Come clean over any Seven Group deal, Boral told

Veteran banker John Wylie and Perpetual have demanded Boral publicly release details of any deals done with the company’s biggest shareholder, Seven Group Holdings.

Investment banker John Wylie. Picture Stuart McEvoy.

Veteran investment banker John Wylie and Perpetual have demanded Boral chairman Kathryn Fagg publicly release any secret deals done with the company’s biggest shareholder Seven Group Holdings that saw its chief executive Ryan Stokes and finance boss Richard Richards invited on to the Boral board.

In a joint letter sent to Ms Fagg, and obtained by The Australian, the powerful duo of Mr Wylie and funds manager Perpetual, who combined have more than 10 per cent of Boral’s shares — but say they are not acting as associates — have set out a series of questions relating to possible agreements entered into between Boral and Seven.

In particular it needles Ms Fagg to explain why the representatives of Seven will ultimately have almost one third of the seats on the Boral board despite only owning 20 per cent of the outstanding shares and what benefit their presence on the board will be to the company.

It raises the heat on an already prickly corporate tussle that has seen the Boral share register raided by corporate activists and other investors as they try to drag the construction materials company from its run of losses and unlock value they believe lay within the business.

In September Boral handed billionaire Kerry Stokes’ Seven Group two Boral board seats to reflect its 19.9 per cent stake in the company, with its chief executive Ryan Stokes and finance chief Mr Richards appointed directors as part of a broader shake-up at the Sydney-based company. The Seven Group conglomerate, controlled by Kerry Stokes, has been boosting its exposure to Boral ahead of an expected strategic shake-up in October which could pave the way for the sale of its underperforming US business.

But Mr Wylie’s Tanarra Capital and Perpetual’s head of equities Paul Skamvougeras are now making their voice heard and have written to Ms Fagg to express a number of concerns over the appointment of Mr Stokes and Mr Richards to the board.

Initially Mr Wylie and Perpetual’s Mr Skamvougeras welcomed early moves to turnaround the struggling Boral business.

“It has been pleasing to see the beginning of the turnaround in Boral’s fortunes in recent times. We believe the board has made a number of good decisions which we commend,’’ the letter states.

“First, while it is early days, the appointment of Zlatko Todorcevski as CEO is shaping up as a good one. We have been impressed by his openness and his commitment to making Boral both a better company and a better investment for shareholders.”

However, the letter then canvased questions in relation to the agreement the company has entered into to appoint two directors from the Seven Group to the Boral board.

“This is not personal in any way – both Ryan Stokes and Richard Richards enjoy strong business reputations, and the Seven Group has made a substantial investment in Boral. Our issues, as managers of institutional capital on behalf of a very large number of Australians with a substantial investment in Boral, go to principles of corporate governance in one of Australia’s best known blue-chip public companies.”
The letter raised the disproportionate nature of Seven being granted two board seats relative to its shareholding, which gives excessive influence to one shareholder in the company, the lack of obvious incremental benefit to the company by entering into these arrangements and the lack of transparency around the contractual arrangements that have been entered into.

“We would like to understand from you the following: 1. Can you please explain why Seven was awarded two board seats, which represents 25 per cent of the non-executive positions on the board after the 2020 AGM and 29 per cent after the signalled retirement of Paul Rayner – materially greater than its shareholding interest?

“Can you please explain why has Boral not disclosed the full terms of the agreements with Seven Group, Mr Stokes and Mr Richards? We believe that details of the terms and effect of these documents are material to Boral shareholders within the meaning of Listing Rule 3.1”.

Mr Wylie and Perpetual’s Mr Skamvougeras state in their letter the market has a legitimate interest in understanding the detail of these agreements and is arguably not trading on a fully informed basis absent that.

“It is difficult to understand Boral’s reluctance to disclose such a key agreement on a timely basis given its commitment to best practice ASX corporate governance principles. Selective disclosure is poor corporate governance.

“There is clear precedent for such disclosure, such as the shareholders agreement between Santos and ENN/Hony Capital in 2017 which provided ENN/Hony with board representation at Santos.”

The letter asks that given the agreements did not secure any new capital or commercial relationship for the company, can Ms Fagg please explain what incremental benefit Mr Stokes and Mr Richards provide the company.

“We would expect these to be material and tangible, especially given the disproportionate board representation that has been awarded. Boards negotiating these types of agreements often require standstill provisions that prevent a substantial shareholder creeping to control, or ‘comealong’ provisions that require it to support a takeover proposal recommended by a majority of the board.”