Maaf Para Ahli Keuangan,
Ada pertanyaan dari teman di Aussie untuk Case study Phd nya,
mungkin ada yg bisa membantu (akan ada gift menarik)
saya forward saja:
Case Study: Do you understand this? Could you location and execute your own 10
bagger?
The best unknown activist investment of 2009
October 9, 2009 by greenbackd
In keeping with our penchant for stories about idiosyncratic investors who
trade in odd securities found off the beaten track, we bring you perhaps the
best unknown activist investment of 2009. With a far away land, a young
protagonist, an odd treasure, an unexpected twist and a narrow escape, it’s a
bullwhip and a fedora short of being an Indiana Jones movie. In the role of
young protagonist is Nicholas Bolton, a 27-year old investor who made A$4.5M
($4M) almost bringing down BrisConnections, the developer of a A$4.8B ($4.3B)
Australian toll road. What’s most amazing is that he achieved this with an
initial stake worth just A$47,000 ($42,000). In so doing, he became the bête
noire of his fellow BrisConnections investors, attracted the attention of the
Australia Securities and Investments Commission (similar to the SEC) and drew
the ire of the Australian media.
*BrisConnections: The Temple of Doom*
Several unusual elements make the Nicholas Bolton versus BrisConnections story
reasonably complex. Bear with us, to understand the story it’s necessary to
understand the BrisConnections security in detail.
BrisConnections, backed by Deutsche Bank, Credit Suisse Group, JPMorgan Chase &
Co. and Macquarie Bank, raised A$1.23B ($1.16B) in July last year through the
sale of an unusual equity security called a stapled unit. The BrisConnections
stapled unit is a unit in the trust holding the toll road assets and a share in
the corporate trustee. The trust unit and the share must trade together, and
hence are said to be stapled. The reasons for creating such a security are
beyond the scope of this post, but suffice it to say that stapled securities
offer certain tax benefits. What really makes this story interesting is that
the BrisConnections stapled units were issued on an installment basis.
Installment means that on application purchasers paid A$1 ($0.90) for each
stapled unit and were then obliged to make two further installments of A$1
($0.90) each, payable nine months and 18 months after the IPO. In a world of
rapidly rising stock prices, installment
securities present no problem. When stockmarkets are in decline, however, the
securities can trade down dramatically as investors attempt to avoid paying
further installments.
13IPO tanked spectacularly, dropping 60% on the first day of trading before
falling into terminal decline. A few months before the first installment was to
fall due, the units had traded down to A$0.001 (that’s 1/10th of a cent). At a
unit price of $0.001, a BrisConnections unit became a very dangerous security
for those not realising that the units came with two A$1.00 installments for
each $0.001 paid. That meant, for example, that a purchaser of $1,000 of the
units owed $2M in installments and a purchaser of $10,000 owed $20M. It seems
that there were many purchasers at $0.001 who were unable to fulfil their
obligations and then decided that they would rather not own BrisConnections
units. Unfortunately for them, they had run out of greater fools. As Charlie
Munger might say, they were like the mouse who cries, “Let me out of the trap,
I’ve decided I don’t want the cheese.” A month out from the first installment,
there were ~70M units on the
ask at $0.001 – the minimum price at which a security can trade on the
Australian Stock Exchange – and no bids.
Enter Nicholas Bolton.
*Bolton: Raider of the Lost Ark*
Bolton had started acquiring BrisConnections units through an investment
company, Australian Style Investments, in November last year. Before too long,
he’d spent A$47,000 to acquire a 15% stake and become BrisConnections largest
unitholder. He’d also taken on a A$94M liability, money that he did not have.
What he did next comes straight from the World Poker Tour. No, he didn’t fold.
He went all in, upping his stake to 19.9%. Why 19.9%? Under Australian law, a
purchaser of 20% of a company’s stock is obliged to make a takeover bid to all
remaining stockholders. By sitting at 19.9%, Bolton had the option of making a
bid for the remaining stock, but not the obligation. He then approached
BrisConnections about refinancing the liability. When BrisConnections failed to
respond, he moved to have management removed and the trust dissolved. The
application achieved its end: It got the attention of management. It was,
however, a long shot. Bolton needed
the support of 75 per cent of his fellow investors to have the dissolution
resolution passed. It was also not clear that it would prevent the fund from
collecting the first installment. Under Australian law, the trust had 21 days
to call a general meeting and 45 days to hold it, by which date the notice
demanding the first installment fee would have been issued. If BrisConnections
management was nervous about the dissolution, they didn’t show it in the media.
The chairman, a Mr. Trevor Rowe, described the application as “frivolous,”
while a spokesman described it as “a mere sideshow to a $5B infrastructure
project that is promising to provide 11,000 jobs.” They also made it known that
a liquidation of the trust would not extinguish the first A$1 liability owing
on each unit. BrisConnections advisers where not so sanguine: one,
Macquarie,co-underwriter and financier of BrisConnections, brought an
injunction action against him seeking to prevent
him from holding the meeting. In a two-minute hearing, the judge did not
uphold any of Macquarie’s claims, or grant the injunction to stop the meeting
of unitholders from proceeding. It was swift justice, and it seemed to set the
scene for something very rare: a highly entertaining general meeting.
