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Opinion: Vertex takeover bid follows plastics board meltdown

By Kate Perry of NZPA

Friday 4th March 2005

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It's not quite plastic pistols at dawn, but the fight is on for control of Vertex after cornerstone shareholder Masthead this week announced a takeover bid for the company.

The bid for the plastics manufacturer follows months of infighting among Vertex's board members, with managing director Paddy Boyle and independent director Sandy Maier openly suspicious of Masthead's motives.

The battle-of-the-boardroom has been raging since Masthead bought its 19.9% stake in Vertex from Christchurch businessman George Gould in September last year.

Boyle and Maier never wanted Masthead's appointees - Mark Stewart and Warwick Webb - on the Vertex board. But they were outvoted by the outgoing Gould Holdings' directors, who in a block motion also appointed Warren Bell as an independent director and chairman.

Boyle and Maier were worried about potential conflicts of interest, as its rival Alto Plastics is 51.2% owned by Masthead. Webb acts as a consultant for Masthead, which is a private investment vehicle for Stewart's family. Stewart sits on Alto's board.

Relations between the factions reached melting point in December after Boyle and Maier turned to the court to oust the Masthead board members. The High Court appointed an independent chairman, Tony Frankham, and left it open for Boyle and Maier to continue proceedings concerning the other directors if they could not sort things out amongst themselves.

But based on past performance, an amicable ending seemed unlikely. "We've been an investor for five months and two and a half months of that we've been fighting," Stewart said on Tuesday when he announced Masthead's takeover bid.

The takeover bid is one way for Masthead to avoid another court imposed power change. Stewart has already indicated Boyle's days at Vertex would be numbered if Masthead gained control of the company.

New management is not the only change on the agenda. Stewart also confirmed that he hoped to meld Vertex and Alto - something Boyle fears.

But he said the current hostile boardroom environment meant a merger with Alto would be impossible unless Masthead had control of Vertex.

"If we are not successful in our (takeover) bid then there is no way there will be a merger and if we are successful, then it's something we will investigate," he said.

Despite Vertex being a listed company this was the first time Masthead's intentions regarding a potential Vertex-Alto merger had been made public.

New chairman Frankham said the takeover offer now gave shareholders a chance to decide on Vertex's future.

The offer was one way the dispute between the various factions on the board could be resolved, but it depended on the fairness of the price, he said.

Frankham said he had not felt obliged to publicly reveal Masthead's hopes of fusing the plastics companies, despite Stewart informing him of the possibility shortly after he was appointed as independent chairman. Frankham said he did not go public as the information was told to him "in confidence".

A legal spokesman for the New Zealand Exchange confirmed that even under the sharemarket's continuous disclosure requirements, the plan seemed "insufficiently firm" to warrant disclosure.

The boardroom stoush is just the latest drama in the plastic company's colourful history.

Vertex was spun off from Carter Holt Harvey in 2000 and listed on the stock exchange in July 2002, following a $61 million initial public offering.

Just nine and a half weeks later a profit warning triggered a 25% drop in the company's share price and wiped $14.7 million from its market capitalisation.

The profit warning downgraded Vertex's full year earnings before interest and tax (ebit) expectations by 10% to $10.1 million, prompting an investigation by the Securities Commission into the accuracy of its prospectus. The commission found problems with the prospectus but ruled the directors had not intentionally misled.

A second profit warning came the following February - just a day after Gould bought a 19.9% chunk of the plastic-not-so-fantastic firm.

The second downgrade forecast a full year ebit of between $9.2-9.6 million, compared with the September estimate of $10.1 million.

Things have picked up since then, with Vertex reporting a 15% rise in net profit for the half year ended September 2004. But Stewart said so far Masthead's $13 million investment in Vertex had been "disastrous", and he hoped by gaining full control he could create more value. The Stewart family has a long history in the plastics industry, having owned PDL Holdings for 44 years. They sold the company to French conglomerate Schneifer Electric in 2001 for $97 million.

The jury is out on whether Masthead's bid for Vertex will be good enough to tempt shareholders. One analyst thought the $1.90 a share bid had potential, while another said shareholders might question why it was so much lower than the $2.05 a share Masthead paid Gould.

Stewart said the offer represented a 19% premium on the pre-offer share price of $1.60. The day after the offer Vertex's shares jumped 17.5% to $1.88, up from $1.36 a year ago. It was up at $1.90 today, suggesting some investors are punting Masthead may have to bid higher.

An independent appraisal of the offer has yet to be commissioned.

However shareholders respond to the offer, Frankham was hopeful the behind the doors stoush would not deteriorate into a public free-for-all.

"I hope this doesn't degenerate into a mud-slinging battle within the media," he said. "I'm not going to be a party to that."

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