Pinned straw:
I really think Samuel Terry (ST) & Sandon can pull this off - provided retail apathy doesn't win the day by not voting. Early signs are the Board are feeling the pressure. Surely instos have to carefully consider the merits of what is requested, viz, incentives aligned to real shareholder improvement KPI's and a dividend commitment.
The KAR Board have proved to be accident prone, loose with their strategies, poor with their acquisition execution/s, exceedingly generous with their STI & LTI incentives and totally NOT shareholder focused. Why does it not come as a surprise when you see how few shares the Board hold. They are in this for the easy to obtain incentives which they then invest elsewhere. Talk about 'someone who is both gender & colour neutral' in the woodpile.
Plus they appear stodgy & unwilling to listen to reason. I truly hope they get handed their posteriors on a salve - love that old Roman word of 'salve' - perhaps we can short this to bum salve!
Anyhow, enough silliness, they are guilty of a terrible acquisition in the Who Dat field and the lousy equity raising to accompany same - all the while satisfying a not immaterial part of their STI of 'make an acquisition'. Come on.
At the very least I hope they get a Strike #1 on the remuneration agenda and are chastened enough to listen. Just look at what ST achieved with HZN.
I'm happy to give this a few years to play out because KAR is seriously undervalued when compared to other Aussie producers who have implemented a dividend policy. Gabriel Radzyminski is a good man to have in the shareholders corner. May 23 is the date for the big stoush! Ringside tickets all sold out.
@PortfolioPlus Looks like STAM & SNC managed to rally enough interest to pull off a "Strike one" under the Corporations act.
I was hoping for much more, but aint that the way it goes
I pulled this off Hotcopper:
I've been a shareholder of SNC on and off over the years @Arizona but not of KAR. I have a lot of respect for Gabriel R of SNC - he's also on the Board of FGX - Geoff Wilson's Future Generation Fund (the Australian version, not the Global Fund, and he's a mate of Geoff Wilson) and he has had some good wins, and also a fair few that did not work out so well for Sandon (SNC). I followed him into ILU before DRR got spun out, and he wasn't the first fundy to point out that the MAC royalty wasn't being properly valued within ILU and was better out of it. I made money on that DRR demerger (spin-out) but I lost money on SNC because the share price kept dropping. The high dividends (all fully franked) were predictable and welcome, but weren't greater than the share price depreciation I experienced during the holding period. I ended up deciding there were better opportunities - and SNC was the last LIC that I sold out of - in my real money portfolios. No LICs or LITs held now.
On the plus side, SNC has 32 cents/share in their profit reserve, so enough to cover many years of dividends, even if they increased them, and their NTA has been rising over the past year. The share price is still trading at a sizable discount (to NTA). April 30 NTA was almost 83 cps and the share price closed yesterday at 71.5 cps. Source: SNC-Net-Tangible-Assets-as-at-30-April-2024.PDF
If they can close that discount without the NTA dropping, there's money to be made there, but they have been trading at a similar discount for a few years now. It waxes and wanes but always a discount, never a premium, because of the hit and miss nature of activism investing.
Interestly, Gabriel manages the fund (SNC) but is not a substantial shareholder; he only owns just under 2.5 million SNC shares. The two "Subs" are Geoff Wilson with 6.6% (7m shares) and Ron Brierley's private company Siblow Pty Ltd with 22% (29.5m shares). Wilson's shares are privately held, not through WAM Funds or the LICs that they (WAM Funds) manage.
Ron Brierley, a New Zealand citizen who made his name as a successful corporate raider in Australia in prior decades allowed Sandon to merge with and takeover the management of his Mercantile Investment Company in mid-2019, citing "age and ill health" as his reason for stepping down from his last listed company role, hence his Siblow owning 22% of SNC now. He was "Sir Ron" but they have stripped that title from him since he was arrested in December 2019 in Sydney on charges of possession of child pornography. He pleaded guilty in 2021, and the process of his being stripped of his knighthood was begun by Jacinda Ardern, New Zealand's then prime minister at that time.
Above, Sir Ron in his younger days, a celebrated and successful corporate raider.
