It’s been an interesting last four weeks for Metro Performance Glass. The sequence of events was well-covered by media in July (and an NZSA Briefing commentary), beginning with the receipt of a non-binding indicative offer (NBIO) at $0.18 per share received by the company’s Board on the morning of July 18th. The offer was backed by Peter Wells (represented by Takutai Limited) and Masfen Securities. Within four hours, the offerors had their answer: the MPG Board was not extending due diligence and would not “progress the proposal”.
Furthermore, it transpired that the NBIO had followed discussions between the parties as far back as May.
There was a consequence to this, although not one that is of benefit to minority investors. At the company’s annual meeting on August 1st, Graham Stuart was voted off the Board – by a convincing 78.5% of the vote. This was not a position supported by NZSA; we supported Graham Stuart with the proxies we held, totalling 2.0% of the total shares on issue, and 5.4% of the vote on the day (only 78m of the 185m shares on issue were voted).
Shareholder activism? Or simple revenge?
BusinessDesk, in an article published later that week (August 3rd – Shareholders whack boardroom glass jaw) noted the following:
Shareholder meetings are typically lackadaisical affairs, and it’s good to see the owners of companies take an active interest in what their elected directors are doing and being hauled over the coals if it isn’t up to scratch.
BusinessDesk article (Paul McBeth) August 3rd 2023
A laudable sentiment indeed – if indeed this is the will of a broad base of shareholders.
In the case of MPG, however, I beg to differ. The vote against Graham Stuart at MPG does not represent shareholder activism in any form, nor does it offer “transparency” in the form that the author desires. Rather, it represents the churlish actions that one might expect from a couple of playground bullies who didn’t get their own way. In the case of the NBIO, the actual ‘activism’ arose from the actions of the MPG Board in rebuffing an NBIO that was meagre at best, opportunistic at worst.
The alternative narrative (supported by evidence) is that the exit of Graham Stuart was orchestrated by two major and wealthy shareholders, more akin to building their wealth through privately-held companies. Unsurprisingly, those two shareholders were Wells and Masfen – whose non-binding offer nearly a fortnight prior had been so soundly rebuffed by the Board. Their revenge attack on Stuart was ably supported by Bain Capital. Together, those shareholders hold approximately 67m shares – around 36% of the total capital of MPG. This corresponds neatly with the total shares voted against Graham Stuart.
Would retail shareholders have appreciated the MPG Board supporting an offer of $0.18 per share for their shares? I doubt it.
In the context of this NBIO, would retail investors have supported NZSA in voting against Graham Stuart, a director of the Board that rebuffed this offer? Again, I doubt it.
Sometimes, the best course of activism to follow is to support the Board that is taking the activist stance. In this case, I suspect smaller investors in MPG will miss the independent and effective governance provided by Graham Stuart and possibly lament his voice in securing fair value for any future offer (should one materialise). In fact, one might say that it is likely to suit those who voted against his re-election to have him out of the way.
Don’t take this commentary the wrong way – it is not my (or NZSA’s) job to be a cheerleader for any particular director or company. We simply look at each situation on its merits.
McBeth goes on to muse in his article that NZSA has a “much more muted approach” when it comes to waging war on company boardrooms. Perhaps that is a sign of improved objectivity on NZSA’s part and an approach that is more focused on delivering meaningful outcomes for shareholders rather than soundbites.
More tellingly in this specific case, though, it’s difficult to wage war on a boardroom when the major shareholders are the problem.
Performance
Issues relating to MPG’s performance have been long recognised, by investors and media. The Board and its predecessor directors can rightly be held to account for the foray into Australia – with some long-overdue benefit to shareholders perhaps accruing as a profitable Australian Glass Group (AGG) is placed on the market. However, while there has been some negative impact caused by the Australian acquisition, it’s not the only reason for MPG’s poor performance.
More fundamentally, a large portion of MPG’s negative share price performance stems from its initial listing, which included a significant dose of goodwill that has been consistently reduced over the following decade. From a listing value of $115m in FY15, goodwill for the New Zealand business has now declined to only $20m, with the bulk of the write-down in FY20. Goodwill attached to the Australian business comprises $23m (down from $32m on its purchase in FY17 – the write-down in value was booked during FY19).
At a group level, debt has increased slightly as well, from $57m on listing to $65m today – albeit including the AGG business.
A key question for shareholders (with the benefit of hindsight) is whether the level of goodwill did not reflect expected glass market trends on listing, compared with the alternative narrative that the company itself created the market conditions for its own demise. That analysis requires a bit more work than this humble commentary on the relationship between major and small shareholders.
The future for small Shareholders
There are three key insights from this particular vote.
Firstly, voting at shareholder meetings matters. Had ALL retail and institutional shareholders turned out to vote, it is likely that Stuart would still be on the Board.
Second, for those retail investors who remain as shareholders as MPG – be clear that your interests must now be aligned with the interests of Wells and Masfen. With the collaboration of Bain Capital, and a low level of shareholder vote, they are in effective control of MPG.
Third, it is critical for small shareholders that the remaining directors of MPG exercise their independent judgement in assessing future MPG decisions – including the sale of AGG and any future offer or scheme by third parties. One might suggest this goes without saying, but given the treatment dished out to Stuart its important to emphasise that transparency and independence is maintained regardless of the consequences.
It won’t be a good look for Wells and Masfen to vote against another director who simply does not agree with them.
Meanwhile, MPG itself continues to seek offers for its Australian business (AGG). While this will make MPG a smaller company, it will also allow it to reduce its debt to a more sustainable level and provide a more sustainable footing to operate its New Zealand business and leverage the production quality improvements it has long touted.
Should the sale of AGG be put to shareholders, one can only hope that Wells and Masfen set aside their emotional reaction and examine any proposal on its merits.
Rest assured, NZSA will be watching.
Oliver Mander
Oliver is the NZSA CEO. He is no relation to MPG CEO, Simon Mander (unless Simon comes from an Italian background, in which case he very well might be). Oliver is a previous colleague of Peter Griffiths (MPG Chair), but has had no recent association.