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The Shoeshine Column: Metlifecare throws blanket over CEO walkout

Friday 7th July 2000

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Few things unsettle the market more than a company losing its chief executive, particularly if the company is in some strife already and the departure takes place under a news blackout

Metlifecare's directors shouldn't be surprised the company's shares have plunged 10% since they announced on Friday Mark Russell had "completed his service with the company," as they so delicately put it.

The latest falls have taken the share price 37% below its January peak of 240c. Last September Shoeshine, to his great chagrin, said nice things about the company when the shares were 221c but his faith has since been severely dented.

As is all too often the case the directors made a rather feeble effort to persuade the market Russell's departure was entirely voluntary and amicable - as if chief executives of $180 million companies frequently walk out without notice after only 15 months on board and with no apparent job to go to.

Chairman Peter Fitzsimmons turned waspish when Shoeshine had the impudence to inquire further. All this speculation was unhelpful, he said.

Anyway, he couldn't discuss it because the company and Russell had an agreement not to comment.

Speculation may be unhelpful but it's a natural human activity when the facts aren't known.

Fitzsimmons' line seems to be that Russell is gone and the reason doesn't matter. It does matter.

Russell may have departed for any number of reasons and each has different implications for his future and for the future of the company.

He could, for instance, have been caught out behaving inappropriately toward a staff member (Shoeshine doesn't suggest this was the case).

That sort of thing isn't career enhancing but it wouldn't imply anything about the state of affairs at Metlifecare.

Or the board may have lost confidence in his ability to adequately manage the company. That's also career limiting and sends a definite sell signal to investors.

Then again Russell and the board may simply have been unable to see eye-to-eye on strategy. That need not affect an executive's career.

And a board with a strong view of where a company needs to go and the will to make sure it gets there is a positive signal for the market.

Shoeshine's guess is Russell walked to avoid the fallout from a tug-of-war between Metlife's biggest investors, deputy chairman Cliff Cook with 36% of the shares and Todd Capital with 35%. They account for four out of six board seats.

These two have a shareholders' agreement stipulating a five-year standstill on their holdings, effective from last September, and various pre-emptive share purchase rights.

Without a seat and somewhat irked by the directors' silence on the chief executive's departure is a similar alliance of Eric Watson's Cullen Investments with just over 10% and New Zealand Funds Management with just under 10%.

That leaves just 9% of the shares for institutional investors and the public, which must make Metlifecare one of the most illiquid stocks on the market.

With only 1084 shareholders on the register in December it can't afford to lose too many or it will risk breaching Stock Exchange spread requirements, which say companies need at least 500 holders to stay listed.

As many of those holders are the company's customers, who are firmly in the Cook camp, Todd would be well advised to remember Metlife is not a private company it can treat as it pleases.

While the company looks for a new chief executive, investors' attention will inevitably focus on how deep a hole it has got itself into.

On March 14, it reported an 80% drop in calendar 1999 bottom-line profit to $1.7 million. The chairman put the best gloss on it he could.

The result reflected the major restructuring carried out during the year, he said.

This resulted in one-off costs of $1.6 million.

But adding back the one-offs the operating surplus would still have been only $3.3 million, a 60% drop on the year before. Where did the rest of the lolly go? That's not explained.

Instead, the commentary accompanying the result shrieked about growth in just about every sentence - "focus now on growth," "targeted growth strategy," "solid platform for future growth."

That contrasts with Mr Cook's comments two months later to a conference of the Retirement Villages Association.

He told the meeting the level of retirement village building meant there would soon be too many units and not enough buyers.

While the retirement village business was definitely growing, only so much growth could be sustained at any one time, he said.

His comments amounted to a warning to new entrants to keep off Metlifecare's patch. They might also explain where the missing money went - the half-year result in a few weeks' time will show whether Metlifecare's occupancy levels have suffered from the new competition - but they don't suggest an aggressive growth push is particularly well-timed.

The company has a great set of assets and the issue is how those are managed. Russell was by all accounts doing a good job and the board has done itself no favours letting him go.

Does somebody at Fletcher Challenge have a quirky sense of humour or has the company adopted subliminal suggestion techniques?

At Tuesday's special meeting to approve the sale of the Paper division to Norske Skog, chairman Rod Deane gave a presentation accompanied by a PowerPoint slide show.

The logo illustrating each of his points was a paper dart flying away from the assembled shareholders.

The meeting in fact served only as a forum for professional complainer Max Gunn to call Dr Deane "a puppet" of Telecom's departed US shareholders and Fletcher directors generally "wimps."

Although shareholders scribbled on ballot forms the issue had already been decided by an overwhelming number of proxy votes in favour of the sale.

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