AGC vs CBH - What the? Part II

Below is the update flyer from Australian Grains Champions. In bold red, answer from this blog.

Dear grower,

The benefits for YOUR farm business Australian Grains Champion (AGC) was formed by a group of grain growers who want to ensure the longevity and growth of CBH and the WA farming businesses that built it and rely on it. The Australian Grains Champion proposal will deliver a range of benefits to you, your farm business and the entire WA grains industry: How, lay the model out properly so everyone can assess it and try to stay away from quick short & vague bite size thought bubbles that suffer from the Devil in the lack of detail. Waiting...

A strong CBH for the future A listed business with a commercial structure that can make commercial decisions will be the foundation of a successful WA grains industry for the next 80 years. You mean a publicly listed company that will eventually have a shareholder base like Wesfarmers where the growers become the customers and the minority shareholders. Remember AGC directors suggest with shares you have the ability to sell and realise extra cash. Secondly if you need to raise capital, the board can and would be wise to look at additional share issues to raise capital further eroding whatever share of the company growers might have. A well run Co-Operative is not better or worse than a well run Listed Company but the co-operative has the advantage of being grower owned, the grower is the customer and the owner. No dividends but then that's a bleed off of the books where in a Co-Operative benefits are quarantined to the members, not off to non farming or even foreign share owners. A Co-Operative that's excelled for 80 years can survive another 80 years and at present the East Coast looks and envies what we have.

Large, upfront cash payment Cornerstone investors have committed $600 million which will be paid directly to grower members. Which eventually that will have to be repaid, with an added profit margin...where do you think that will eventually all come from. The "Cornerstone Investors" will have to have their loan repaid or more likely, they will become the new majority shareholders who'll control the company, work out the dividend policy (which previously went back into the entity to benefit only members/customers) and they'll also work out which less performing assets need to be sold off. In addition to the cash payment, CBH members will also receive ongoing shares in the business. And that's because the cornerstone investors don't have anywhere near the amount of money to just buy CBH out. They don't offer a share option in lieu of cash, but a structured set cash/share amount and you can expect that their net worth estimation will be a fraction of its true worth otherwise they'd be paying you many more times the amount of shares to make it viable for the Cornerstone Investors. Please remember there's nothing wrong with Investors, but they are not SELFLESS ALTRUISITIC BENEFACTORS OF THE WA GRAINS INDUSTRY.

Valuable, tradeable shares and ongoing dividends Australian Grains Champion will list on the ASX. Yes where anyone can buy in and dilute grower control...just like Wesfarmers. Growers will receive shares that they can retain, sell or gift to their children. Sell off to help dilute the growers shareholder control...like Wesfarmers The value of CBH will be returned to growers’ own balance sheets. And the Cornerstone Investors to the tune of...well no one is willing to say, but currently the value of CBH is the entity retains all returns to be quarantined for the benefit  of the grower/member/owner/customers. Once listed, its customer vs business with financial bleed offs. If a Wesfarmers co-operative member had $10,000 in shares at the time of corporatisation and reinvested their dividends, today the value of their holding would be worth almost $850,000. And growers no longer own nor even go close to remotely controlling the Industrial conglomerate that's primarily Hardware, Coal and Insurance. You do know they renamed their Agricultural arm "Landmark" and sold it. Your point here is strip it out and sell it off to make another Sharemarket opportunity, not keep and guarantee its future as grain handler. Yes I think I see the real motivation of the Cornerstone Investors. Is one the financially troubled GrainCorp?

Pay down debt and/or invest in your business Balance sheet strength: will allow you to retire debt or invest. As you lose control of a Co-Operative that has you as both owner and customer. Perhaps all growers would similarly like to sell off all their machinery and use the cash to invest or retire debt with all the seeding, spraying and harvest now done by a new ASX listed contracting company? Maybe sell the land, use the money to invest or retire debt or as one of the AGC Directors said on the radio "go on that long overdue holiday you've always wanted" - Interesting that a Perth based director clearly thinks growers are either stupid or as shallow as a spilt drink on the lino. Right now the benefits come on the 3rd Bottom Line kind of like a social dividend but restricted solely to Grower Members. CBH has Balance Sheet strength and its rewards are kept for the grower members without showing up on their books. On-farm investment: capital for additional investment in machinery or infrastructure. Yes but if you have a good business why do you HAVE to have the AGC model to do that? Ahhh more bigger machinery for the husband and overseas holiday for the wife. Yep get it, its a shallow honey trap. Expansion: opportunity to grow your business. Again, why lose control of a set of books that have been self growing for 80 years and can do for decades to come (and lose quarantined grower benefits in the process) to "grow the business". Sounds like a weird form of cost shifting. Off-farm investment: to diversify your farm business. Again, why lose control of one asset to start another one of lesser worth and return, albeit on the 3rd Bottom Line? Family succession and retirement. There are those where this will appeal. But no one ever go into a Co-Operative knowing they were one day going to make a financial windfall to retire on. Nominal share holding, huge social dividend like return. But if you can appealing to people's greed it might work and eventually feed the Cornerstone Investors. Who are they again?

