Investors wait in vain to see GPG divesting

Tony Gibbs says the directors are working hard to return value to investors. Photo / Greg Bowker

Pressure is mounting on Sir Ron Brierley's investment company Guinness Peat Group to make a value return to investors but some fear shareholders are being caught up by a board that can't agree on how to split up the family jewels.

Last month Kiwi investors tuned in expectantly to the webcast of GPG's annual meeting in London hoping for news on the company's grand plan.

While yet to be spelled out, a value return is likely to involve a sale of assets with either cash being given back through dividends or an increased value in the shares.

Instead Brierley told them it could be weeks or months before he would have anything to say on how it planned to meet its promise, made in 2008 and reiterated in February's annual report.

"In terms of GPG's 20-year history, a few more weeks, or months, if necessary, is not critical. Much better to reach the right conclusion rather than anything more precipitate but recognising that, inescapably, substantial changes cannot be indefinitely postponed," he told investors.

For John Hawkins of the New Zealand Shareholders Association which helped set up the listen-only webcast, the surprise was not one single person asked a question at the meeting.

But others say what was more worrying was the body language of the directors. Watchers say the board appeared to be uneasy with each other and that there were clear signs of an appearance of "in-fighting".

While the board appears to agree that substantial changes must happen for GPG to have a future it doesn't appear that directors can agree exactly how that will happen.

Discussions are believed to centre on whether the company should be split up regionally, how the cash should be divided up and how the debt should be spread fairly.

But some believe the directors are now at an impasse which has left the company in a situation that is "worse than a broken marriage".

Rickey Ward, domestic equities manager at Tyndall Investment Management, which holds shares in GPG, says it's clear that GPG is an incredibly complex vehicle to unwind.

"You have got investors around the globe and assets around the globe. These are the same sorts of issues Fisher and Paykel and Fletchers went through when they separated their businesses."

He says a big part of the problem is the global thread-making Coats business. "It's unlisted, so you've got to find a buyer."

Many believe GPG got close to floating its Coats business in 2007.

But before it could be brought to market the global financial crisis hit and investors sold off everything in sight and retreated into safe haven asset classes.

GPG's performance has been hit hard by the crisis, particularly its investment in Coats which made a £3 million loss last year. As a group GPG made a £36 million loss in 2009.

Paul Glass, principal of Devon Funds Management, which doesn't own shares in GPG, says the group has had an "awful performance" over the last few years mainly attributable to Coats and the Australian business.

"If you look at their Australian investments over the last few years and add up the losses, over the portfolio they have destroyed several hundred million dollars of value. The other big value loss has come from their investment in Coats. On my numbers they have lost over A$400 million ($494 million). It has been a disastrous investment."

He says it is time the business was wound up. "These investment companies are unusual structures and are somewhat archaic.

"They should only exist if their managers are genuinely talented.

"Given the ages of the individual directors, poor results and lack of direction, it is time the business was wound up. It's just a question of how you do that."

He would like to see New Zealand GPG head Tony Gibbs take a strong hand in driving the changes.

"Personally I think Tony Gibbs is a very skilled businessman and one of the few directors there that I'd back. He has added a lot of value to the companies he has invested in."

But others say Gibbs is as much to blame for the performance of the business as the other directors and the problem stems from the board lacking a range of independent directors.

Hawkins says for New Zealand shareholders, of which there are 30,000, the main issue is governance.

"They haven't done anything about independent directors, a succession plan or the structure.

"They haven't given New Zealand shareholders adequate meetings and consultation."

GPG chairman Brierley declined to talk to the Weekend Herald about the business. But Gibbs concedes there are "differences of opinion" in the group at the moment.

"Having different points of view is healthy. In the end we will all pull together."

He says the delays in finalising the plans to return value to shareholders relate to the problems in the global markets which weren't conducive to what the company was trying to achieve.

"We are determined to return some form of value to shareholders as soon as possible. But it has to be in a beneficial way for shareholders."

But Gibbs won't put a time frame on when investors will get news.

"We keep putting time frames on it and missing it. The time frame is getting shorter and shorter not longer and longer."

Gibbs says he can't talk about what might happen to the company at this stage or in what form the "value return" might come to investors.

But he has ruled out selling the company's New Zealand stakes in insurance and investment firm Tower and agricultural business Turners and Growers for now.

"The return of value is not looking at selling the New Zealand assets but that is not to say at some stage they won't be divested."

Gibbs says there are some other good parts of the business.

"Coats is a good business although in hindsight we bit off more than we could chew," says Gibbs.

But he says GPG has now got a good handle of the business and has restructured it.

Gibbs says the directors are working hard to return value to investors. They have a common incentive to do so being shareholders themselves.

Around 6 per cent of the business is directly owned by the directors.

"I have got an awful lot of my money tied up in GPG shares. We are all very committed."

But even Gibbs admits he can't go on being a director of GPG forever. "We are not ancient. But I'm not going to be around forever."

Gibbs is 62 while Brierley is 72 and sources say he will step down this year.

Gibbs says he not going next week but he's also not going to be sticking around until he is 72. So who will take over?

"I can't answer that. I'm sure there would be many people who would be happy to do that."

GPG shares closed up 1c on 71c yesterday.