Tasmanian Times

Economy

Gunns under fire over Gay share sale

Shareholders in Tasmanian forestry giant Gunns have every right to be upset at chairman John Gay. Gay has been paid more than $2.4 million over the past two years, during which time the company’s share price has fallen from almost $3 to less than 70 cents. That, though, is not the worst of it.

In the recent reporting season, Gunns reported a measly $400,000 profit for the six months to December 31, 2009, down 98 per cent on the previous corresponding period. The share price fell a gut-wrenching 22 per cent on the day of the announcement.

It’s no secret that Gunns has been having a rough time of it. The high Australian dollar, reduced demand for wood chip and controversy surrounding the company’s proposed Bell Bay pulp mill have all been impacting on the company’s profitability.

But no one was expecting a result this bad. The company, which is now valued at $500 million, managed a $145 million capital raising at 90 cents per share in September and an annual meeting almost two weeks into November without mentioning that it would only break even for the half.

It’s possible that the decline occurred in the last, rather than the first three months of the half. But if that were the case, it paints John Gay’s unloading of 3.4 million shares at an average price of more than 90 cents each in the first week of December in a most fortuitous light.

Unless the company’s poor result was solely attributable to a precipitous fall in performance in the last three weeks of December, it would be fair to ask whether Gay might have had an inkling of the situation.

Fund manager and colleague Steve Johnson noted at his Bristlemouth blog that a Gunns company spokesman told the Australian Financial Review that “directors are allowed to trade in a four-week window after a significant market update, such as the annual meeting, and that Gay’s trade was within this window”.

The problem is that Gay didn’t actually give anyone a “significant market update”. He waited until after he’d sold his shares for that.

“This sort of behaviour has been going on since the Dutch East India Company listed the first share on the Amsterdam Stock Exchange in 1602,” writes Johnson. But that doesn’t make it acceptable. Either ASIC or the ASX needs to be given the power to take meaningful action.

A nasty letter from ASX invites a meaningless response, typically couched in terms akin to that of the Gunns flak quoted above. The ASX can forward a potential issue to ASIC for further investigation but when it does, ASIC’s record in prosecuting this sort of behaviour is poor.

Company directors know this …

Read the full article online at the SMH, HERE

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11 Comments

11 Comments

  1. Cheshire

    March 9, 2010 at 11:45 pm

    This must just be another case of coincidental timing. Everyone will remember Gunns’ fortunate decision to withdraw from the RPDC assessment before the critical non-compliance letter was sent. No clue then, no clue now. What would investors prefer? A CEO so oblivious to the status quo of his company, or…?

  2. Mark

    March 9, 2010 at 9:58 pm

    #5 with due respect, crap. The AFS was created by an inbred group of Australian Forestry representatives at considerable expense. What a waste of money!

  3. john hawkins

    March 9, 2010 at 9:39 pm

    #5 I suggest that PEFC(AFS) and FSC chips are not virtually identical’; the difference is that FSC is saleable the other is not.

    That is why 800,000 tonnes of chips lie unsold on the wharves,unsaleable without taking such a loss that it will bankrupt the owner; be it Forestry Tasmania or Gunns.

    Gay and his cohorts have made the wrong call using PEFC(AFS) thereby allowing them to log native forests; the world has moved on.

    This decision will cost him the company and a large number of Tasmanian timber workers a job.

    I suggest that thinking Tasmanians will blame Gunns not the Greens and the brain dead will vote Lib/lab for a 20 year extension to the Regional Forest Agreement.

  4. steve

    March 9, 2010 at 8:54 pm

    crf have you tried telling that to the japaneese woodchip buyers?.Where are all the woodchip boats?.I can’t even get a trailer load of f.s.c. chips for my garden !!.PS do you need a line in the sand to find the dole office?..

  5. Gerry Mander

    March 9, 2010 at 4:19 pm

    The degree of incompetence shown by Gunns is mind-boggling. In their declared statement in answer to the ASX 3.1 query they stated that they were unaware of their half year decrease in profits of 98.7% before the figures were released by their accountant, on Sunday, 21st February, the day before the market was informed.

    However, despite only finding out about this news on a Sunday, by Monday morning they had already come up with a fairly detailed plan to split the company into three different entities. Fantastic piece of work in such a short time span! They board must have burnt a great deal of midnight oil!

  6. steve

    March 9, 2010 at 3:55 pm

    crf Why dont you tell the japs that?.

  7. Tom

    March 9, 2010 at 3:43 pm

    crf #5, if you are correct and the FSC certification and AFS are identical than what is the problem with Gunns getting FSC certification as well? Should be easy for about half their operations, mainly the vineyards I guess. It also seems that public recognition of FSC is high enough in the Japanese and EU markets to send Gunns broke without it.

  8. crf

    March 9, 2010 at 1:15 pm

    #4: FSC and PEFC (AFS) are essentially identical. Ironically, that’s why dark greens also attack FSC. The truth is that public recognition of either scheme is very low. Most of the world’s certified forests are PEFC certified.

  9. Mike Bolan

    March 8, 2010 at 6:15 pm

    Consider that the laws and regulations may not be written to protect us from those with privilege and resources, they may instead be written to protect those with privilege and resources from us.

  10. Pete Godfrey

    March 8, 2010 at 12:36 pm

    Not being a gambler and therefore avoiding owning shares I don’t know all the rules
    But I have heard of Insider Trading.
    Surely a CEO or Board member is in a position to know too much insider information to be allowed to buy and trade shares in their own company.

  11. William Boeder

    March 8, 2010 at 11:20 am

    A recent letter of reply from the ASX as to my own contentions, (they being of the same nature as described in the article above,) tends to confirm all that has been quoted in this article by Greg Hoffman.

    It is a matter soon to be adjudicated upon by the ASIC, only then will there be an appropriate attendance given to the extremely fine edge of compliance/non-compliance.

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