Source : THE AGE NEWS
Not long before Donald Trump’s tariff armageddon, Australian investors experienced a seismic financial shock on home soil that has reverberated throughout the entire market.
On March 24, Australian building products giant James Hardie announced a transformational $14 billion deal with US group Azek.
James Hardie boss Aaron Erter (left) with former NFL player Ronde Barber at the launch of the James Hardie Pro Football Hall of Fame Invitational last month.Credit: Facebook
The company’s stock plunged within hours, but it would take weeks for the group to shred more than $6 billion of shareholder wealth as its investors woke up to the full horror of a deal that would transform James Hardie in ways they had not imagined.
The first shock was that they were denied any say on a deal they clearly loathed as overpriced.
The other surprise was how its enterprise was aided and abetted by the ineptitude of Australia’s sharemarket operator, the ASX, which gave James Hardie a waiver from having to get its investors to approve the issue of 35 per cent of its listed shares to Azek investors.
The final insult is that James Hardie could then move its primary share market listing to the US where its shares traded on the New York Stock Exchange. Investor protections offered by the ASX would no longer be available.
“It’s a heist,” says an executive associated with furious investors who raged against the deal.
And they did not just target James Hardie. The big issue is that the group’s manoeuvre could easily be replicated by any company on the ASX if the sharemarket operator did not agree to close this loophole.
You can understand the ASX’s thought process: No company board could afford to defy its investors without repercussions – eventually.
And why would a company board contemplate a move so opposed by its investors?
James Hardie’s boss, Aaron Erter, was already Australia’s second highest-paid CEO last year with a pay packet of $22.8 million.
Under NYSE rules the company would not have to subject his pay packet to investor approval.
“Nothing to do with tariffs”: Donald Trump blames his predecessor Joe Biden for the economic setback which raises further questions about the high price James Hardie is paying for Azek.Credit: Bloomberg
It could issue him one per cent of the company’s stock as compensation without shareholder approval.
The NYSE also offers an enticing array of what are known as’Poison Pill’ provisions – measures designed to make companies far more difficult to take over.
The company’s behaviour should not have been too surprising for James Hardie shareholders.Its culture of corporate bastardry goes back generations, the Azek deal just confirms that changes of the board and executive ranks over the decades has done nothing to change this.
And the deal will sail through unless Azek investors turn it down in July.
Ironically, if James Hardie already had its primary listing on the NYSE, its investors would also have had a say on whether this deal would go ahead.
Instead, investors are resigned to the fact there is nothing they can do about James Hardie. But they could stop it happening again.
More than 20 of Australia’s largest professional investors – including UniSuper’s John Pearce, AustralianSuper’s Mark Delaney, Aware Super’s Damian Graham, and Airlie Funds Management’s Matt Williams – wrote to the ASX in mid-April protesting against the decision to deny investors a vote and demanding change.
James Hardie’s argument for the deal is simple: Azek is a quality, high-growth company. The issue for shareholders is the exorbitant price and their disenfranchisement.
James Hardie boss Aaron Erter (left) with former NFL player Ronde Barber at the launch of the James Hardie Pro Football Hall of Fame Invitational last month.Credit: Facebook
This week, both the embattled James Hardie board and the ASX tried to soothe investor concerns.
The ASX promised to review the waiver rule, which denied investors the right to vote down the Azek deal and still threatens shareholder democracy across all ASX-listed stocks.
James Hardie promised to preserve the independent board structure that proved so dismal in protecting the rights of its investors and let shareholders continue to vote on the remuneration report.
The board also promised they would have a vote if the company does move its primary listing to the NYSE.
But the massive investor revolt did not produce a backflip from the board and its CEO on an investor vote for the controversial deal.
And why would they? None of their promises appear to be enforceable once the transaction goes through.
The company’s behaviour should not have been too surprising for James Hardie shareholders.
Its culture of corporate bastardry goes back generations, the Azek deal just confirms that changes of the board and executive ranks over the decades have done nothing to change this.
The only difference is that this bastardry was usually reserved for James Hardie’s asbestos victims and the tax office.
As far back as 1964, a company executive warned that the “the company could, in future, become a sitting duck for claims not only for asbestosis, but for cases of lung cancer”.
The late Bernie Banton (right) and then-secretary of the ACTU, Greg Combet, led the campaign against James Hardie Industries on behalf of workers who had contracted asbestos-related diseases. Banton died in 2007.Credit: Rob Homer
The company did not consider health warnings at the end of the 1970s.
James Hardie maintained its status as the poster boy for bad corporate behaviour into the current century. This includes skirting its obligations to asbestos victims and the tax office as the group moved its corporate domicile from Australia to the Netherlands in 2001.
James Hardie assured everyone the move was for tax purposes – not to dud its asbestos victims out of compensation payouts.
Years later, the Tax Office made the group cough up a $150 million settlement over its restructure ahead of the Netherlands move.
In 2009, the NSW Supreme Court found James Hardie’s chairman from 2004 to 2007, Meredith Hellicar, and former non-executive directors Michael Brown, Michael Gillfillan, Martin Koffel, Dan O’Brien, Greg Terry and Peter Willcox, approved and issued misleading statements about the adequacy of funding compensation payments to its current and future asbestos victims ahead of its move to the Netherlands.
That same year, with the Netherlands move proving to be a financial and PR disaster, the group decided to move to Ireland – another jurisdiction where it had zero business interests.
In 2010, the NSW government was forced to set up an asbestos compensation fund, primarily funded by James Hardie, to ensure victims received adequate compensation despite the overseas manoeuvres.
And what can James Hardie investors do? Not much.
If they call an extraordinary general meeting to turf the board, it will not take place before the deal concludes. After that, Azek investors will control 26 per cent of James Hardie.
It may help protect the job of James Hardie chair Anne Lloyd, who will stand for re-election at its Dublin annual meeting in August.
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