Powerful grower shareholding Majority share ownership by WA grain growers on listing. BAM! Yes "on listing" and if you need to raise capital, issue new shares to the stock exchange and see grower control get diluted. Sorry its a false and misleading statement to suggest grower control will be retained. even encouraged denies it could disappear completely like Wesfarmers. More influential Grower Council. Influence on who exactly? The Board? Ahhh the directors have strict legal obligations under the Corporations Act to act in the best interests of the shareholders, all shareholders NOT PRIMARILY GROWER SHAREHOLDERS. Influence is fine, but be care to not inadvertently deceive current members into thinking they have some control over the board. Clearly not the case. Grower Directors. You shouldn't care if a director is a grower, an ex grower or an ex plumber. Their background is irrelevant because under the law they have to operate in the best interests of the shareholders just as the current directors (Grower and Independent) do now. Now the fact is the business is storage and handling plus other enterprises that deliver benefits to the grower/owner/customers. Grower Loyalty Incentive Scheme. Well you say that now, but it may not be deliverable because...well just look at those 4 words. No detail. Right now you have a Grower Loyalty Incentive Scheme. You can get the benefit of the entity or you can stop using CBH and look to a rival where you are solely the customer dealing with a company that best is trying to sell services for a cost/plus benefit with only a portion being reinvested. You could quarantine ALL FINANCIAL RETURNS to the growers...oh wait CBH does that now.

