Institutional shareholder apathy was out in force on Wednesday as most of the resolutions put to Bell Equipment’s annual general meeting secured the traditional 90%-plus backing.
It was left to all but a relative handful of shareholders to indicate concerns about a company that has failed to cover its cost of capital for the past seven years and whose share price has tanked to R5, which is just 15% of its net asset value of R36 a share.
Mind you, check other value-destroying companies and you will see that in every case large institutional shareholders were enthusiastic voters up to the very last minute.
Wednesday’s AGM ended in what can only be described as a stalemate with Kerem Aksoy, chief investment officer of US-based Glacier Pass Partners, telling board chair Gary Bell: “It’s evident we agree on what the key issues [holding back performance] are but there is no plan in place to address them.”
With these words Aksoy neatly summed up the two-hour question-and-answer session that book-ended the vote on resolutions.
Two key issues
The two key issues, say the activist shareholders, are the lack of an owner-managed culture and the shortage of board members with industry experience.
Aksoy told the meeting these factors explained why the business, which manufactures world class articulated dumpster trucks, had not been managed properly for the past eight years.
Evidently unimpressed with CEO Leon Goosen’s 25-minute description of the group’s current situation and outlook, Aksoy called for the independent non-executive directors to undertake a strategic review of all the options facing the company.
“It’s evident the [executive] incentive scheme is not working, there is no owner-manager attitude, and there’s limited industry experience on the board,” said Aksoy.
He rejected Goosen’s explanation that tough local and international market conditions, a number of extraordinary expenses, higher inventory levels, and increased debt levels were the reason for the latest set of particularly poor results.
Carson Mitchell of Shipyard Capital Management suggested that, given Bell’s “well-respected” asset base, there would be parties interested in paying as much as R36 a share.
The ‘biggest risk’
He said the biggest risk to shareholders isn’t the operational challenges or tough market conditions, but the possibility that the Bell family, which owns 38% of the company, will make a “low-ball offer and delist it”.
The Bell family, which established the company in 1954, has recently been buying up shares in the company it listed on the JSE in 1995.
Neither Bell nor lead independent director John Barton would comment on the possibility of a bid by the Bell family. “The auditors have confirmed the [net asset value] so I’m not surprised some shareholders might consider buying shares now,” said Bell.
Barton told the meeting the board could not get involved in who buys or sells shares. “We prefer to focus on the performance of the business.”
The other major Bell shareholder is US equipment manufacturer John Deere, which bought a 30% stake in 1999, and helped drive strong performance until 2012. Bell told Wednesday’s AGM that in 2012 the relationship with Deere changed and “Deere moved into Bell’s area”, causing it to lose a large portion of its US sales.
At present it appears that neither the Bell family nor Deere enjoy the right to appoint directors to the Bell board.
Chris Logan, CEO of Opportune Investments, says the loss of Deere as an engaged shareholder was a significant blow to the company.
While the chair acknowledged the importance of an owner-manager mentality, Logan said the fact that the directors, including the two executive directors (but excluding Gary Bell) held a combined 6 638 shares, “reflected a total lack of confidence in the company”.
In a recent open letter to the Bell board, Aksoy and Mitchell called on the two major shareholders to reassert themselves at board level.
“Their expertise is necessary to install management capable of running what is essentially a multinational technology company.”