A board challenge for Telecom
Sweeney Vesty has just sent me a press release, which I’ll quote below:
Elliott International, L.P., together with funds under common management (“Elliott”), a 30-year-old private investment firm and shareholder in Telecom Corporation of New Zealand Ltd. (TEL.NZ), today nominated two local, independent, candidates to the Board of Directors to provide new thinking and new ideas regarding the future strategic direction of the company.
The Board candidates, who will stand for election at the Annual General Meeting on October 2, are Mark Tume, from Wellington, an experienced director with a banking and funds management background, and Mark Cross, from Auckland, who has a global financial markets background specialising in utilities. The candidates have agreed to stand on the basis that, if elected, they will be independent and will represent the interests of Telecom and all of its shareholders. Elliott believes that the candidates’ understanding of investor needs will create a cooperative and energetic environment between the Board and its shareholders.
“For almost a year we have been trying to talk to Telecom about some of our ideas and concerns regarding the affairs of the company. Telecom’s share price has been in decline over the past few years and once again, following disappointing year end results, its share price is around a fifteen year low. In our view, Telecom’s performance languishes behind that of other key telecommunications players in the international market, and we believe this is partly due to an unclear and outdated strategy. Shareholders and customers remain dissatisfied with Telecom’s progress,” said James Smith, a portfolio manager at the fund.
Elliott believes that the appointment of Mark Cross and Mark Tume will provide a fresh perspective to the current challenges Telecom faces. Both Mark Cross and Mark Tume have considerable strengths in the finance and investment industry, strong commercial and strategic acumen and unique skills that will provide extra depth and new ideas for Telecom. Their expertise in financial strategy will be of particular value to the Board.
According to Elliott, Telecom needs to take immediate and serious action to improve its situation and to consider and debate new ideas that will benefit customers and shareholders.
One idea that Telecom has been asked to consider by Elliott over the past year is ‘structural separation’ — the next logical step in the operational separation process that Telecom began earlier this year. This idea involves a simple structural split of Telecom’s retail business (‘NewCo’) from the remaining wholesale and network business of Telecom (‘NetCo’). This structural separation idea was first proposed by Elliott in November 2007 when Elliott and other interested groups publicly commented on Telecom’s operational separation plan. The proposal is still available on Ministry for Economic Development’s website at http://www.med.govt.nz/templates/ContentTopicSummary____32573.aspx.
Since that submission, Telecom’s management and the Board have been provided with extensive research and analysis on the structural separation proposal, including reports from global consultancies on key feasibility issues – regulatory and legislative implications, cost, and technical issues. The research also outlines the significant benefits the proposal could bring for Telecom, its shareholders and customers.
Now what this is about, is a minority shareholder saying we think Telecom would be more profitable if it does full structural separation (something I think is also beneficial for Telecom and for consumers), and as Telecom won’t agree with us, we are going to try and get two Directors on the board who will look at supporting this.
Now Elliott are not one of the top 20 shareholders, so their chances of success are somewhat limited. But with this board challenge, they will force other shareholders to consider the issue of whether Telecom would be better off with structural separation.
August 11th, 2008 at 4:13 pm
Having had a very good look at this for several months now, there is no doubt that in the short term (1-3 years) there would be shareholder gain. However, in the longer term, 3-8 years, that gain would turn to significant loss.
The reality is that Telecom is NOT JUST Chorus, retail and wholesale here in New Zealand.
It incorporates AAPT in Australian which with a current book value of less than $500 million is delivering a significant return on Capital. (The fact that the past management, under the leadership of Roderick Dean as first CEO then Chairman, paid far too much for the business is no reflection on the current management team, who are doing good work turning it around.
It Incorporates Gen-i. New Zealand’s fastest growing ICT services firm, with significant upside potential across the ditch that is just starting to be realised as revenue enhancement.
It also incorporates a number of international service ventures, operated out of London, that have vast long term potential.
What you are seeing here is a ‘breakup’ ploy on the lines of many undertaken in the 1080s. None of them did any long-term good for anyone except the Merchant Bankers and Investment advisers, who took vast fees and opportunistic profits from the exercise. If the original owners of the vertically integrated companies, broken up and sold off piecemeal in the ’80s, had held on to them they would be far wealthier than they are today. Vertical integration enables a sensible ‘end to end’ strategy to be followed, that is the best approach – particularly in a utility market, which Telecommunications has become. If you doubt that, look at what Vodafone is doing!
August 11th, 2008 at 9:42 pm
quote:
Telecom’s share price has been in decline over the past few years and once again, following disappointing year end results, its share price is around a fifteen year low.
DPF , Your post here is disingenuous, you bloody know the reason for poor performance of Telecom, instead you chose to ignore it, because you’ve been a strong proponent of its dismemberment.
quote:
In our view, Telecom’s performance languishes behind that of other key telecommunications players in the international market, and we believe this is partly due to an unclear and outdated strategy.
No, Telecom’s strategy was working well, until Minister David Cunliffe chopped them into bits.
quote:
Shareholders and customers remain dissatisfied with Telecom’s progress,
No, it should have been stated that Shareholders and customers remain dissatisfied with Commissar Minister David Cunliffe for nationalising of what is theirs, without paying compensations.
Start blaming the government for its interference in private property and not blame Telecom.
August 11th, 2008 at 10:21 pm
FF: You need to understand the difference between what I say, and when I am quoting someone else.
August 11th, 2008 at 11:50 pm
FFS, how do you get to spend so much time on nz blogs?
http://www.google.com/search?client=opera&rls=en-GB&q=Falafulu+Fisi&sourceid=opera&ie=utf-8&oe=utf-8
Just curious.
August 12th, 2008 at 2:13 pm
Expat said…
FFS, how do you get to spend so much time on nz blogs?
And what do you think? The answer is obvious, and I am surprised that you asked? Hint? Most blog commenters gravitate towards sites in their own countries. I think that our NCEA students would figure that out by indirect inference, ie, If A is a kind of B and C is some kind of B, therefore it would be true to conclude that A is also a kind of C. See, you can link A and C indirectly via logical deductions, even though there is no direct link between the two, ie, A & C have obvious observable relations. More here.
I comment on overseas blogs as well , mainly in US (tech-blogs, such as Read-Write-Web, TechCrunch, Practical Ecommerce, O’Reilly Radar, etc,…). You can search my name in those sites where my comments are regarded by readers in those blogs as insightful and interesting (check it out yourself, and don’t take my word for it). I make comments in technology, finance, economics, science (Physics, mathematics, statistics, Climate Change), politics, mysticism, computing, engineering and a whole lots of other topics, you can tell that from the Google list you’ve just linked to in your previous message.
Finally, it showed that you’ve made 737 comments here at DPF, that is almost 7 times more that my total comments (115), may I ask why you’re not commenting on any other topics in the blogo-sphere apart from political ones? I mean, do you comment on your profession’s different blog sites (accountings, lawyer, or whatever) ? Why do you hang around too much here at DPF? Is your interest in politics only?