"There are no winners in the BrisConnections saga", that's how the Financial Review described the failed attempt to wind up Brisconnect at yesterday's EGM. The man who called the EGM, Nicholas Bolton, had previously been seen as a white night standing up for mum and dad shareholders. Then yesterday it became apparent that he had sold the voting rights to his 77.4 million units (about a fifth of the company) to Leighton Holdings subsidiary Thiess-John Holland for $4.5 million.
Opinions of Mr Bolton have since deteriorated. Shareholder View will admit to mistakenly considering him a white knight, in hindsight a misplaced view. Though Mr Bolton was merely acting in self interest (as everyone in this whole mess has been, it should be noted), this should not suddenly make him an instant villain.
He did not sell his units, just the voting rights. He retains his liability, along with other unit holders. One Twitter post summed it up perfectly: "Is Nicholas Bolton the biggest knob-jockey in Australian Corporate history? Cuts a deal for $4.5m & now owes $127m!". And importantly, even if Mr Bolton had voted his stake to wind up Brisconnect, it would have only raised the for vote from 36% to 63%, still shy of the 75% needed to wind it up. In the end, the outcome would still be the same, but he was $4.5 million richer.
Given those options, who wouldn't have done the same?
Wednesday, April 15, 2009
Tuesday, April 14, 2009
The background on Brisconnect
The saga of Brisconnect has been a shambles that hopefully will never be repeated in Australia's investing community again. It all boils down to the partly-paid nature of Brisconnect's units (basically shares in Brisconnect). Investors purchased units for $1 each at the float, but also agreed to pay an additional $2 per unit at some point down the line. This is quite normal, and is how the recent Telstra share sales were done by the government.
Until two things happened. First, the business tanked, and the unit price went down with it. Down to one tenth of a cent. Some keen investors saw this and thought it looked like a bargain. Which led to the second problem - they were not told of the $2 liability attached to each unit. Unlike the buyers at the float, there was no prospectus to warn them, nor do online brokers give you a little warning when it flashes the brokerage costs and transaction details before making a bid. The result was mum and dad investors buying $1,000 in Brisconnect and taking on a $2 million liability with it.
Two things would have prevented this. The first is to make all partly-paid shares operate like Telstra did, if you don't pay the next instalment, you lose your stake. The second is to require all buyers to be warned of how much additional liability is attached to their purchase. The good news: ASIC and the ASX have introduced the latter. The bad news: this won't save the many Brisconnect investors who were caught unawares.
Until two things happened. First, the business tanked, and the unit price went down with it. Down to one tenth of a cent. Some keen investors saw this and thought it looked like a bargain. Which led to the second problem - they were not told of the $2 liability attached to each unit. Unlike the buyers at the float, there was no prospectus to warn them, nor do online brokers give you a little warning when it flashes the brokerage costs and transaction details before making a bid. The result was mum and dad investors buying $1,000 in Brisconnect and taking on a $2 million liability with it.
Two things would have prevented this. The first is to make all partly-paid shares operate like Telstra did, if you don't pay the next instalment, you lose your stake. The second is to require all buyers to be warned of how much additional liability is attached to their purchase. The good news: ASIC and the ASX have introduced the latter. The bad news: this won't save the many Brisconnect investors who were caught unawares.
Subscribe to:
Posts (Atom)
Posts
