Investors dump Transfield
The decision by Transfield Services to put its non-executive director Graham Hunt into the role as acting chief executive makes for an interesting new phase for the company with speculation swirling that it could spark takeover activity.
The news of the current CEO Peter Goode’s sudden resignation on the same day it released its results – which were in line with expectations – took the market by surprise.
Within a few hours of trade investors had wiped almost 7 per cent off the share price. It follows news that the major shareholders in Transfield, the Belgiorno-Nettis family, which own 10.5 per cent of stock and have two brothers on the board, would step down and cut their seats from two to one.
This development has prompted at least one investor to question whether the family is about to reduce its stake in the company, which would result in an overhang of stock in the market.
In the past year, the company’s shares have fallen from $2.40 to $1.92, despite a buyback to help bolster the price.
The negative reaction to Goode’s announced departure speaks volumes about the nervousness of shareholders in a company that has had a string of downgrades.
When such a company then announces a changing of the guard that they had not seen coming, imaginations naturally run wild.
In Goode’s case his decision to leave came after being offered an equity partnership in British private equity group Arle – a company he has had an eight-year association with.
Goode will stay on until the end of September then take on a consulting role at Transfield.
The decision to appoint Hunt in the interim is not the first time a director has moved from non-executive duties to become the chief executive. Other examples include Foster’s and Lion Nathan.
Goode has done a number of positive things at Transfield, such as getting out of some assets that it overpaid for years earlier, and moving deeper into mining services. However, he also bought a business, Easternwell, that the market believed was over-priced and is taking too long to deliver a return.
The acquisition also needs to be fully integrated, something Transfield has struggled to do.
In the latest results Easternwell generated an EBITDA of $77 million, and forecast it would increase to $90 million to $102 million in 2013.
It issued the proviso “dependent on the strength of the mining sector.” With so much debate about whether the boom is over, this comment did not go down well by investors.
The group reported a net profit of $85 million and pre-amortisation earnings of $106 million, which met its April guidance. That goal, though, had been downgraded from its previous guidance because of bad weather and a $16 million provision for a legacy construction contract.
Whether the boom has ended or not, oil and gas construction remains at record highs, and Transfield has won some good contracts.
And in terms of the full integration at Easternwell, it is here that Hunt is well placed.
Hunt has a strong background in the mining sector, having spent 34 years at BHP in various roles, including president of its iron ore business, president of its uranium division, and president of its aluminium unit.
This choice, acting as it is, has prompted speculation that the company will continue to move into mining services, particularly as it appointed a headhunter last week to secure a North American business director for its oil-field services business in the US.
Hunt left BHP in 2009 and turned up at Lihir Gold as managing director, until it was swallowed up by Newcrest mining in late 2010. The merger resulted in shareholders getting a 50 per cent premium on the price at which he joined.
Whether Hunt’s tenure at Transfield becomes notable for takeover activity – whether as prey or predator – remains to be seen.
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