his grab for control of staggering home loans group RHG and Nick Curtis, chairman of Lynas the rare earths company, is encountering rising opposition to a share shuffle that some suspect will benefit him alone. Instead of using the world "revolting" one could say some shareholders are thinking for themselves and standing up and opposing a couple of self-enriching deals. But first the historic move on America's credit rating by S&P.
 
S&P's decision to lower its outlook on US sovereign debt, prompted the Financial Times to editorialise this morning that: "Investors have more acute worries than a US default. Rather than reneging on its debt, the US would inflate its way out. With nowhere for interest rates to go but up, bonds do not need political risk to look unattractive. Still, if S&P provokes greater fears about the world's benchmark paper, the effects will, as always, be felt more strongly everywhere else. Meanwhile, S&P's warning shot should galvanise America's leaders." Oh, an American ratings agency with courage. Well I never! Next they will tell me the Easter Bunny is real!
 
At RHG, those pesky shareholders won't withdraw and end their upstart rebellion against John Kinghorn, as the Fairfax broadsheets explained this morning: "Dissident shareholders in RHG Ltd have stepped up their attack on the rump of the failed Rams Home Loans business, vowing to spill a ''dysfunctional'' board after the chairman, John Kinghorn, backed down on plans to delist the company. The shareholders, headed by funds managers Geoff Wilson and Karl Siegling, yesterday rejected Mr Kinghorn's olive branch, calling for director renewal and pressing on with plans to take control in the boardroom. The dissident group is recommending shareholders vote immediately against the RHG buyback, which will go to a shareholder vote next week."
 
At Lynas, the stratagem of Nick Curtis seems to be stoking rising opposition. Again the Fairfax broadsheets: "Angry shareholders will move for a court injunction and launch a counterbid if Lynas does not call off the contentious sale of a rich rare earths and metals deposit to a related party. Bob Watson, the chairman of the online recruitment site Seek, has joined Mark Suhr, a Melbourne businessman and fellow Lynas shareholder, to fight the proposed $20.7 million sale of the rare earth miner's Crown polymetallic deposit to Forge Resources. The executive chairman of Lynas, Nicholas Curtis, is a 15 per cent shareholder of Forge and stands to vest 24 million performance shares if the deal proceeds, boosting his stake in Forge to close to 40 per cent." Sneaky deals, both of them.
 
And Bryan Frith, the doyen of The Australian's commentators, has been attracted to the Lynas fight and commented this morning: "Unhappy shareholders of rare earths hopeful Lynas want to know how Forge Resource Group was chosen as the best party to acquire subleases to develop tantalum-niobium and phosphate despots (sic) within its Mount Weld mining leases. Lynas says that a feasibility study into development of the deposits would require significant capital investment and take about three-to-four years to complete and that development costs would be likely to be in excess $US1 billion ($948 million), which would require the introduction a partner. The dissident shareholders want to know why Forge is not also required to seek approval under the related party transaction requirements. They also question why Lynas did not seek to sell the deposits to a more substantial company. An open sale process was not followed; instead Lynas dealt with Forge on an exclusive basis."
 
And The Australian Financial Review also reports this morning on more opposition in another deal: "The takeover bid for Cellestis could be over before it begins, with a shareholder action group securing sufficient votes to scuttle the deal."

Are You Being Served? Fairfax's Adele Ferguson wrote this morning: "Woolworths is basking in better-than-expected third-quarter sales figures. Yet the blowtorch will return tomorrow when Coles releases its of figures. On the same day a Senate inquiry into the supermarket milk war will release an interim report. The quarterly sales figures and the Senate inquiry are linked because they relate to competition and the recent price war Coles began with its "Down Down" marketing campaign. Woolworths' latest quarterly results were stronger than expected in most categories, but until its full-year earnings are released, along with a breakdown of capital expenditure and profit margins in the various divisions, the full impact of what is going on will not be appreciated." 
 
And The Australian said this morning: "Retail giant Woolworths is refusing to back down in a price war with supermarket rival Coles, with chief executive Michael Luscombe declaring he will not be the first to blink on milk prices. The declaration came as Woolworths reported sales of $13.6 billion for the third quarter of the financial year, an increase of $654 million, or 5.1 per cent. Anchoring the result was the Australian food and liquor division, which posted sales revenue of $9.16 billion, a 4.6 per cent rise, or 3.3 per cent when the benefit of new store openings was excluded. This marked the fastest pace of comparable store sales growth in five quarters and was achieved despite an ongoing price war that drove a 3.6 per cent decline in average shelf prices, excluding tobacco."
 
Business Spectator's Stephen Batholomeusz wrote that: "If the improved momentum evident in Woolworths' third-quarter sales numbers continues through the final quarter, retiring chief executive Michael Luscombe will be satisfied with the timing of his handover of the group to his successor, Grant O'Brien. Woolworths had, during the first six months of this year, been experiencing sluggish sales growth in its core food and liquor businesses and, indeed, had seen sales going backwards in its Big W discount department store division. Where Woolworths' food and liquor sales rose only 3.5 per cent in the first half of this financial year, however, sales in the third quarter rose 4.6 per cent. On a comparable stores basis the rate of growth in sales rose from 2.2 per cent in the first half to 3.3 per cent in the third quarter."
 
And Ferguson wrote yesterday on smh.com.au:"Corporate powerbroker Chris Corrigan's new force in logistics, Qube, hit another record high today after it bought out the remaining 50 per cent in container services group P&O Trans Australia. The acquisition is the next step in a grand plan to simplify the structure of Qube from a listed trust with stakes in various infrastructure investments, and turn it into a full-blown operating company with a board and management. Corrigan's aim is to become a significant operator in the import and export logistics supply chain. Corrigan's plan is to use Qube to improve the efficiency, productivity and profitability of the country's export and import supply chain and create a business that controls the logistics line from Asia to the local shelf."

News Ltd's Terry McCrann took a potshot at Leighton's reply to an ASX query this morning: "Leighton's response to the stock exchange query over its shock profit downgrade was woefully inadequate and totally unacceptable. Indeed, the response indirectly confirmed the implicit ASX charge. That Leighton should have known about and/or disclosed earlier the bad news that caused its near-$1 billion forecast earnings downgrade a week ago. Arguably, Leighton should have said: Yes, we stuffed up. Our only excuse is that we are going through the inevitable, somewhat chaotic, internal adjustments after losing an absolute monarch CEO – in the manner of Donald Trump's identification, 'The Wal' – who ruled the company with an iron fist for nearly a quarter of a century." A good commentary.

And The Australian reported this morning: "Leighton Holdings faces yet another delay in securing payment of $104 million for the sale of a portion of its Indian business to the Welspun Group. The sale of 35 per cent of Leighton Contractors India was formalised last December and the cash payment was scheduled to have been received by the end of last month. But the payment was delayed and Leighton said it had a new deadline for receipt of the funds, last Friday. However, that deadline has also lapsed."