Media magnate Kerry Stokes stepped up his attack on WA Newspapers Holdings Ltd today, telling nearly 1,200 Western Australian business people that the publisher had lost focus to its customers.
Media magnate Kerry Stokes stepped up his attack on WA Newspapers Holdings Ltd today, telling nearly 1,200 Western Australian business people that the publisher had lost focus to its customers.
Speaking in front of a star-studded audience at a WA Business News Success & Leadership breakfast, Mr Stokes went further than he had previously in criticising WAN, as he and fellow Seven Network Ltd director Peter Gammell seek election to the publisher's board later this month.
WAN chairman Peter Mansell, a target of the Seven board spill attempt, issued a statement today labelling the criticism of its flagship publication as "unwarranted and self-serving".
The Australian Shareholders' Association also joined in the action today, acknowledging that there was a case for strengthening the WAN board but stating that shareholders were unlikely to benefit from any of the changes to the leadership of the company proposed by Seven.
In his 40-minute speech, the Seven chairman was openly critical of WAN's operations including the editorial content of its core publication The West Australian and the way the new Herdsman printing presses were installed.
But his consistent message, and one that went beyond the boardroom battle at WAN, was that the other businesses he is involved in - namely Caterpillar franchisee WesTrac and Seven itself - were focused on their core customer base.
"The West has lost focus of what its customer is, the reader, and readers have stopped buying the newspaper," Mr Stokes said.
"And it's pretty simple: write the stories people want to see and have a front-page cover that people want to pick up and buy."
He also opened a new line of attack on the treatment of newsagents as the key distribution outlet for The West.
In response to a question from a newsagent representative, Mr Stokes revealed a firm view that WAN's distribution was poor, letting down customers and undermining its newsagent suppliers.
"We have to find ways to sell more newspapers and make sure that we don't send our suppliers broke," he said.
Under further questioning, Mr Stokes stuck closer to the script of Seven's previous statements regarding WAN - that the board's job was set the strategic direction and employ the right management to achieve the desired growth.
When Australia's richest man, Andrew Forrest, asked him what initial steps he would take if appointed to the board, Mr Stokes said that he would be asking management what they will be doing to attract readers.
Similarly, when asked by former Australian of the Year Fiona Stanley what the paper should do to focus on issues such as child health and indigenous issues, Mr Stokes said it was up to newspaper management to find ways to make those subjects interesting to readers and grab their attention.
From the start of his speech, Mr Stokes made customer service his core subject, revealing how it was one of three key elements that had grown his private Caterpillar machinery distribution company WesTrac from 300 to 6,000 people in less than 20 years.
Along with quality product and a strong value proposition, he said customer focus made sure that vital parts were delivered as soon as humanly possible.
For instance, he said that WesTrac could deliver parts to Argyle diamond mine overnight.
Mr Stokes said WAN had become too insular and thought it could dictate terms to its customers, pointing out The West arrived in the afternoon in some major regional centres.
Mr Stokes today reiterated that he did not want control of WAN, but did want Seven to hold two seats of a seven seat board, which he wants to be expanded from five seats.
Seven is WAN's largest shareholder with a stake of almost 20 per cent, and is seeking to oust all but one of WAN's five-member board at an extraordinary general meeting of WAN shareholders on April 23.
Mr Mansell described the criticism in the speech as an attempt to divert attention away from the key issues previously highlighted to shareholders, particularly the issue of control.
"In 1995, Mr Stokes' strategy with Seven Network was to build a stake in the company, criticise performance, call an EGM, spill directors, instal himself as chairman and take effective control," Mr Mansell said in a statement today.
"He did this over a period of time without ever making a takeover bid through which he would have had to offer Seven shareholders a control premium.
"The similarities with his actions now in relation to WAN are striking.
"WAN shareholders have seen Seven's national advertising campaign, the single purpose website, the survey, the direct mailout, the pre-completed proxy forms, the phone campaign, the media appearances and now the speech.
"Shareholders are entitled to ask themselves whether the extent of the resources being thrown at this by Seven Network and Mr Stokes is consistent with a desire to simply be appointed to the WAN board."
WAN said in a statement today that it had "previously acknowledged the challenges that accompanied its $210 million press upgrade."
"That important project was successfully completed by WAN's management team in late 2007," it said.
"The benefits of that significant investment in WAN's future will be evident in the March 08 quarterly results which will be released on 10 April 2008."
