Shareholders say Humm board should quit over ‘muppet show’

Some shareholders in Humm Group have called for the board to resign over the collapse of the sale of its consumer finance business to Latitude Financial, describing the majority board’s actions as “a muppet show”.

After weeks of telling shareholders to accept the deal or risk being stuck with a poor-performing consumer finance business (HCF), the Humm board said it had mutually agreed with Latitude to terminate the sale of its credit cards, instalment pay and buy now pay later assets.

Several shareholders asked why the Humm board had agreed to let Latitude walk away from the binding agreement in a falling market, expressing disbelief that the deal did not go to a vote next Thursday. They were also confused as to why shareholders were not given notice that the deal would be pulled so that they could change their early votes.

“Without having yet had the chance to speak to the company and knowing all of the facts, it seems highly unusual and I find it difficult to reconcile in my head how the Humm board could be so in favour of the deal, so bearish on the consumer finance division and happy with the deal they’d put together, then to have decided not to allow shareholders to vote knowing the vote was only in five days,” said Luke Cummings, chief investment officer at Harvest Lane Asset Management.

Tamim Asset Management’s head of Australian equity strategies, Ron Shamgar, said he expected Andrew Abercrombie to take control of the board after Friday’s embarrassing about-face on the deal.

Mr Shamgar said he was disappointed by the Humm board’s actions. “Latitude couldn’t get out of this deal without the Humm board agreeing to let them off,” he said.

“Yesterday they were painting a dire picture for that consumer business, then today they agree to terminate and say it’s a quality business.”

Mr Shamgar said he was also confused as to why investors were not given time to change their votes based on information that the sale would be pulled.

Humm chairman Christine Christian declined to say how proxies had been directed before Thursday’s shareholder vote, which required 50 per cent acceptances for the deal to go through. But she stressed that she would not be resigning, adding that she and the majority directors had acted in the best interests of shareholders throughout the deal.

Several sources speculated that it was impossible to tell by Thursday night exactly which way the votes would have gone, and one suggested that some fund managers who had voted it down in early voting had only done so to pressure the board to extract a higher offer from Latitude.

“After this week a lot of those guys are 10 to 15 per cent down on their portfolios, are they really going to say no to a $200 million plus offer for a business the market is currently valuing at nothing?” asked one source, who said he was flabbergasted by the fact Humm’s directors had let Latitude off the hook.

Ms Christian confirmed that the Humm board had asked for more money from Ahmed Fahour’s Latitude.

“We absolutely did. We went back to Latitude and we informed them that we’d like them to materially improve the terms of their offer,” she said on Friday.

But as late as Thursday, Humm was also telling shareholders to accept the offer by emphasising weakness in the assets and pointing to a 61 per cent decline in profit.

Drew and Shadda Abercrombie John Woudstra

Ms Christian defended the Humm directors’ release of information including describing the HCF division as “unprofitable” during the first four months in late May.

“We did not talk the business down. This was not about talking it down, this was about presenting all of the facts, unvarnished to our shareholders - we’ve always provided complete information to our shareholders, so I don’t take that responsibility,” she said.

Shareholders had backed Mr Abercrombie’s bid to extract more value from Latitude because the part scrip deal fell from a value of $335 million to $245 million in line with a 30 per cent fall in Latitude shares.

Ms Christian defended the board’s actions saying shareholders were entitled to their opinions, but she and the majority directors had been “fully transparent” and relied on the independent expert’s report to guide the sale.

“This was about the continued erosion of the Latitude share price. We were presenting the facts, we are now outside the range of the independent expert report and our recommendation was always contingent on that,” Ms Christian said.

Kroll had recommended the sale at a price between $260 million and $308 million based on HCF’s maintainable earnings of $26 million to $28 million.

“How can they rely on the independent expert report if the business isn’t making what the independent expert said it was making? They could have waited until Tuesday and let shareholders change their votes. Instead they go and ask Latitude to improve their offer and Ahmed Fahour says no way, how can I pay more if you’ve spent all this time talking about how bad the business is?” asked Mr Shamgar.

Another shareholder who spoke on condition of anonymity described the position of the board as “extraordinary”.

“They were behaving like a bidder, talking down the value of your asset as you’re trying to get someone else to buy it is remarkable,” he said.

Australian Shareholders Association chief executive Rachel Waterhouse said the deal should give Humm’s board pause to realign governance and strategy.