Guys
Recently I asked what questions you may have for Chris Scott. There was a lot.
I received some answers below. You may have been forwarded an email by myself with these questions in a word document.
Anyway...here is Chris's response.
QUESTIONS AND DISCUSSION ON CHRIS SCOTT GETTING ON MFS BOARD
Question:
“A new Board will not be familiar with the running of the Company and the issues being dealt with.
They will need time to get up to speed and get to know the staff and managers.
There will be a certain cost too for the changeover. A new board might want to fire all the senior staff and bring in their own.
Answer:
JH and CS spent the last 4 weeks corresponding with Mark Korda and are more or less fully briefed on the current MFS situation. Mark Korda is currently in the process of dismissing staff.
Question:
How do we know there will be a better outcome than with the existing board?
Answer:
How could new Board do any worse than existing Board which has presided over collapse of MFS?
Question:
Is there anything they can offer that the existing Board cannot?
Answer:
The current Board is made up entirely of non executive Directors who have other jobs. CS would ensure that there would be at least two full time exec Directors working on MFS 24/7.
Question:
Also, I wonder what the numbers are. We could go through this exercise and still get rolled when numbers are counted. Loss of time and money.”
Answer:
There would no loss of time as CS/JH are up to speed and Mark Korda is currently running the show and would stay on board. There is no loss of money as CS is paying for EGM – not MFS.
Question:
What if there is something to save & trade off - what chance down the track they split the two?? Maybe Scott has 35% Stella, Hutson the Financial sides. Who knows their agenda, but Chris Scott will have shareholder support and plenty of it.
Answer:
65% of Stella has already been sold off to CVC. The issue now is keep MFS solvent and ensure that the remaining 35% of Stella is not sold at firesale price (if MFS goes into administration). With non exec Directors running the show (rather than full time, executive Directors who are commercially minded), the chances are that too many MFS assets will be sold far too cheaply and MFS might well end up in administration.
Question:
So far Chris Scott and his team haven't convinced me that they can do a better job than the current Craig White board.”
Answer:
The current Board took MFS from a market capitalisation of more than $3 billion to a current $472 million (with the likelihood of a further fall once trading resumes). In 8 years, CS/JH built S8 from $1 mill investment into a company that was sold for just over $1 billion.
Question:
“I think he has done the head counting and has got the numbers however i agree with you i was certainly disappointed in his presentation for the motion. At the very least he needs to outline his plan or strategy to get the company back on track. Unfortunately we are between the devil and the deep blue sea”
Answer:
The first step is get on the Board. That is why the egm has been called. The next step is to work with Mark Korda to sell off (at the best price) all those assets that are not essential to the MFS future so as to get rid of as much debt as necessary and then to rebuild the financial services business whilst ensuring the the 35% MFS interest in Stella is protected.
Question:
“I doubt Chris has the numbers - we haven't seen any insto investors coming out against the CVC deal - I see that is a sign that they are in favour of the current board.
Answer:
Instos do not come out publicly in these sorts of matters. But instos do talk to major shareholders privately. I can assure you that instos are seriously offended about what has happened. Think about it – why would instos support a Board that has reigned over a share price collapsing from a high of $6.78 to 99c (and going lower)? That is not a believable proposition.
Question:
While I am always hopeful for a good comeback and the completion of CVC deal gives me some comfort, I do understand that mfs is not out of the woods and the difficult issues of valuing its remaining assets due to cross-debt, guarantees and options issued to subsidiary. Chris needs to address all these issues to win backing from majority shareholders.”
Answer:
Is this current Board telling shareholders about these issues? Of course not – and the current Board is in a position to know. CS is talking to major shareholders on a regular basis. But the talking is not done in public.
Question:
“Can Chris give an update of how the Department of Fair Trading investigation is going? It would be unfortunate to see a newly elected director have to go suddenly, especially if he has the necessary talent.”
Answer:
Investigation was completed long ago. Fair Trading claim that statements to unit owners are technically deficient. MFS has expert advice to the contrary. Tribunal will sort this out in 2009.
Question:
Jenny is 'vitriolic' - institutions are 'outraged'
Answer:
Institutions ARE outraged!! Rightly so!!
Question:
Jenny says it's all Andrew's fault (well, King was OK)
Answer:
King has gone. Peacock has not
Question:
why doesn't Mark Korda want to let go - surely he's not enjoying all this?
Answer:
He is getting big bucks
Question:
Jenny says Andrew undersold Stella (well, S8 purchase was OK)
Answer:
S8 was well priced. CVC got a $500 to $700m gift
Question:
Andrew doesn't want to go (well, he was the Federal Liberal Leader - could be a hard-wired thing)
Answer:
More like an ego thing rather than good corporate governance
Question:
Andrew doesn't even like Mr Scott - "no respect"
Answer:
Andrew has never met CS; never talked to CS; never had business dealings at all with CS. So what is the basis for this sledge about “no respect”? Sounds like question time in the Parliament.
Question:
“Jenny is not doing anything good for Chris - bad tactics.....