Australian Shareholders' Association director Tom Herzfeld said in a statement today that shareholders were unlikely to benefit from Seven's proposal.
However, Mr Herzfeld conceded there was a case to be made for strengthening WAN's board.
He said ASA was heartened to hear WAN chairman Peter Mansell say that the board would listen to arguments for additional skills to be added to the board.
"We see nothing in the performance of the company over the past five years to warrant the dismissal of the current board," Mr Herzfeld said.
"Whilst we respect Kerry Stokes as a notable and successful Western Australian, we do not believe his presence on the WAN board would necessarily advance retail shareholders' interests.
"Indeed his elevation to non-executive director will create further difficulties given that the existing directors have indicated they will not serve with Mr Stokes."
Below is the full WAN statement issued today:
Mr Kerry Stokes, the Chairman of Seven Network, made a presentation this morning to a gathering of Perth business people. He levelled strong criticism at the board, management and editorial staff of WAN, with particular focus on the quality of The West Australian and on recent circulation trends.
The Chairman of WAN, Mr Peter Mansell, said that the WAN board regards the latest criticism levelled by Mr Stokes as "unwarranted and self serving".
WAN has previously acknowledged the challenges that accompanied its $210 million press upgrade. That important project was successfully completed by WAN's management team in late 2007. The benefits of that significant investment in WAN's future will be evident in the March 08 quarterly results which will be released on 10 April 2008.
Mr Mansell said:
"The WAN board regards the latest criticism by Mr Stokes as an attempt to divert attention away from the key issues previously highlighted to shareholders - particularly the issue of control.
"In 1995, Mr Stokes' strategy with Seven Network was to build a stake in the company, criticise performance, call an EGM, spill directors, install himself as Chairman and take effective control. He did this over a period of time without ever making a takeover bid through which he would have had to offer Seven shareholders a control premium. The similarities with his actions now in relation to WAN are striking.
"WAN shareholders have seen Seven's national advertising campaign, the single purpose website, the survey, the direct mailout, the pre-completed proxy forms, the phone campaign, the media appearances and now the speech. Shareholders are entitled to ask themselves whether the extent of the resources being thrown at this by Seven Network and Mr Stokes is consistent with a desire to simply be appointed to the WAN board."
In his speech today, Mr Stokes again accused the WAN board of making a decision not to appoint him and Mr Gammell to the board of WAN. As WAN has previously advised shareholders, this is not true. The WAN board simply raised important issues that needed to be addressed. Rather than responding to the board of WAN on these important issues, Mr Stokes took steps to try and remove all the non-executive directors.
"The bottom line is that WAN is a great company with a great management team and a great future. Mr Stokes knows that. That is no doubt why he chose to invest. That is no doubt why he is now taking this action," Mr Mansell said.
Below is a statement from the ASA:
The bid by Seven Network Limited (SEV) and its chairman, Kerry Stokes, to dismiss the current board of West Australian Newspaper Holdings Ltd (WAN) has been criticised by the organisation representing retail shareholders.
Australian Shareholders' Association (ASA) director and West Australian branch chairman, Tom Herzfeld, said today that shareholders were unlikely to benefit from any of the proposed changes in leadership of the company.
"We see nothing in the performance of the company over the past five years to warrant the dismissal of the current board" he said. "Whilst we respect Kerry Stokes as a notable and successful West Australian, we do not believe his presence on the WAN board would necessarily advance retail shareholders' interests. Indeed his elevation to non-executive director will create further difficulties given that the existing directors have indicated they will not serve with Mr Stokes."
Mr Stokes has criticised performance but has yet to spell out alternative strategies that could lead to better performance.
And Mr Herzfeld added "If Seven Network has the recipe for even greater performance why wouldn't they seek to move to full ownership?"
Mr Herzfeld said that Seven's statements led him to believe they did not support WAN's long standing policy of paying shareholders 100% of profit as dividend. "WAN is an important holding in the portfolios of 30,000 Australians, many of them retirees dependent on a reliable income stream. The company has performed well over the last 10 years with a growing stream of revenue and profits. It is one of the few listed companies to have a policy of paying out all of its profit to its shareholders. Consequently, it is valued by shareholders who depend on the company for income. This year, profits were affected by abnormals but underlying revenue continues to grow strongly."
Mr Herzfeld said that there was a case to be made for strengthening the Board and ASA was heartened to hear the WAN chairman say that the Board would listen to arguments for additional skills to be brought on board.