It depends what questions you ask CBH is characterising overwhelming grower support for a structure and governance review as some sort of endorsement of its current strategy. Without Australian Grains Champion nothing would be happening at all. How could you know that. Strategic Direction is the private domain of the Board. Do you have a leaking presence on the board? You seem adamant that this only came about due to AGC presence...how is such a claim backable without full knowledge of what's been going on within the Board? Interestingly there was one glaring omission in the CBH polling: Would you support the full Australian Grains Champion Proposal being presented to growers? Why would anyone need to be asked such a question when the members weren't given the full proposal with ALL the detail the CBH Board was given? The board's job is to deal with take overs, not the shareholders. That's what shareholders elect a board to do, among other things. Even though we don’t have the same resources as the CBH public relations machine, we've done a private poll (not a push poll to publish) and almost two thirds of growers said they want to see the AGC proposal put in front of growers – these growers agree this is not a Board’s decision. And in the media AGC claimed it had overwhelming support, yet later said they'd surveyed 500 people. CBH has 4000+ members and we do not know if all 500 you surveyed where all CBH members or not. CBH survey double the growers AGC did and their survey showed majority support for rejecting the offer. CBH is the norm, AGC is the challenge to the status quo, it would be easy to assume the majority attending an AGC event would be pro AGC. At any rate with AGC's figures, their poll has shown 280 people supported the idea of the proposal being put to them. This is still a false understanding of the rights, roles and responsibilities of directors and the proper function of a board. Thankfully only 280 people were fooled and hopefully not all 280 are actually members of the Co-Operative...which has 4000+ members. AGC's supporters represent (if the numbers are correct) exactly 7% of the CBH membership. It is not a Board decision. It is YOUR decision. Well no its not. For it to be a shareholder decision the membership would have to hold an extraordinary AGM, get 75% of the membership to change the structure and oh did I mention this, sack the entire current board...THEN and ONLY THEN does it become a decision of the members and even then it would have to happen BEFORE the new board is installed. Its utter madness and shows the people wanting to take CBH to the "Wesfarmers Land of No Grower Control nor Return" don't understand what a Board's role is and you don't either. We will continue to work to ensure you get the chance to vote on the proposal. How can you help?  Register your interest on our website so we can communicate directly with you on how we will progress getting this proposal in front of growers. Talk to other growers about this, and encourage them to also make sure their voices are heard.  Make sure Australian Grains Champion has their contacts. If you can assist Australian Grains Champion in getting the proposal before growers, and you can play a more active role, call one of the Directors - our personal phone numbers are listed below. We can help make sure your view is heard.  We will continue to work on behalf of growers, for the future of grower’s families whilst you are seeding.   We look forward to communicating with you in more detail as soon as everyone has got off their tractors and the seeding rigs are pulled up, washed down and repairs done Sorry ,left decidedly unconvinced of AGC and its desires. It looks to be exactly what they said, "a Wesfarmers moment" where grower control is lost for a very small up front payment and a gift of shares they kinda already own. The AGC group doesn't understand the role of the board and hopes to rouse the members in some odd angry call to arms to recover their (not actually)lost rights and decide instead of the Board. A group wanting ASX listing with such poor governance knowledge is astounding and nearly enough to urge a flat no to the proposal without proper detail.   AGC was/is critical that the CBH Board didn't open up all its books to AGC to better assess things. If that is so I'm seriously concerned is a group of directors cannot grab the Financials from the Annual Report and recast them using proper Ratios and a few other financials tools they're unaware of to see where the companies strengths and weaknesses lie then make a real serious offer the board has to say yes to because its too good. I guess with financially stressed Cornerstone Investors like GrainCorp there's not much money to throw about. Yeah if the deal (AGC won't release) went ahead I'd divest on the first day of trading. Being ill equipped does not get overshadowed by motivation and determination. And there's the Youtube Sensations. Again thought bubbles and motherhood statements, appealing platitudes but no real proper well set out detail Now after all that, there's something else that has to added...and we'll use raised capital letters to stress this one point above all the others...   1) IS THIS A SIDNEY KIDMAN OF AUSTRALIAN GRAIN MOMENT BECAUSE IF AGC ARE TRULY THE SELFLESS ALTRUISTIC BENEFACTORS OF CBH MEMBERS AND THE WA GRAIN INDUSTRY, WHY SPEND WASTED DOLLARS AND DO IT WITHOUT OTHER OUTSIDE INVESTORS, WHY WOULD CBH NEED A TAKE OVER TO CHANGE STRUCTURE WHEN IT CAN JUST DO IT ALL ITSELF, AFTER ITS NOT A DEBT LADEN CO-OPERATIVE? I suspect some of the un-named Cornerstone Investors have greater personal ambitions than just listing the company. 2) IF THE BOARD IS GOLD PLATING, AS AGC PUT IT, AND IS "POLITICAL" THEN WE HAVE A BOARD THAT IS FAILING ITS LEGAL OBLIGATIONS UNDER THE CORPORATIONS ACT. WHY IS AGC NOT OUTLINING THESE TRANSGRESSIONS TO ASIC AND PUSHING FOR PROSECUTUIONS??? EITHER THE BOARD IS POLITICAL/GOLD PLATING AND THEREFORE BREACHING THE CORPORATIONS ACT OR IT ISN'T. Which is it? If it is, the AGC Board should be being the great corporate messiahs they're pretending to be and contacting ASIC.                                        SERIOUSLY THINK FOR A MINUTE.

AGC vs CBH - What the?

So now Australian Grain Champions are declaring they're not going away.

They're declaring their surveys show an overwhelming support for their actions and possible future bids.

CBH surveys 1000 growers and that shows an overwhelming support for the Co-Operative model.

AGC's contentions now are as follows...(from their website back in March 2016)

1) "The decision by the CBH Board to reject our Proposal, without giving you the chance to consider it, was extraordinary."

 

Well no it wasn't really, the board did what they board was elected to do. I find it extraordinary a hostile take over would suggest the board doesn't make decisions, the share holders do. Why does the board have board meetings and yearly there is the member's meeting called the AGM?

Boards and specifically the directors have what's referred to in the Corporations Act as a "fiduciary duty" to operate in the best interests of the shareholders at all times. Its a grave transgression to do otherwise and directors are personally responsible both legally and financially if they fail to do so. You can expect them to do so, if not throw them out at an AGM or contact ASIC. I notice AGC did neither, because they lacked the numbers for an extraordinary AGM and had no proof of any breaches of the Corporations Act, although its almost looks like a veiled inference that way at times.

 

2) "Effectively, the 12 directors have acted as censors-in-chief, keeping you and the 4000 other owners of CBH in the dark, blocking your right to review the Proposal in detail and an honest discussion of it. This should be your decision to make – not the Board’s."

Well no, that's actually quite incorrect and very mischievous in my opinion.