Answer:
Why? Details?
Question:
if they want to win backings from insto, they should talk quietly to the instos and other major shareholders rather than paint mfs in a bleak picture. I would be more impressed if she is able to outline Chris' plan. I don't think instos will like her approach at all.”
Answer:
The share price collapsed from high of $6.78 to 99c (and will drop further when trading resumes). Was it not the share price drop; the King teleconference; and the subsequent bad press about all the MFS problems which created the “bleak picture”? CS attempt to get elected to Board POSTDATED all these negatives. Without exec Directors focussing on MFS 24/7 in a commercial manner, there will be no future at all for MFS (other than administration).
Question:
However, my support for Chris Scott (as detailed in his resume), is his skill and ability to build businesses in diverse areas. In addition, selection of excellent people around him to move the business forward and implement his strategies. Few businessmen are really highly skilled and experienced in doing these things. But Scott repeats this process again and again. Look closely at his brief resume.
Does Andrew Peacock (or other MFS Board Members) demonstrate track records in these areas? ie. Building significant Businesses from small beginnings. Certainly Not!
Answer:
Agreed!!
Question:
MFS needs to be rebuilt as an enterprise and move forward. This is what MFS needs.
Answer:
Agreed!! But how can you do this with a Board of non execs as against a Board with 2 exec Directors working on MFS 24/7?
Question:
Is there an element of faith required by shareholders?. Yes without a doubt. But without Chris Scott I see MFS stagnating and going nowhere. A mere shell of it's former self. Best wishes to all shareholders and thanks BionicBoy for the EGM documentation at BRIBANE CONVENTION CENTRE Monday 10am 7 April 07.” “Phil i tend to agree with your analysis
I still remember the recommendation given to Craig White made whan appointed CEO
"He has a unique an intimate knowledge of the business "
Shortly thereafter he made the comment that the 150 million fortress loan was easily serviceable.
Thereafter we got the blowout of debt from the Fortress and then the NZ Funds Management problems
Certainly does not inspire a great deal of confidence from a Director who supposedly has hands on knowledge of the company
Answer:
MFS made an announcement to the market around mid Jan 2008. Earnings guidance was reaffirmed and reassurances were made about debt. Subsequent events show that guidance to have been nonsense and the debt position to have been much worse than revealed. The Board and the CEO have not explained the discrepancies.
Question:
I remember an old saying i lived by in a previous life. "Once is a mistake twice is incompetence" “
“Thanks for AFR link....true that nobody would doubt that Stella was sold too cheap. Of note though....Jenny Hutson suggests Stella was sold for equivalent of $1.31 per share...or net $640 million. (compares with its last SP close of 99 cents). Jenny's comments re value per MFS share are the same as posted here. If in fact Stella was sold $1 billion too cheap (net value should have been closer to $1.6 b...would it not be the case right now, that 35% of Stella is in reality worth $560 million or $1.24 per share. Remember if this proposition is correct (I assure you the math is correct).....MFS Stella component today is $1.24 plus the $409 million they were paid. That’s about $2.15 per share in Stella value. Tax is obviously not an issue here at all......in fact subject to whether the $900 million write-down is a capitalised loss or not (I don't think it is)....significant additional value lies with MFS through this write-down loss. “
Well somebody will say the $409 will be lost, as it is pumped into the other parts of the business.
Look in general this cash will go into repayment of loans or cross equity swaps with the other MFS associated groups.
$409M spent this means interest payments come down....(kicks straight to MFS bottom line in reduced costs and therefore increased profit). for example...If Kiwi investors exit...then MFS will pick up the equivalent amount of equity.
I can post heaps more on the situation with all their funds and corporate finance entities another time.
But $409 million spent on the other side of the business is simply not lost....or moved into the land of abyss forever.
Its stays there on the balance sheet.....either interest/liabilities reduction, or increased equity.” “I don't have much to say as I don't know either groups of Board members.
I did nominate Chris Scott for my proxies at the upcoming change of name EGM. I was just being mischievous really. I assume he will be there, the current Board will be now aware of the possible change. They should talk.
Answer:
CS/JH have been talking to the Board for 4 weeks. CS EGM has been called precisely because talks with Board have been unsatisfactory.
Question:
IMO they should offer him a seat since his holding alone deserves it. The others Chris has are just the numbers needed for a majority of course. If he has access to funds or the others do then this would be another reason for the current Board to take some notice. It would save a big hassle if they just admitted him and could work together.”
“agree with you in principle needle, however the question moving forward will be what will happen to the remaining non-Stella business/es?
If they deteriorate, then yes the money will eventually be lost. If the company pulls of a Lazarus then it might be multiplied.
One of those situations where it's just so hard to know what the outcome will be.”
Answer:
Exactly. Surely you would get a better outcome with 2 exec directors (CS/one other) working on MFS 24/7 with a commercial bent of mind rather than 4 non execs who have flicked the issues to a liquidator – Mark Korda?
