Goodman investors set to take stand November 23, 2009 Greg Goodman.
Greg Goodman. Photo: Michele Mossop
IT IS never a good look when insiders dump the bulk of their shares without an adequate explanation. It is even worse when they use a fandangle derivative instrument that involves shorting the stock to get a better price than they would if they dumped the lot at once.
And it is downright gobsmacking when they then promise to return to the share register if the company buys one of their personal assets.
In a nutshell that is what Greg Goodman, the boss of the struggling listed property trust Goodman Group, recently pulled on shareholders.
Goodman (pictured) and his brother Patrick, who is a director of the company, announced to the market on November 6 that the Goodman family had sold 69.5 million shares of a parcel of 75.5 million, raising $46 million.
Given that there are just over 6 billion Goodman Group shares on issue, thanks to the massive dilutions and emergency refinancing packages the company has embarked on in the past year after going on a massive property binge, buying questionable and over-priced real estate assets using debt, the statement that ''Greg Goodman has and will continue to have a significant interest in Goodman Holdings'' didn't cut it with shareholders.
Nor did the statement that he and his family were in active negotiations to return to the register, by selling their Moorabbin Airport in Melbourne in an asset-for-equity swap, which would further dilute existing shareholders.
The Moorabbin Airport is worth at least $100 million, and the board is ''actively'' considering buying it. This is at a time when the company has reported massive losses and been forced to conduct a highly dilutive capital raising to pay down debt.
In reality the company should be trying to sell assets rather than buy more.
According to chairman Ian Ferrier, it will make a decision in the next three months.
But in keeping with good corporate governance, the company will pay for the expertise of an independent expert to ''value'' the property.
Investors never like to see insiders sell their stock, particularly a company like Goodman which has a track record of unpleasant surprises.
The ASX alert on November 6 that the family had all but bailed out of the company sent the share price falling below 60¢. Since then it has struggled to stay above that level. Two shareholders have put out notices saying they are no longer substantial shareholders.
But the way the shares were sold has not been disclosed. It is understood that Goodman Holdings hired an investment bank to sell the shares back in October. The owner of the shares was not revealed. The investment bank used a derivative instrument to generate a short position in Goodman. In other words it was selling shares in the market in October, when the share price was stronger, created a short position, and then bought Goodman's shares.
Greg Goodman was too busy to offer an explanation as to how he was able to announce the sale of 69.5 million shares at an average price of 66.5¢, on a day when the shares opened at 61¢ and closed at 57.5¢.
But Ferrier said Goodman had told him about the proposed share sale as well as the fact that there would be an ''instrument'' giving rise to it.
This so-called instrument helps explain why the latest Data Explorer statistics reveal that Goodman Group is one of the country's 10 most actively shorted stocks.
If the board recommends the purchase of the asset, it will be interesting to see the recommended price the asset for equity swap is conducted. The current share price is 61.5¢, which is well below the 66.5¢ exit price the Goodman family sold, and it is well below the June 30, 2009 net tangible asset of 85¢ and net asset valuation of $1.26, the difference being the intangible asset on the balance sheet signed off by the board. Since then there has been a $1.3 billion capital raising with these numbers diluted to 56¢ and 73¢ respectively.
It is no surprise that proxy investor group RiskMetrics has recommended shareholders vote against the re-election of chairman Ian Ferrier, a second director Jim Sloman, and a resolution to grant Greg Goodman up to 8 million performance rights at zero exercise price, valued at $4.5 million.
Goodman is a company that has misread the markets, its shareholders and its banks. It is exposed to the worst asset (industrial property), the worst geographic markets (Europe) and the worst type of funds management (property).
If there is any consolation for shareholders in this sorry mess, it is that they aren't the only ones to have lost a fortune.
Goodman has watched his family fortune fall from an estimated high of $1.1 billion to a value of less than $55 million. But after taking shareholders on a wild and aggressive ride, he still has a well-paid job.
The problem it raises for the board and Goodman is how they allowed the company to get into this situation and why they haven't done anything about it.
Investors can take a stance on November 30. They can also reject the proposal to purchase the Moorabbin asset at a time when the company should be selling assets. If they do, they can then ask why Greg's brother, Patrick, remains on the board as an affiliate director.
GMG Price at posting:
$3.08 Sentiment: None Disclosure: Held
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