In the event of a poll at the extraordinary general meeting to be held on April 23rd ASA will vote undirected proxies AGAINST all 15 resolutions.
(See below for our voting intentions)
FOR FURTHER INFORMATION: Tom Herzfeld Phone: 08 9252 0003 Mobile: 0400 256 788 Email: therzfeld@ozemail.com.au
Company name: West Australian Newspapers Holdings Ltd (WAN) Extraordinary General Meeting
Meeting Date: Wednesday 23rd April 2008, 2.30pm
Location: Hyatt Regency Hotel, Perth WA
Recommendation:
We recommend an AGAINST vote for each of resolutions 1 to 15 inclusive and will vote all open proxy votes entrusted to ASA accordingly.
Explanation:
The meeting has been requisitioned by substantial shareholder Seven Network Ltd (SEV) seeking to:
- Dismiss non-executive directors Peter Mansell, Jennifer Seabrook, MelvynWard and Erich Fraunschiel; and
- Replace the dismissed directors with Kerry Stokes and Peter Gammell, directors of SEV, and two others from among nine nominees.
The ASA has carefully investigated the claims made by SEV in support of this proposal and the responses made by the WAN Board. We note that:
- WAN has a track record of performing well under the stewardship of successive Boards, including the current one. In particular:
o Over the last five years, return on equity has averaged 48%;
o Over the same period normalised profits have grown an average 18.7% per annum;
o Over the past five years, dividends paid have doubled - from 30 to 61cents per share per annum;
o Whilst the dividend was down in the last half this can be explained by abnormals associated with the sale of the company's interest in Hoyts and the installation of new presses. Underlying revenue growth continued to be strong;
- Successive WAN Boards have supported shareholders with long standing policy of paying out 100% of profits each year;
- Growth has been achieved through "bolt on" acquisitions. However, an attempt to accelerate growth through the acquisition of Hoyts Theatres in December 2004 (since sold) proved mistaken, resulting in a loss in excess of $60million;
- WAN has a clear focus on print media and radio. On the other hand SEV has a complex structure with more diverse interests. In 2006 Kohlberg Kravis Roberts & Co (KKR), a private equity fund, acquired 50% of SEV. We are uncertain of the implication of this arrangement but know only that the company is based in New York and its investments are spread worldwide;
- When Seven acquired a substantial stake in WAN, the market expected Seven to make a full takeover offer to shareholders. This did not happen. If SEV believes WAN performance is poor and they can improve performance, why did they not proceed to full takeover? We believe that would have been logical, particularly as Seven is sitting on substantial funds paid by KKR for their investment in Seven;
- Whilst Stokes and Gammell may have had experience in newsprint via ownership of the Canberra Times and 50% of Community News, the sale of these units after a period does not demonstrate commitment to that sector of the media;
- We are persuaded that SEV directors, were they elected to the WAN Board, would have conflicts of interest through their responsibilities to SEV and to others. Both companies would compete for the West Australian advertising dollars and for expert personnel; we believe the WAN Board when it says these parallel interests would create functional difficulties on the Board;
- We note that Mansell, Seabrook, Ward and Fraunschiel have indicated that they would resign if either one of the two SEV director nominees was elected. This would mean additional directors would be elected from other nominees with no guarantee that they could function effectively as a team with Stokes and Gammell. We believe selection should be conducted in a far more rigorous manner to obtain leaders for WAN; and
- We do not believe that we have sufficient information on any of the other nominees to recommend any for election to the Board.
We do have an issue with the number of directorships held by Mansell and Fraunschiel and have again expressed the view that this workload is too heavy and is likely to diminish their ability to give their full attention to their WAN responsibilities. Our support on this occasion will not preclude us from being critical of these directors in the future or for voting against their re-election at some future date unless their responsibilities elsewhere have been lightened; and
Equally, similar objections could apply to Stokes and Gammell through their responsibilities to SEV, Australian Capital Equity and numerous subsidiaries under these structures. Additional responsibilities through directorships on the WAN board would most likely exceed levels ASA believes to be reasonable.
On balance, we believe shareholders have been well rewarded over an extended period and that SEV has failed to adequately explain how it might improve this credible performance.
We believe that the case made for dismissing Mansell, Seabrook, Ward and Fraunschiel by SEV does not have sufficient merit. Consequently, we have formed the view that it is in shareholders interests to maintain the status quo.
We recommend an AGAINST vote for each of resolutions 1 to 15 inclusive and will vote all open proxy votes entrusted to ASA accordingly.
