why asciano is looking good

Pump up the volumes: why Asciano is looking good

ELIZABETH KNIGHT
July 30, 2009
Investors should keep their eyes peeled for substantial shareholder notices coming out of Asciano, if the recent trading patterns are any guide.

Since Friday, when the vast bulk of the new shares issued under this recent two-pronged recapitalisation became tradeable, enormous volumes have been pouring on to the market.

Almost 100 million yesterday, 140 million one day and 60 million on another.

When a major liquidity event like this recapitalisation takes place, it’s not unusual for volumes to rise steeply, but this volume is off the charts.

Of course, index players are re-weighting their portfolios (because they have to) and institutions – and probably some small investors – are profit-taking.

The selling, albeit at exaggerated levels, is not the strange thing – what’s more unusual is Asciano’s share price. Despite this selling pressure, the price is up and showing no sign of slowing down.

Someone appears to be soaking up a lot of stock, which in turn has allowed those shareholders that participated in the rights issue a profit on their shares of more than $900 million in less than a week. That’s larger than Asciano’s entire market capitalisation before the issue.

There’s another strange bit of information about this recapitalisation – one of the private equity holders that bid for the assets of the company a few months back, TPG, was allocated about 60 million shares in the placement.

Given Asciano has more than 3 billion shares on issue it would be easy for TPG or indeed any other would be corporate stalker to buy aggressively and remain under the 5 per cent disclosure radar.

There were several private equity parties, including one associated with former Patrick Corporation boss Chris Corrigan, that had been through Asciano’s books when the asset sale route was being pursued.

(Asciano was formed two years ago from a demerger of the ports and rail businesses of Toll Holdings in the wake of that company’s takeover of Patrick Corporation.)

This process was dumped when it became abundantly clear that the bidders would get the Asciano assets on the cheap. Shareholders woke up to the fact that it would be in their interests to recapitalise a company that was hopelessly overgeared but owned quality assets that could not be replicated.

Normally private equity only pursues friendly deals. They are not set up to buy into unknown corporate situations.

But thanks to Asciano having already lifted its skirts, this may not present an obstacle.

Meanwhile, in the process of this recapitalisation the chief executive and 10 per cent shareholder Mark Rowsthorn tried in vain to do a deal to retain his holding around this level. It failed miserably and his stake sits at around 4.5 per cent (and it’s leveraged).

One of the great corporate circus acts of all times is Rowsthorn’s ability to retain his job, given the severity of his mistakes.

The fact that the company had to increase its issued shares fourfold to claw its way back from near death is testament to the degree of mismanagement.

The company’s chairman, Tim Poole, is almost as culpable. And this makes both their positions tenuous – which makes getting control of the company easier.

All this makes it easier for some other party to exert some control without actually having to make a bid. It presents itself as an opportunity probably too good to pass up. Taking even 10 to 15 per cent would be a cheap and clever way to secure a big say in the governance of this group.

Apart from Rowsthorn and Poole, there are only two other directors, so the board defences are weak indeed.

It now looks like a company with a healthy debt profile, high-quality assets and a wide open register.

So it’s certainly one to watch.

http://business.smh.com.au/business/pump-up-the-volumes-why-asciano-is-looking-good-20090729-e1lb.html