Question:
“The biggest gripe from MFS shareholders that I know is the margin loans disclosure. Rolf Kreklenberg has gone with CVC. Were his shares on margin call? He had quite a few so majority consensus is probably. What deals have gone on for him? As for all the others we know the answer to that one.
Answer:
Rolf had a margin loan with Macquarie
Question:
Kreklenberg had to go with the CVC deal as this guaranteed him a job for a least a while as his resume would have looked like crap.
No use taking action against the directors as the only winners will be the lawyers.
Sure Scott & Co have not been totally convincing with their motions etc. however he is still a shining light compared with the directors who have not resigned or had margin calls yet.”
Answer:
The only motions at the CS egm relate to the appointment of new Directors. What other motions could have been put? Motions to sack the existing Board would have required a further 30 days notice. Time is of the essence in this matter.
Question:
“The more I read about the Chris/Jenny alternative, the more sceptical I become:
1. I find it unusual for someone asking for support without people knowing his capability and plans;
Answer:
The market knows what CS did at S8. The plan is set out above.
Question:
2. Chris had the opportunity to be in the board at the time of S8 purchase; if he didn't have confidence in the then board, he certainly could have chosen to sit in the board and perhaps took cash rather than the 42 mil shares;
Answer:
CS retired in Jan 07. This decision not related to confidence in the Board.
Question:
3. According to the AFR article, Mr Peacock said on Friday: "I am not interested in their (Chris/Jenny) views. For reasons well known to Mr Scott, I have no respect for him whatsoever". Though I am not a Peacock fan, I do wonder what makes Mr Peacock dislike Chris so much - is it due to Chris' past dealings with MFS or other financial dealings?
Answer:
CS has never met Peacock; never talked to Peacock; never had any business dealings with Peacock; had no connection with MFS since he retired. The Peacock sledge reminds me of question time in Parliament.
Question:
4.Jenny's attacks on CVC deal is typical lawyer's rhetoric - and they are so far away from financial reality. No doubt, the company is under enormous stress, and the $3.54 for Stella value Jenny quoted means little - we can find a large number of companies are now far below the brokers' target price.
Answer:
Hardly any one denies that CVC got Stella very cheap. This is not in dispute.
Question:
5.Major shareholders' interest are mostly aligned with us, but not always. If we put the wrong people in the board and take control, we may see the kind of transactions Sol Lew, Rodney Adler and David Coe did to Myers, HIH and Allco.
6.Chris was serving as a consultant to the then board while CVC was conducting due diligence last year. I think he needs to clarify his position on the rejection of the first CVC offer as well.
Answer:
CS was not a consultant to the Board. He was a consultant to Stella until 30 June 2007. There was only one occasion when CS was asked about the Stella deal. King asked CS in early Nov 2007 if MFS should accept the CVC offer at that time or hold out for a better offer. CS told King to accept the offer and move on. MFS did NOT accept the offer.
Question:
At time of turbulence, let us all be calm and don't jump to conclusion too soon. I am happy to change my opinion if Chris & Co can prove they have the capability and their plans are feasible.”
Answer:
How can that be done unless CS is on the MFS Board?
Question:
“I agree with Alpha. Scott needs to come clean about rejection of CVC offer last year
Answer:
above.
Question:
Also if you have to crucify the current chairman and the board you have to ask the question what is it that will be better about Scott?
Answer:
CS has a track record of success – not miserable failure.
Question:
His history is impressive but so was everyone else's in a bull market, look at the Coe's, King's, Hutson's and Groves' of the world. They were all stars at the same time and in the same environment as Scott. Why should he fare any better given the changed circumstances of the market?
Answer:
CS/JH have a track record of success – not miserable failure.
Question:
There needs to be a plan not just a change of people because it's the plan that will fix the problem not the people. So what is his plan - from what I can see, not been privy to the inner sanctum as some, it revolves around changing the board. So big deal! What's after that? That is what is important!
So my one question is what is the PLAN!”
Answer:
65% of Stella has already been sold off to CVC. The issue now is keep MFS solvent and ensure that the remaining 35% of Stella is not sold at firesale price (if MFS goes into administration). With non exec Directors running the show (rather than full time, executive Directors who are commercially minded), the chances are that too many MFS assets will be sold far too cheaply and MFS might well end up in administration. In addition to preserving the value in the 35% of Stella we still own, we must sell the non essential assets for the best price; negotiate debts moratoriums where necessary; keep the better assets; and then rebuild the business. This will take time; dedication; and exec directors with a 24/7 input into MFS.
Question:
“I am holding mfs. Though athyrio's view is generally more negative than mine, I do respect that his argument is sound and mostly based on facts/substance. And I feel this is quite normal and acceptable. I don't hate people who short. Such is market, the longs take risk, so do the shorts. I only have problem with people who try to mislead or manipulate people in this forum. In fact, I feel athyrio is long. athyrio made a very good point about the change of market - everyone was a star in bull market, and there were lots of them. Now we need someone who can handle the crisis and turn the company around. So far, I am happy with what Craig White has done after Jan 18.”
Answer:
Craig stays
MFS
mfs limited
