Ann: Update to Shareholders, page-9

So there a few considerations for minority shareholders here.

1. Board renewal/refresh
I think this would be beneficial. I could be wrong, but it seems to me that the existing Board have been a bit complacent over the years.
But, the question is always; replace with who?
The ideal scenario would be to improve the Board with media and in particular digital media expertise who can provide guidance and oversight for the management team.

This is just my perspective, but it seems that NZME has a hell of an opportunity ahead if they can get it right. The old world media (print and radio) needs to be well managed and produce the cash that allows the company to have a decent go at OneRoof and any other digital opportunities that are where the real rivers of gold would exist. Scan any market across the western world, the leading real estate, auto and jobs classifieds are all worth multiples of the legacy print and radio businesses.

2. Handing over control of the company to some seemingly wealthy Canadian (or ex-Canadian, now Kiwi) who only owns 10% of the company seems a ludicrous risk for all other shareholders to entertain.

Moreover, Grennon and his team appear to be short on experience in the media or digital classifieds businesses that they are seeking to control. Sure there might be the odd adjacency they can claim, ie all our existing businesses use computers, so does NZME. But how they propose to add any value, is beyond me.

There is very little known about this Grennon guy. Which makes the prospect of handing him control of NZME an unacceptable risk in my opinion.

The little that can be found, seems both revealing and somewhat concerning.

Search Foremost Income Fund and an old 2010 article from the Canadian Globe and Mail comes up.

Here is the briefest of summaries of that article:

In 2010, Grennon owned more than 50% of Foremost Income Fund, alongside a few associates who apparently owned shares too.
The business "makes and sells gear for the oil field drilling industry".
According to the article, Grennon, as a trustee, I guess this is similar to a Board member in Canadian parlance, proposed and succeeded in delisting the company/fund/trust so that it could continue to benefit from some form of tax protected distribution benefits.

Where did this leave minority shareholders you may ask?

Well they would have lost all market liquidity once delisted. It seems that Foremost, with Grennon as a trustee, then kindly offered to gradually buy them back in monthly instalments at a small discount to tangible book value. I guess this was a rough discount to the value of the depreciated machine tools and office coffee kit, which is likely a big discount for a business that was able to earn average returns on equity of 35% from 2002 - 2008, and according to the article had traded for a multiple as high as 7x book value in 2006.

As an example, NZME book value (net assets, total equity or whatever you want to call it) is $100m odd as at end of 2024. Yet if you knock off $115m in intangibles, you'd get a Net Tangible Book Value balance of -$15m. If hypothetically NZME were to be de-listed and shareholders offered a discount to book value (including the intangibles), this would represent about half todays market price. I'm not saying this is what they have in mind, rather just highlighting how modern businesses rarely trade at net tangible assets, or even net assets, owing to accounting limitations as to how businesses derive value and capital efficiency developments in the past 30 odd years.

If anyone wants to sell a business earning a return on equity of 35% for slightly less than tangible book value, please give me a bell.

So where to from here?

A change of Board at NZME is well overdue.

Giving Grennon and his associates complete control of the company seems a step, or fifteen, too far. Especially given this history in Canada where minority shareholders didn't seem to fare too well from the de-listing, losing liquidity and being offered a low price by the company/trust/fund if they wanted to get out.

Finding a better Board composition than both the existing Board and the Grennon team seems the key here.

As an aside, I find it difficult to see how Spheria, as a fund manager with a 20% odd stake in NZME, could be comfortable supporting a move that hands absolute control of the Company to a complete unknown, also to a Board without any expertise in the specific industry in which the company operates. I'm unclear how this would be in the interests of the investors in their funds.

How this all plays out from here I don't know.

But giving Grennon and his team control of the show, no thank you. There must be a better way.