Radzyminski wins war against Coventry chair
Source: The Australian Financial Review. By: Sarah Thompson, Anthony Macdonald and Jake Mitchell. Activist investor Gabriel Radzyminski ’s six-month...
19 November, 2014
Coventry Group (ASX:CYG) supplies a range of fastening systems, cabinet hardware systems, hydraulics, lubrications, fire suppression products, refuelling systems and other solutions to the mining, construction and manufacturing sectors.
The Opportunity
CYG had been a serial underperformer with revenues more than halving from 2007 to 2013. Governance was poor, the business strategy was flawed, operational performance was substandard, and capital allocation was disappointing.
With an ever-declining share price, CYG had largely become irrelevant to the market.
Sandon Capital saw the potential for a turnaround in CYG’s performance with a change in governance and a strategic shift in operations and capital management. CYG required Board leadership that was supportive of returning value to shareholders by way of a special franked dividend, rather than continuing to pursue its longstanding, yet largely unaccomplished, strategy of seeking acquisitions. Sandon Capital believed it could gain the support of other shareholders to influence this strategic change and unlock value.
COMMENCED
May 2011
OPENING PURCHASE PRICE PER SHARE
~$2.30
THE ACTIVIST CAMPAIGN
In the three years leading up to June 2014, Sandon Capital met with the Chairman on several occasions requesting an end to the then acquisition strategy and payment of a special fully-franked dividend. The pressure on the Board increased in June 2014 when Sandon Capital formalised its request in a letter to the Board and formed an association with another investor, Dorsett Investments who were related to one of the founding families of CYG.
One month later, in July 2014, CYG announced its intention to pay a special dividend. Then in September 2014 CYG announced the appointment of two new directors. The appointments were not supported by Sandon Capital and Dorsett Investments
In November 2014, prior to the CYG AGM on 7 November, Sandon Capital released a presentation to CYG shareholders outlining the company’s unsustainable operational and financial situation and why shareholders should vote against the two new directors up for election, vote against the remuneration report, and vote for a Board spill motion. At a fiery AGM, questions asked by Sandon Capital led to an admission by the then Executive Chairman that his retirement would trigger termination benefits. This further stoked the discontent among shareholders.
Shortly after the AGM, CYG announced that the resignation of its Executive Chairman, effective from January 2015.
The company continued to struggle however under the MD appointed by the former Board. A new MD, Robert Bulluss, was appointed in 2017 and since that time CYG has started to address many of the operational issues that had plagued it for years.
SUMMARY
Forming an association with another shareholder, Sandon Capital set about influencing changes in Board membership and leadership. A change in Chairman, and a subsequent renewal of the entire Board and change in Managing Director (MD) put an end to a flawed acquisition strategy and has seen capital returned to investors.
INVESTMENT STATUS
Sandon Capital remains a shareholder of CYG
Current View
Sandon Capital is now a strong supporter of CYG. Current Chairman, Neil Cathie, and MD, Robert Bulluss, have successfully orchestrated a turnaround after many difficult years for the company and its shareholders. Non-core assets have been sold, operations have been stabilised and the company is now growing strongly, both organically and through acquisitions. Dividends have now been reinstated after a long hiatus.
Related Reads
Radzyminski leads raid to topple Coventry directors
Source: The Australian Financial Review. By: Sally Rose. Activist investor Gabriel Radzyminski is leading a share raid on Coventry Group, the $106 mil...
20 June, 2014
Past performance is not indicative of future performance. The content of these case studies constitutes the views and opinions of Sandon Capital. They have been prepared without taking into account the objectives, financial situation or needs of any particular individual. The case studies do not constitute advice.
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