January 18, 2008
Austar almost went broke and we were there to give them plenty of grief about it at the 2001 AGM. This was first published in Crikey.
I'm just back from a longish lunch with a couple of PR heavyweights in Sydney and am now back in the favourite Kings Cross net cafe to report on this morning's highly interesting Austar AGM.
As promised we gave former HIH director Justin Herbert Gardener plenty of stick for continuing on the Austar board.
But the similarities with HIH and this regional pay-TV company were a lot more stark than we expected.
We all know that the HIH board was full of former Arthur Andersen partners and that Arthur Andersen were the auditors to both HIH and FAI. Warning bells should have gone off.
Justin Gardener was one of those former AA partners who joined the HIH board two years back, sat on the audit committee and signed off on the accounts in October last year claiming the company had net assets of $950 million. Yeah, right.
Justin Gardener is also the only independent director on the three man Austar finance and audit sub-committee of the board and guess who are the auditors of Austar? Yep, none other than Arthur Andersen.
And guess who are the auditors or Austar's 81 per cent parent company, United Global Communications of Denver? Yep, Arthur Andersen.
All of this was manner from heaven for a shareholder activist so we demanded that the auditor of Austar, Chris George from Arthur Andersen, get up and explain away this potential conflict and to also explain how he justified signing off on intangibles of $335 million on the Austar balance sheet when the company only has net assets of $363 million.
Remarkably, the auditor claimed the intangibles figure was a management figure and we should take it up with them. Hang on a minute, isn't the auditor meant to be keeping the management honest. And isn't that what AA failed to do with HIH.
Austar was floated at $5 a share in June 1999 raising about $450 million and they then raised a further $160 million in a placement to institutions at about $8.50 a share shortly before the tech crash in April last year.
The stock is currently wallowing at 85c and the parent, UGC, has just written out a cheque for $203 million underwriting a rights issue at 95c a share that completely flopped.
Minority shareholders are understandably annoyed and after paying $6.90 for our shares last year we got out at about $4.50 and relied on proxy to get into yesterday's meeting.
Chairman Mike Fries and UGC founder Gene Schneider were on the video link from Denver but were most reluctant to commit to take out the minorities at a premium to the current pathetic price.
The treatment of the minorities really does bring some focus onto who are the independent directors looking after our interests. For instance there are currently $20 million in management fees payable from Austar to the parent on the balance sheet and we need feisty independent directors ensuring the parent is not milking the minorities.
Frankly, I'd have more confidence if someone other than Justin Gardener was doing this although when we challenged his position he blamed HIH management for the problems and stressed that most of the problems dated back before he joined the board two years back.
Austar is just like One.tel and Hutchison Telecommunications Australia. All three have big major shareholders but plunging shares prices, huges losses and mounting debts. One.tel is being bailed our at a bargain basement price by Murdoch and Packer, Hutchison Whampoa of Hong Kong has committed $1 billion to fulfill the 3G dream of HTA and UGC has just pumped $203 million into Austar which is still $150 million shy of fully funding its business plan.
Frankly, I like Austar more than One.Tel and Hutchison and think it has a better chance of surviving. The management got reset in a stack of options yesterday but at least they were priced at $1.75.
It was regrettable that the three non-executive directors were also awarded 50,000 options which goes against good corporate governance principles. Despite speaking strongly about the importance of voting against Gardener's options they just got up on a show of hands and only 13.7 million proxy votes were lodged against him.
That's all on Austar for now but we will return to the issue in a couple of days with a complete account of the meeting which was very interesting.
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