Below, Ron Brierley more recently.
Further Reading: Raider Ron Brierley steps down from last listed company role (smh.com.au) [6-June-2019] and Ron Brierley to spend 14 months in prison over child abuse material (afr.com) [14-Oct-2021] and Ron Brierley a ‘social pariah’ over child porn conviction (afr.com) [21-Aug-2020]
I did watch the MoM episode where Trav and JD interviewed Gabriel in Sydney (recorded last week and broadcast on Friday 10th May - last Friday). My thoughts are that Gabriel does a decent job, and has the occasional win, but there are easier ways to make money IMO. There is certainly room for more activism here in Australia, but it's not like the US where there are massive hedge funds heavily shorting companies while issuing short reports, or getting Board representation and forcing change. You don't even need to get a Board seat if you own enough shares, you can just threaten to vote against various motions at the AGM or EGMs and that can work, however you need to be big to do that.
Gabriel's strategies work best when he can find other major (substantial) shareholders to back him and they can vote as a block, because Sandon is a very small LIC - its market cap is only $100m, so SNC is very sub-scale and it's hard for them to take a meaningful stake in ANY company, unless it's a nanocap company, so Gabriel needs other larger shareholders to get onboard his campaigns or else the company he's targeting can simply ignore him because his (SNC's) shareholding is too small to be relevant.
Just some thoughts. Good guy. Good idea. Not sure it works well enough and enough of the time though.
STAM (Samuel Terry Asset Management) is a lot bigger than SNC (Sandon Capital) is - and they have an even better history of positive activism outcomes than SNC, probably because they are bigger, so they can flex more, and they get more people onside quicker because of those factors. Of course STAM is a private company - you can't invest in them - but you can invest in their main fund - the Samuel Terry Absolute Return Fund (or STAR fund), which invests in a portfolio of equity and debt securities in Australia and internationally. They say their objective is to generate double-digit annual returns for their clients, while trying to minimise the risk of permanent loss of their capital (that old chestnut). See here: https://www.samuelterry.com.au/about-us.php
...but only if you qualify as a "Wholesale Investor" - and STAR fund's minimum investment (that they will accept) is $250K - see here: STAR-IM-Sept-2022.pdf
Their STAR fund is a $634m fund, so more than 6 times bigger than SNC, and it's been operating for over 20 years - since November 2003 - how's these apples?
That's what you can do with scale (size) and a good activist business model, and good execution - so good management. Possibly Gabriel R at Sandon could do the same if he had 6 x the FUM that he has, but STAM do have a decent team there.
Here's a bit more about STAM's STAR fund:
Gotta love them odds!
And here's one currently held position as a case study:
Source: STAR_Pitchbook_March-2023.pdf
Other info on STAM and their STAR fund:
FAQs
1. Why is the Samuel Terry Absolute Return Fund only available to wholesale investors?
The simple answer is that our Australian Financial Services License only allows us to offer our product to wholesale investors.
There were several reasons why we chose to apply for a wholesale license rather than a retail license, but the main one was that it would have doubled our operating expenses if we had organised the firm to be able to apply for a retail license.
2. What does the Latin on your logo mean?
We buy old junk. We sell antiques.
3. What are the identification requirements for new clients?
4. When do you release your monthly Net Asset Value (“NAV”) number?
Link Fund Solutions, the fund’s administrator, calculates the formal month-end NAV around the 8th business day of the following month. Once this is done, Link Fund Solutions e-mail a statement to all unitholders advising them of their value of the units at month end. Link Fund Solutions also issue new units to those who have subscribed for new units and pay those who have chosen to redeem units soon after the 8th business day of the new month. Fred Woollard has access to the real-time NAV for the Fund and can provide an informal estimate of month-end NAV from the 1st of the following month to those unitholders who request it. This estimate is usually within 0.2% of the formal NAV number.
