Ann: Withdrawal of Resolution at Annual General Meeting, page-5

Seven months after data centre group NextDC spectacularly double-crossed some of its largest shareholders in a $672 million capital raising, those shareholders have delivered the board a salutary lesson.

Remember, major long-term investors were left dumbfounded in April when NextDC diluted them in the placement by as much as 25 per cent (the ASX’s temporary, COVID-19 limit for dilutive raisings). Chief executive Craig Scroggie, with all of the institutional market cognisance of a carroty dilettante, personally curated the stock allocations to “zero out hedge funds and others that were looking to profit off the trade”. Pro-rata be damned.

And by dilettante, we really mean rank amateur. Scroggie diluted substantial shareholders Ellerston Capital and Macquarie Investment Management, neither of which are hedge funds, while handing a whopping haul to Greencape Capital, which sold its entire allocation the same week. He diluted Parametric and Dimensional Fund Advisors. Not even an investment bank’s receptionist would mistake them for short sellers. And that’s just a taste of the senseless inequity.

NextDC’s annual meeting is on Friday. On Tuesday, the company withdrew a resolution from the agenda seeking retrospective approval for the April capital raising. Shareholder approval would have the effect of resetting NextDC’s dilution limit under the ASX Listing. Put another way, the board wanted permission to dilute existing shareholders by an additional 15 per cent before April 2021 when they’d just finished diluting them by 25 per cent. Yeah, nah.
NextDC’s board “decided to withdraw Resolution 5 following feedback from some shareholders”, the withdrawal notice read. “The board acknowledges these views and would like to thank shareholders for their engagement on the matter.” A masterful turn in understatement.

And herein lies the most delicious part of Scroggie’s bungled “opportunity to really think deeply about the composition of the register” (deep thought not an endeavour he’s renowned for), as he put it in April.
Under the Listing Rules, participants in the April raising are ineligible to vote on the AGM resolution to reset the dilution cap. By allocating all major shareholders even a measly handful of shares in the raising, Scroggie would have rendered them mute on this resolution.


But the ginger maniac couldn’t help himself and gave a whole bunch of his owners zero. Rendering them the only shareholders with voting power on the resolution. And their engagement with the board on the matter is now concluded. It’s deadset fabulous.
NextDC chairman Doug Flynn can thank dumb luck he’s not seeking re-election on Friday because the knives are being sharpened for him. The precipitous withdrawal of Resolution 5 this week is shaping as a practice run for the 2021 AGM, if Flynn submits himself for re-election, and when all the diluted fund managers can vote, not just those who were meticulously zeroed out.