If somehow AGC thinks the board has breached the Corporations Act, they should cite chapter & verse where, when and how and lodge a complaint with the federal regulator of directors, ASIC.

Make up your mind and either lodge a complaint or take down the accusation/inference.

 

 

3) Instead, the CBH Board says it is commencing a long-winded “consultation process” on CBH’s future that will take six months to produce an “interim” report. This process will inevitably deliver more of the same and cost you a lot of money.
This is not good enough. The Board has had years to work on these issues.

 

With legal and financial advisors CBH would have had to employ, there's a big cost. There's a lot to the cost & effort in assessing the Take Over Bid, not to mention extra board & management hours logged and the large amount of lost productivity from middle and senior staff. The Board has not had years to deal with "these issues" because their current new issue at the time was assessing a take over.
 

There was 2 aspects seemingly overlooked, hidden or not understood by AGC.

Due Diligence and Due Process.

If the board has not performed properly, again, it has failed in its fiduciary duty and the board should be reported to ASIC with a full list of breaches and legal action should commence.

Why has AGC not done this? And if the offer was accepted, would any accusations/inferences over the board's performance and/or failures been even mentioned? Nope sour grapes is the new sponsored drink during unhappy hour.

Make up your mind and either lodge a complaint or take down the accusation/inference

 

4)Australian Grains Champion has a well-developed Proposal that is ready for implementation now.

 

I'm sure it was deemed ready for implementation but it was presented and AGC fired shots at the board before it had even given its final decision. Why is that?

Is that how you're supposed to act when making a proposal? Highly unprofessional.

Ready for implementation, but it seems it was a poorly thought out plan and well below the best interests of the members. Think otherwise?

Make up your mind and either lodge a complaint with ASIC or take down the accusation/inference.

5) It is the only Proposal that is real, backed by Australian money, provides for significant grower control and is unlikely to be duplicated.

 

Of course its real, it wasn't a hologram but a hologram probably has more depth. One key entity involved was GrainCorp which is a financially stressed listed company. Remember that, its a "corporatised grain handler". How bad a shape is it in?

Pretty bad. Its P/E Ratio is 60 which is close to basket case. Its dividend policy is to return to its shareholders between 20 & 60% of after tax profits, yet it can still only manage a Dividend Yield of 1.17%. Now if that isn't a sad picture of a pubic listed company that serves as a cautionary tale, please remember GrainCorp recently survived a proper take over from USA giant ADM, only failed because the federal treasurer stepped in. But remember ADM is a not a majority shareholder, but it is a major shareholder with a Nominee Director on the GrainCorp board so their push for a take over of a very good grain handler like CBH would be gigantic net dollar gain for GrainCorp and ADM.

You bet GrainCorp want a slice. Its probably its best chance at a life line before their already disgruntled shareholders go to their AGM and push for proper financial reform and deliver proper returns via dividends or wind the company up. If I was on GrainCorp board I'd push for a CBH takeover but then I'd be putting dividends on hold until the company is turned around and if that wasn't accepted I'd resign.

Proposal was real, poorly put together, poorly explained and...well all round poor or CBH board would have snapped it up.

So, did CBH board failed fiduciary duty when they knocked back the deal? Well...

Make up your mind and either lodge a complaint with ASIC or take down the accusation/inference.

6) We have spent the past few weeks on the road talking to hundreds of growers like you. There is strong and growing support to see and discuss our Proposal to unlock the value in CBH and to set it up to meet future challenges.

As it turns out by their own admission AGC surveyed 500 growers and although they haven't issued the numbers in favour, they said it was overwhelming. Maybe perhaps time to be consistent with strategy AGC wishes to impose on CBH...release all the actual numbers in the survey and let all growers decide not the AGC board. I'm kidding, but in light of the poor performance of AGC on a number of levels already I wouldn't be buying if they were selling shares in God.

FWIW if growers want to see your proposal, show it in all its detail.

One question unlock the value...unlock it to whom? Yep, we'll get to that.

No, we'll get to that now with some of the other abyss size flaws.

1. AGC you have 5 directors. Who is the Chairman?
    
2. Do all 5 own equal shares or is it 3 owners with 2 independent directors to offer financial skills and legal skills? Are there more shareholders in AGC you haven't told us about? How many shareholders are there? Can anyone buy into AGC? Its just there maybe a take over bid and if you can open all your books fully we can assess what we think we can offer before we take you're outfit to a new unprecedented level. C'mon...no need for shyness now ;-)
    
3. Is AGC really a Jones/Middleton/Michael private company that has embarked on an ambitious take over bid of a WA Co-Operative that is probably the biggest Co-Op in the country by capitalisation and by profit? In reality are three families looking to knock the ownership out into a public listing or do we have Shadow Directors and undeclared shareholders? You don't have to answer.
    
