Forum Archive Index - February 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

> 
>I am a new investor and have some Brierley's shares and not sure
>what to do about this current offer - in fact, after trying to read
>the offer through I am totally confused - could someone explain to
>me if it is a good move to change to US$ or not etc. Thanks Flo
> 
Flo, I guess you are referring to the circular to shareholders dated 
9th February 2001.

The change to denominate the shares in US currency rather than 
NZ dollars doesn't really matter.  It is analogous to measuring the 
temperature of boiling water at 100deg Celsius or 212deg Farenheit.  
In both cases the water is still boiling and whether you measure this 
is degrees Farenheit or degrees Celsius doesn't change the 
temperature of the water.  Just as measuring shares in $US or $NZ 
doesn't change the underlying value of the investments as long as 
those investments don't change.

The other resolutions you are being asked to vote for are a bit more 
contentious.  These are where the steam should start to rise from 
investors brows.

Brierley are looking at increasing the number of shares on issue by 
50% over the next few years by dishing them out as freebee options to 
management.   While the financial pie remains the same size this 
means that existing shareholders slices become proportionately 
smaller.  The argument is that by giving management a greater slice 
of the pie they will be more motivated to work harder.   While this 
is a good theory I do not believe it will work in the case of 
BIL.

Firstly, all the senior management team is new and BIL has ensured 
that they have been employed at internationally competitive rates.  
So it would seem that you are now being asked to authorize extra 
remuneration for BIL management at *above* market rates. 

Since current Chief Executive Greg Terry assumed the helm of Brierley 
Investments the shareprice has approximately halved.   They have 
reached the point where if the company sold all their assets and 
sacked the management, the average shareholder would be twice as 
well off as they are now. 

The effect of issuing more shares options at current prices to 
management is effectively diluting the future returns of all 
shareholders.  If the share price does not go up then management do 
not need to buy these new shares and they are off the hook.  If the 
shares do go up then management and existing shareholders are equally 
happy- or are they?

If new shares are issued at 30c, and the price goes up to 45c then 
management have made a profit of 50%.  Great for management, but cold 
comfort for those shareholders whose shares were worth 60c before the 
new management took over.   If this scenario happens, then the new 
management team will have destroyed one quarter of all shareholder 
value.   Most private businesses would sack such individuals for that 
sort of performance.

In the case of BIL, not only would these managers be paid fully 
competitive market salary packages, they would actually be paid a 
huge *bonus* for their efforts destroying existing shareholder value 
and (this is where insult is added to injury) all paid for by the 
ravaged existing shareholders!

The BIL argument is that only 10% of the 'option plan' available 
shares will be issued in any one year over a ten year period, so the 
market price won't be affected, doesn't hold water.   The proposed 
50% increase in shares on issue is huge by any standards and is 
simply a method of transferring wealth from existing shareholders to 
management.  

I would suggest that existing shareholders vote *against* the share 
issue mandate and *against* the share option scheme.   It would be 
far better if BIL bought back their existing shares on market and 
repackaged those as a share incentive scheme for management.   The 
scheme as proposed is an absolute disgrace IMHO. SNOOPY


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