*The Last Crusade*
After succeeding against Macquarie and BrisConnections in an extensive court
battle, it seemed that BrisConnections was a general meeting away from
dissolution. Bolton held 19.9% of the units on issue, and a sizeable number of
the other holders had purchased their units at $0.001. Perhaps sensing that
Bolton had the momentum, management told those investors present at the meeting
were told their units would be worthless if BrisConnections was liquidated, as
BrisConnections would have ”zero value” as a company. Bolton, however, was not
one of the investors present at the meeting. Why? He had already voted /against
/the resolutions he had proposed and defended at court. BrisConnections
chairman told the startled unitholders present at the meeting that Australian
Style Investments had voted against all seven resolutions when its proxies were
received several days before the meeting. Accordingly, the special resolution
fell short of the required 75%
voting threshold. The unitholders might have seen Bolton as a savior after he
went to court to ensure the vote took place, but they were cursing his name by
the end of the day. What had happened to cause Bolton to vote against his own
resolution?
Unknown to the investors at the meeting, Bolton had already sold his voting
rights to Thiess John Holland, the design and construction contractor for the
Airport Link. The price? A$4.5M. It seems this had been Bolton’s strategy all
along. Rowe, the chairman, described to Inside Business a discussion he had
with Bolton as he was searching for a buyer for his voting rights:
I called [Nicholas Bolton’s] adviser and asked him what he had in
mind. He mentioned some numbers to me. I said I thought they were
pretty excessive and I gave him a lower number. And he said well Mr
Bolton needs $5 million otherwise he is not going to do this. And we
thought about it and we decided that we would not engage further.
I said to him when he proposed a number which I thought was
preposterous that it’s more like a two to three [million] number
than a seven and half [million] number.
I didn’t engage in a negotiation.
Rowe didn’t want to cough up for the votes. Thiess, however, was happy to part
with A$4.5M to prevent the A$4.8B project from falling over. BrisConnections
other investors were unhappy. A hedge fund that was BrisConnections’s second
biggest investor at 13%, threatened legal action, telling the The Sydney
Morning Herald:
He’s not going to get (the $4.5 million), I can promise you that.
He’s just ruined his corporate life forever.
I’d trust Mr Bolton like I’d trust a rabbit with a lettuce leaf.
*Post mortem*
To date, we are not aware of any proceedings being started against Bolton. It
seems he got away with the A$4.5M. Not a bad payday for an initial $47,000
investment and a little negotiation. What about the liability? Did Bolton know
that the securities came with that huge downside? It seems he did. He contained
the liability to his investment vehicle, Australian Style Investments. The
A$4.5M was paid to an another entity of Bolton’s, Australian Style Holdings, to
quarantine it from the $120M liability in Australian Style Investments. The
Weekend Financial Review also reported that Bolton had been searching for an
opportunity like BrisConnections for a while: A company in which he could take
a large interest quickly
and easily. In a confidential strategy document emailed to Ernst & Young and
Deloitte in early December last year, Bolton detailed a plan to increase his
holding in BrisConnections up to 49.9 per cent of the listed units and then
recapitalize the company. Those advisers rejected his takeover plan, so he
adjusted his strategy in late December or early January to a
liquidation. He told one newspaper he was “playing a game” from the start and
“the result of that game was to extract a benefit from the carcass of
BrisConnections:”
I took a commercial approach to this before buying in. I saw an
opportunity to improve the position of unit holders through our
entry in the company, and the actions we were planning to undertake.
It was a commercial transaction, intended for commercial gain, for
unit holders and for myself.
To the extent there was an altruistic outcome it was unintended, in
that my interests were aligned with the interests of all other unit
holders. But there was always a commercial intention on our part. We
didn’t seek the tag of white knight, and it doesn’t fit.
[Let] me say it would be commercially remiss and foolish of me, on a
matter of indifference, not to take a dollar or to leave a dollar.
It’s a commercial decision.
*Conclusion*
What’s the lesson? It’s better to be lucky than good? Well, yes, but that’s
doing a disservice to young Nick. We think the lesson is that there’s value in
the control or influence of a company beyond the underlying intrinsic value of
the stock. It’s why we have in the past followed activist investors into stocks
when it’s possible that there’s no underlying asset value, and it’s why we’ll
do it again in the future.
What happened to the other investors? Well, it’s a happy ending for them too.
Macquarie Bank has now thrown them a lifeline and agreed to buy their
obligations if they give up their holding and 100 per cent of their units for
free.
Did Bolton know that the securities came with that huge downside? It
seems he did. He contained the liability to his investment vehicle, Australian
Style Investments.
That’s not quite right, he went a step further and bought puts for his position
from a friend of his family who had no assets. So if it all went against him,
he was going to put the liability to that guy, who clearly would have simply
declared bankruptcy.
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