THE DISTILLERY: Trashing Tinkler

The commentariat is caught up in Nathan Tinkler's failure to force change at Whitehaven, while some examine foreign offers for Arrium and GrainCorp.

The Whitehaven Coal register casually swatted away the concerns of the miner’s largest shareholder, Nathan Tinkler, at yesterday’s annual general meeting. Australia’s business commentators examine the position that Tinkler now finds himself in, having categorically placed himself offside with the board and management in the company that is responsible for most of his wealth.

Meanwhile, three other business writers have taken a look at the big takeover offers that have been lobbed for Australian steelmaker Arrium and grain handler GrainCorp from foreign firms.

But we start with The Australian’s Sarah-Jane Tasker, who was at the Whitehaven Coal annual general meeting yesterday and had some observations to make about Tinkler, or rather his absence along with the absence of any real support for his push against the board.

"His failure to overhaul the board at the AGM was not surprising, but what did raise eyebrows was that his so-called backers on the Whitehaven share registry were nowhere to be seen. Instead, shareholders overwhelmingly backed the election of the five directors Tinkler had wanted removed.”

The magnitude of Tinkler’s failure was not lost on The Australian Financial Review’s Chanticleer columnist, Tony Boyd, who found one name on the list of investors that stood against Tinkler that really stood out.

"First, he failed to jump the smallest hurdle in corporate governance, a 25 per cent vote against the remuneration report. Second, one of his main financiers, hedge fund Farallon Capital, did not back him on any of the six resolutions put to the meeting. Tinkler did not attend the Whitehaven meeting but came away from it with nothing to show for all of his grandstanding. But that is no reason to think that he’ll go away. The turmoil at Whitehaven is set to continue and that is not good news for shareholders. They cannot be happy with the 43 per cent fall in the Whitehaven share price over the past year but that is mainly a reflection industry conditions.”

The Australian Financial Review’s terrific resources reporter Jamie Freed is similarly struck by the gulf between Tinkler and the rest of the company’s register.

"Nathan Tinkler may have a problem with the management of Whitehaven Coal, but it is clear that other investors in the company, including some of the coal magnate’s former backers, do not. Why? Because while Whitehaven – like other companies – has made some mistakes, it is generally regarded as one of the best-managed mining companies in the industry. Tinkler doesn’t like criticism. He refused to speak with Drilling Down despite chatting with plenty of media this week because he thinks this columnist has been too tough. But in an ‘open letter’ to shareholders published as an advertisement, he made many accusations against the Whitehaven team and as managing directory Tony Haggarty rightly said, they were, for the most part, highly misleading.”

Of all the resources journalists that Tinkler could choose not to talk to, the Walkley Award-winning Freed shouldn’t be one of them. She is top shelf.

Speaking of which, Fairfax’s Malcolm Maiden makes an astute observation about the two big approaches for Australian companies from foreign bidders in the last few weeks.

"Commodities house Noble Group and its partner, steel-maker Posco of South Korea, said on Wednesday they no longer wanted to engage with the board of Arrium, the former OneSteel, after having a 75 cents-a-share takeover proposal and a sweetened 88 cent offer rejected. Arrium's shares fell by 12.7 per cent on Thursday on the news. GrainCorp, meanwhile, is quietly conducting due diligence on itself after receiving a $2.7 billion takeover approach from US-based agribusiness group Archer Daniels Midland. It won't accept the price Archer Daniels has offered but there is every chance the US group will prevail with a sweetened bid. The divergent paths of the two takeover attempts reflect differences in the way the offers were mounted and the way the targets responded.”

The Australian’s Bryan Frith points out that Asian consortium Steelmakers Australia that withdrew its offer for Arrium wanted to speak to the target’s bankers, which isn’t quite the regular protocol.

"The consortium has suggested that it suspects Arrium is carrying more debt than is appropriate and it wants to talk to the banks about what should be the level of capital in the company. But why parties with such deep pockets would need to do that is not readily apparent. Posco has a market capitalisation of $30 billion and Arrium should be petty cash for the state-owned South Korean entities. The insistence on talking to Arrium's bankers is unusual. The more usual approach would have been for the consortium to have obtained bridging finance for the equity and debt and look to refinance after acquisition, which might well include some, or all, of the existing bankers. That the consortium did not take this approach could give rise to speculation that, for whatever reason, the consortium members did not want to carry Arrium on their balance sheets. In that regard, S&P only days ago downgraded Posco's rating from A-minus to BB-minus, while Noble is rated BBB-minus, close to sub-investment, which suggests that it would have little balance sheet capacity.”

The Australian Financial Review’s Matthew Stevens intelligently draws some attention to Arrium's cousin, BlueScope.

"As one BlueScope insider suggested in the wake of the decision by Steelmakers Australia to end its attempts to engage with Arrium chairman Peter Smedley: ‘The genie of consolidation is out of the bottle here and I am not so sure it can be put back, and that only means that people all around our industry will be wondering whether we have reached that once in a lifetime moment when Humpty Dumpty can be put back together again.’

"Need it be said that the broken egg here is the BHP Steel business that was, before it was severed into its product divisions and delivered to shareholders at the turn of the century. A recovery of the whole has been contemplated on and off over the years. It got as far as being discussed with governments on at least one occasion. But the sense that the outcome of a merger would be anti-competitive, along with a bevy of value-sapping complications, has prevented ambition from translating into reality. There is a sense now that a tipping point is nigh, if only because a foreign takeover of Arrium means there is potential for BlueScope’s business model, at least in steelmaking in Australia, to finally be unwound. BlueScope has just shy of 500,000 reasons – each of them a tonne of steel – to remain both alert and alarmed over Arrium’s fate.”

Meanwhile, The Australian’s George Megalogenis, one of this columnist's favourites, calls for a national debate on tax reform because the Gillard government is focussing on only one side of the budget equation.

"Squeezing family payments and the private health insurance rebate for higher-income earners won't pay for Gonski or the National Disability Insurance Scheme. To make room for new spending on this scale, the real middle class has to cough up, too. But neither side of politics will go there. So the question inevitably returns to how much revenue can be raised to meet community expectations for spending.”

Sticking with economics, Fairfax’s economics correspondent Peter Martin picks up on comments from climate change adviser Ross Garnaut, who has taken Australian executives to task for putting too many eggs in the ‘China resources demand’ basket.

The Australian’s Glenda Korporaal welcomes the two encouraging economic reports out of China, that come at a time when the emerging superpower is undergoing a historic leadership transition.

Elsewhere The Australian’s John Durie reports words from outgoing Productivity Commission chief Gary Banks, who is calling on governments "to spend better and regulate better”. The writer concedes that this is easier said than done.

In company news, Fairfax’s Michael Pascoe says billionaire James Packer must be laughing along with his advisers about how easy it was to get both sides of NSW politics onboard his $1 billion Barangaroo casino project.

And finally, Fairfax’s Adele Ferguson shares some great details about the collapse of Banksia Financial Group. On any other day, Ferguson (another Distillery favourite) might well be leading today’s column. Perhaps tomorrow.

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