GPG promises shareholders $158m this year

Guinness Peat Group has begun its much-anticipated sell down process, announcing this morning that shareholders could expect an initial capital return of at least £75 million ($158 million) this year.

The company, founded by Sir Ron Brierley more than 20 years ago, said it intended to exit individual investments with the exception of thread maker Coats, which had started to benefit from a restructuring programme.

GPG said Coats could ultimately be its only remaining asset and the board would evaluate other alternatives for realising value for Coats.

The initial capital return would be subject to shareholder approval at the company’s annual meeting, to be held for the first time in New Zealand this June.

The announcement comes just over six months after former New Zealand director Tony Gibbs called for the abandonment of proposals to spin off the company’s Australian business, preferring a cash distribution instead.

After speaking out, Mr Gibbs was ejected from the GPG board, but institutional shareholders sought governance changes that included the appointment of new independent directors.

The move took control away from Sir Ron and Australian director Gary Weiss, who had pushed for the separation proposal.

In December Sir Ron stepped down as chairman and was replaced by Mark Johnson.

Gibbs pleased
Speaking from Berlin this morning, Mr Gibbs said he was “ecstatic” about the decision to sell down investments.

“I’m very happy for the small shareholders who fought hard for this from right back in June … now things are moving in the right direction.”

GPG had three good assets, he said. Coats, which had a market value of £610 million as at September, a 66% stake in Turners & Growers and a 35% stake in insurer Tower.

Mr Gibbs said the board of T&G and Tower would work with GPG to maximise value for shareholders. 

As for the rest of GPG’s investments, Mr Gibbs described them as “rats and mice” that should be liquidated as soon as possible.

Asked how he felt about GPG winding up after all these years he said. “GPG is no big loss. Frankly I’ll be happy to see them gone.”

He hoped Turners & Growers and Tower would remain listed.

GPG said the board was conducting a search to appoint a senior executive to drive the asset sale process.

"An orderly value realisation will be pursued over time with the aim of exiting GPG's entire portfolio of investments and, in the process, generating cash proceeds that can be used for capital management initiatives,” GPG said.

The plan followed a recommendation of an independent sub-committee focused on optimising value for shareholders.

GPG has been heavily criticised for its underperformance in recent years, (its share price trading at a 30% discount to net asset value), while its directors received handsome remuneration packages. 

Shareholder’s view
Tyndall Investment Management equities co-manager Rickey Ward said the outcome was both a blessing and a curse in disguise.

“The plus part is hopefully an improvement in governance. A new group of individuals have taken into account Sir Ron’s statement about returning value back to shareholders. They believe this is the appropriate way to do that rather than the separation proposal.

“The sad side of this is if they do sell every asset the chances are you’ll have no listing on the New Zealand exchange, which is not good. 

“Our concern was always around the governance issues and around the size of this company which was starting to take bets which were proven to be wrong and then trying to extract themselves out became problematic.

“This is confirmation they also believe the company is undervalued.”

Asked whether it was reasonable to expect an initial capital return of at least $158 million this year, Mr Ward said it would depend on the timing.

“These guys are investors – they are not just going to fire-sale the assets one would assume. That’s not in the interests of shareholders either."

Coats improves
Coats makes up nearly 40% of GPG's total worth but is still well short of the $1 billion needed to recoup the original cost and subsequent investment.

GPG noted that Coats had been adversely affected by the global downturn in 2008/09.

“However, the business has since improved and the benefits of the extensive restructuring programme, which is now substantially complete, have begun to materialise," it said.

A key problem is that Coats has significant pension fund liabilities. A few years ago the UK created new rules to prevent people stripping out pension fund surpluses. 

GPG’s sub-committee had noted the existence of pension liabilities within Coats as well as contingent liabilities, including a potential payment of a European Commission fine.

Mr Ward said the pension liabilities were yet to be fully disclosed or understood by the market in general.

“That’s why that will be a harder company to divest in the near term.”

GPG said the quantum and timing of the capital return to shareholders would have to have regard to the GPG’s group’s actual and contingent liabilities.

“Further work is ongoing to determine the most efficient manner to effect the capital return, recognising the constraints imposed by multiple jurisdictions.”