Minority shareholders question independence of VGW committee

Virtual Gaming Worlds entrepreneur Laurence Escalante. Picture: Nic Walker

How independent does an independent board committee need to be? Not very, when it comes to Laurence Escalante’s online sweepstakes company VGW.

No criticism of Canterbury Partners’ Mike Symons, the chair of the independent committee brought in to consider Escalante’s $5.05 a share offer to take control of the 30 per cent of the company he doesn’t already own.

But the independence of the rest of the committee is a tad questionable, a point not lost on dissident VGW shareholders, of whom there are plenty.

In addition to Symons, the independent committee included VGW executive director Mats Johnson, VGW general counsel Mike Thunder and VGW chief financial officer Angus Tiet.

That’s three of the four committee members that owe their jobs to the good graces of Escalante.

Granted, given the general dearth of independent directors on such tightly held companies such as VGW, it might have been difficult to appoint a full raft of true independents capable of getting across the complexities of the business in short order.

Symons was only appointed in January to oversee the buyout bid. Oddly enough, though, VGW only lodged documents showing his appointment in early June – a day or so before the offer was formally launched. Which cynics might suggest neatly hid any signs of the negotiations from the public eye.

Johnson is said to be independent, according to the scheme documents, by virtue of the fact that he doesn’t hold any shares in Escalante’s BidCo.

The fact that he also holds some 10 million in VGW argues to a desire to maximise their value in a takeover, even if 9.7 million of those are “loan shares”, on which Johnson still owes about $19m.

VGW also argues the presence of Thunder and Tiet were necessary to give Symons access to information about the complexities of VGW’s finances and the sheer number – which changes each week – of lawsuits and regulatory moves against the company’s sweepstakes business model in the US, its biggest market by far.

But still, surely they could have been simply directed to advise the committee, rather than sit on it themselves?

Even Rio Tinto, which has copped plenty of criticism from minority shareholders in regard to its conduct at uranium miner ERA, managed to whack a fig leaf of independence over its control by appointing directors that were actually separate from the majority owner.

Still, to be fair, the committee did manage to extract an additional $1.55 a share from Escalante, who is trying to buy the rest of the company through a corporate vehicle registered in Guernsey for $5.05 a share.

Symons also managed to extract an agreement to allow minority shareholders to exchange their existing shares for stock in the Guernsey-registered BidCo, if they want to stay on Escalante’s sweepstakes rollercoaster.

When there’s only one bidder, you take the best offer you can get. But it’s still not a great look.

Buckeridge scion takes on building giant

The halcyon days of the pandemic were sweet ones for Australia’s building products companies. A home renovation boom helped spur record profits, helped along by government subsidies, material shortages, and price inflation – and perhaps a little bit of rampant profiteering.

That’s certainly the theory that Julian Ambrose’s Consolidated Energy is keen to test, in a newly filed lawsuit against CSR – now owned by French construction giant Saint Gobain.

Consolidated Energy installs insulation, hot water systems, heat pumps, solar power, that sort of thing. It’s a medium-size operation, in the scheme of things, with revenue of $72m last financial year.

But Ambrose – like his stepfather, the late WA construction billionaire Len Buckeridge – clearly isn’t afraid of shaping up to the big kids, launching a suit on Friday alleging dodgy dealings during Covid-19 by CSR, now a part of a $90bn international behemoth.

At stake is tens of millions of dollars in inflated costs for insulation provided by CSR and passed on to homeowners, according to Consolidated Energy, amid allegations of profiteering by the building products giant.

Ambrose’s company was one of several that got a sweetheart offer from CSR in late 2020, court documents say, as the company tried to lure customers away from rival insulation provider Knauf.

The discounted offer was enough to convince Consolidated Energy to jump ship, given it included an agreement that price hikes would be limited to CPI, and a guarantee that CSR – which supplies insulation direct to builders and also ran its own installation business – would guarantee supply on equal terms to all buyers.

But then the pandemic home renovation boom kicked in and, according to legal documents filed by Consolidated Energy, CSR selectively hiked prices (above the maximum agreed) on third-party installers, and limited stock available.

Worth noting that CSR’s building products division was its best performing in the post-pandemic years, with earnings up 33 per cent between 2020 and 2024 – enough, clearly, to entice Saint Gobain into a bid.

All of this was ventilated in court last year, when Consolidated Energy went into the Federal Court to win discovery orders to trawl through CSR’s internal documents related to insulation sales. CSR denied the allegations at the time, and presumably still does.

But Consolidated Energy’s initial suit went gunning for the top of the CSR tree, with the company chasing correspondence between building products general manager Heath Hopwood and his subordinates, and with then-CSR managing director Julie Coates – now on the Wesfarmers board.

The results of that process have been kept under wraps by the court, but clearly the outcome has been juicy enough for Ambrose to press the case in a misuse of market power suit lodged last week.

If it stands up, though, the suit has ramifications well beyond just Consolidated Energy. Any of the company’s competitors in a similar position could also sue – and class-action specialists will also be salivating at the prospect of putting together a list of consumers that might have overpaid for insulation as a result.

Not to mention prospective interest from the ACCC.