4. When you're done there, please explain fully your proposal to the extent that if the deal was accepted how much were each AGC directors set to personally make out of the deal (Sorry I meant out of CBH coffers, growers money, get it?)...in dollars and how much each share holder would have made? Not in receipts from converted shares but in fees and charges paid to AGC.
    
5. This of interest "provides for significant grower control" - Just how? If you publicly list the company its open to non grower ownership. If you need to expand and invest in different  enterprises, you will have to raise capital...release new shares. More dilution of the grower ownership. THE ONLY WAY to maintain grower control is to make sure its only ever owned by growers. Co-Operative does that, but that's not what AGC said. They said "SIGNIFICANT grower control" - Clancey Michael described it as a "Wesfarmers moment". Do growers have control of Wesfarmers? They sold off the Agriculture Arm of the business...will AGC's CBH do the same or definitely not.
    

Lastly the big killer, its up there with the well made but vacuous videos they've been releasing which are well filmed thought bubble devoid of actual facts and explanations. Yes there is a recent move from AGC that rings the bell that's covered in red flags.

In the last few days AGC have been critical of the CBH board for not furnishing them with a good and proper look at the books.

Ummm...how does that work?

A hostile take over wants access to all financials of the company, across all the business...from the board?

Do you want all commercially sensitive information as well?

Seriously here's where I have the biggest and most serious concerns about AGC...and their ability to know what the dickens they're doing.

If you cannot look at the Annual Report, recast the entire company financials using...no I'm not going to mention the tools to be used, but if you cannot recast the financials to find the weaknesses and strengths of the business, and determine exactly where they are then I don't think you're suitably positioned to help strengthen a newly listed company, let alone forge its new future.

This might not be something that should be a news flash.
AGC hitched its wagon to GrainCorp with a P/E ration of 60.

Everyone will look at a 60 P/E maybe a little differently but ask 5 share market investors, day traders or even stock brokers. I'd lay a bet at least one with come up with comments that include the words "financially toxic" or similar.

• What's coming out of AGC concerns me and others.
• They're not saying things that automatically suggest they know a board's rights, role and responsibilities are, what director's rights, role and responsibilities are.
• They're saying things that automatically suggest AGC don't know basics like how to read and recast the Financials of CBH's Annual Report.
• They're not saying things that automatically suggest AGC know how to read and recast GrainCorp's Financials.
• They are saying things that could cause someone else not versed in Director's rights, roles and responsibilities to think the CBH board is breaching the Corporations Act.
• They're saying the board should open their books to them completely...when its a hostile take over, not an exercise of due diligence prior to making Receivers/Administrators or Liquidators a purchase offer. CBH is not is financial trouble, there is no legal requirement to open all the books up to a take over group that cannot handle recasting the Annual Financials.
• They're not saying who they are beyond the Board of five, not saying what success fees each director would earn if the deal went ahead, what portion of success fees would be shared with whoever other investors/shareholders in AGC.
• Beyond thought bubbles and poor take over offers, they're not 100% clear on the Strategic Direction which AGC prefers nor is there any reason that IF listing as a Publicly Listed Company WAS SUCH A GOOD IDEA, why would not the AGC group prefer CBH do it themselves and save a very, very significant amount of CBH's money...how is that? For a group that might like to be viewed as a progressive group of selfless, altruistic benefactors of the grains industry, seems to be a lot of cash seeking going on. Including the $16 million dollar clause they later dropped.

Personally, I'd lean towards the current CBH board knowing what they're doing but possibly, like me they're unaware and wondering what the heck AGC thinks its doing. I have no evidence of the current CBH Board doing anything else than fulfilling its legal requirements as Directors under the Corporations Act. I have no reason to suspect they've not made a good decision for the members. AND PLEASE REMEMBER if you think the CBH board is trying to maintain its golden seats and or is "political" they're ALL guilty of breaking the Corporations Act and need to be investigated and prosecuted. Not one or two, the whole board. I'm not of that mind.

It reminds me of one line of Shakespeare who recently turned 400..."it is a tale, told by an idiot. Full of sound and fury, signifying nothing."