Pyrrhic victory for Richmond shareholders

By Chris Hutching

Friday 29th November 2002

Richmond shareholders might be crowing a little too soon over a hollow victory delivered by Justice Willie Young ordering PPCS to forfeit 6.8 million shares and mount a full takeover or lose voting rights over its remaining 43% stake.

In response, Richmond shares jumped to $2.45 from around $1.60 last week in anticipation of a takeover.

Justice Young delivered his ruling in the High Court late last week in the latest chapter of a five-year takeover battle during which a minority of Richmond shareholders have fought off southern meat processor PPCS' overtures. The Richmond parties have made much of Justice Young's criticism of deceitful behaviour by PPCS executives and lawyers over substantial securityholder notices while conveniently ignoring the deceits involving the Richmond parties that were revealed during the trial when one of their legal counsel was forced to retract a false affidavit.

The penalties imposed by Justice Young have placed PPCS in an impossible position. The share forfeiture alone will cost about $10 million and the technicalities of mounting a takeover by the January 1 date stipulated by the court will be difficult if not impossible to overcome.

Richmond shareholders, who took the action, believe they can block a takeover anyway and that PPCS will not get 90% acceptances. That would leave it with 43% and no voting rights. The ruling also paves the way for an opportunistic third party to become involved in spoiler tactics as shown by the jump in the share price this week.

PPCS has until next Monday to confirm its position but it will almost certainly appeal Justice Young's ruling unless the Richmond parties take a more realistic line.

An appeal would probably take months, starting with a hearing in the next few days requesting a stay on Justice Young's penalties. A drawnout series of court appeals would put more pressure on Richmond's already shaky financial position (posting a $6.4 million loss recently) and make its search for a new chief executive even more difficult.

PPCS had plans to initiate further commercial talks with Richmond this week but Richmond chairman Sam Robinson wrote to shareholders on Monday telling them Justice Young's decision provides a basis on which to end the uncertainty that has plagued the company and ruling out further negotiations.

Sources within PPCS say Richmond shareholders would be unwise to take any comfort from this suggestion. The sources also note that Richmond's constitution requires it to act fairly in the interests of all shareholders including PPCS rather than the small minority currently making the play.

The huge cost of the takeover stoush is the one factor that may prompt other shareholders in both companies to put pressure on their respective boards to resolve the situation.

PPCS is estimated to have spent about $65 million on its foray so far and Justice Young ruled that it must also pay Richmond costs of about $2 million. Richmond has yet to reveal the full extent of direct and hidden costs to its shareholders but will have an opportunity at the annual meeting on December 20.

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