5. Who was Samuel Terry?
Sam was Australia’s first home-grown millionaire. As a proportion of GDP he is the richest-ever Australian. He came to Australia from Yorkshire as a penniless convict in 1800. Soon after he was freed in 1807 he started his business career as a publican, then moved into land speculation, lending and investing. By the 1820’s he had become the richest man in the colony of New South Wales, and remained that way until his death in 1838. Sam was a co-founder of the Bank of New South Wales (now Westpac) and the State Library of New South Wales. Sam’s success was such that he became known in England as “The Botany Bay Rothschild”. There were reports that his success encouraged some people in Britain to take up crime, in the hope that they might be transported to Australia, the land where a man could rise from nothing to enormous wealth. Sam’s success can be seen as an inspiring story of a humble ex-con achieving great success through hard work and entrepreneurship. An alternative view is to note the contrast between the fame Sam enjoyed in his lifetime and his present obscurity. This should serve as a reminder to all of us, that no matter what material success we may achieve, it will all too soon be forgotten. To learn more about Sam, click here.
6. Why do you have 2 stapled funds?
During the course of the year ended 30 June 2019, STAR was successful in acquiring, at an attractive price, a controlling interest in Yellow Pages NZ.
A consequence of acquiring this interest was that STAR was deemed to be an “active” business for tax purposes, with liability to pay tax in a similar way as a company, rather than as a “flow-through” vehicle for tax purposes (as had been the case until the acquisition). This would have continued while STAR continued to control an active business.
STAM believed it would be preferable (from an investor viewpoint) to separate any active business to be carried on in the future from STAR’s other passive investments.
Therefore a new “active” trust was established to acquire STAR’s Yellow Pages NZ holding, and to staple the new “active” trust to the existing trust. Units in the two trusts trade together with the active trust being taxed as a company and the original trust being taxed on a “flow-through” basis (assuming it distributes all of its taxable income in any year). Stapling in this way is quite common in the market.
As a result of the stapling:
• unitholders have an interest in each of the individual securities (i.e STAR units and STAR Active units of the same class) and are entitled to receive distributions in respect of those securities when made;
• units in STAR and in STAR Active must be traded together; and
• for future tax years, STAR Active will be taxed as a company, and STAR will remain as a “flow-through” vehicle for tax purposes (assuming it distributes all of its taxable income in any year) as it had been prior to the year ended 30 June 2019.
The trustee of STAR is also the trustee of STAR Active. The Constitutions of STAR and STAR Active are substantially the same. STAM receives management and performance fees based on the aggregate net assets of both trusts.
7. Does the Fund have an APIR code?
Yes – The STAR Group’s APIR codes are STP9526AU for the Founder units, STP9437AU for the A class units and STP4816AU for the B class units. (The STAR Group comprises the STAR Fund and the STAR Active Fund.)
The STAR Fund’s APIR codes are STP0001AU for the Founder units, STP0003AU for the A class units and STP0002AU for the B class units.
The STAR Active Fund’s APIR codes are STP6796AU for the Founder units, STP3052AU for the A class units and STP0143AU for the B class units.
The APIR code for Samuel Terry Asset Management is STPX100AU
8. Does the Fund have an ISIN?
Yes – the The STAR Group’s ISIN is AU60STP95262 for the Founder units, AU60STP94372 for the Class A units and AU60STP48162 for the Class B units. (The STAR Group comprises the STAR Fund and the STAR Active Fund.)
The STAR Fund’s ISIN is AU60STP00015 for the Founder units, AU60STP00031 for the Class A units and AU60STP00023 for the Class B units.
The STAR Active Fund’s ISIN is AU60STP67964 for the Founder units, AU60STP30525 for the Class A units and AU60STP01435 for the Class B units.
9. Do you take social, environmental and governance factors into account when investing?
We consider these factors as part of our investment process. We are very aware that a high quality board and management team is much better than the alternative, and have sometimes taken action to improve corporate governance at companies in which we invest. We do not invest in companies which have significant exposure to gambling, payday lending, thermal coal or tobacco.
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Source: Samuel Terry - Asset Management
I'm not invested in STAM's STAR fund, but it is a good example of how deep value investing combined with activism can work, even right here in Australia. 23.6% p.a. AFTER fees over the past 10 years. Yep, they're good!