Orica ex-chief Ian Smith’s costly short fuse

WHEN Orica hired Ian Smith just over three years ago his temper was already legendary and new chair Russell Caplan has had enough.

Artwork by Sturt Krygsman.

WHEN the Orica board hired Ian Smith just over three years ago his temper was already legendary and now new chair Russell Caplan has had enough.

He has told headhunter Swann Global to fast forward its search for a replacement and is now ­effectively stuck with a lame duck chief executive in charge.

On any scenario it is plain dumb to make the call that Smith’s temper — or as the spin said yesterday, his management practices — is unacceptable but keep him on until a new boss is found.

Caplan has effectively shown him the door but kept Smith inside until a replacement is found — in corporate governance terms that rates one out of 10. The board’s job is to manage the CEO and in this case it has let shareholders down and is making matters worse by a clumsy handover. Internal candidates like CFO Craig Elkington could surely have held the reins until a replacement is found.

While saying the search is well under way, Caplan did say it would be more than a matter of days before a new CEO is found and part of the reason for making Smith’s departure public was to speed up the process.

In just over three years Smith has been nothing short of revolutionary at Orica, but at $4 million a year he needs to be able to do that as well as run his staff in an acceptable manner.

Smith made clear himself he had failed that objective and so after giving up the chance to transfer into a non-executive director career to take the Orica role from Newcrest he now faces a decidedly uncertain future. That is sad because on any measure he has done great things at Orica, which when he joined was struggling to control the environmental ­controls around the Kooragang Island ammonia plant.

Smith invested heavily to give the company a licence to operate, he revamped management around functional rather than regional lines and he fast-forwarded technology so that now the company is rolling out wireless explosives and is on the verge of a value-added explosive truck joint venture with Dale Elphinstone.

Value-added manufacturing and more recently shedding chemicals in a $750 million deal are just part of the changes he made at Orica. All this at a time when the resources boom has clearly changed the outlook for the industry in a more definite way than Smith was suggesting.

Next Monday his management team will be there for an analyst session looking at the company’s future in what will be a bizarre corporate outing given the boss is exiting.

Management is paid big bucks to handle the job and one way or another Smith failed that test. And it came to a head in a temper outburst with former IR boss Karen McRae in January, which was the final straw for Caplan.

Orica shareholders must now wait until a new boss is found and then wonder what he or she has in mind, which is also unacceptable.

Smith’s demise is a tragedy only topped by the way his departure is being handled by Caplan and the Orica board.

iiNet’s buyer hopes

TAKEOVER target iiNet edged higher to $8.86 a share on hope another buyer would walk in the door, with all eyes on Geoff Horth at M2.

The concept of a bid for iinet has certainly not escaped Horth’s attention but there are hurdles, starting with a $14m break fee and the $17m in fees payable to the Perth company’s advisers, Azure Capital. Now given iiNet has handed TPG such a sweetheart deal you can wonder just what the folk from Azure were thinking, but a rival bidder would effectively have to part with $31m before its own costs even started.

A cash and scrip offer is the obvious alternative but another part of the deal gives TPG three days’ notice to match the offer, which effectively means if Horth knocked on the door at say $8.80 a share then David Teoh at TPG could return in three days matching it and that is the ball game. It’s not necessarily enough to block a rival but it is enough to make him or her think twice about it.

Sims v Pfizer

ACCC chief Rod Sims is not ­taking no for an answer and has appealed the Pfizer decision by judge Geoffrey Flick.

The case is important because as it stands the ACCC would have lost even if wins its dream reform for section 46 from the Harper review, given the court said it failed to show the drug company’s purpose was to lessen competition.

Purpose is tough to prove and in this case the judge was persuaded by the drug company’s witness, which makes the appeal even harder to win.

The case centred on Pfizer’s decision to package generic drug sales ahead of the expiration of its top selling Lipitor anti-cholesterol drug complete with rebates so long as the chemists took the genetic in volume.

The judge ruled this was simply a firm trying to cash in on its market lead, in effect trying to compete and once the patent ended he said there was no market power hence a section 47 case from the ACCC also failed.

Poles and high wires

THE best defence for an equities analyst when his her corporate department is involved in a corporate deal is to write research, which helps inform the market to encourage punters to buy and sell equities. When the highly regarded and top-rated David Leitch and Andrew Lilley wrote a report this week highlighting how much debt the NSW government would take off its books from the power ­privatisation they were arguably walking this line.

Listed companies are interested in the proposed privatisation and the NSW bond market is a big play pen for the UBS fixed interest team, so the report more than satisfied the need to inform clients.

The aim of the report was to show how the sale or lease back of 50.4 per cent of the electricity assets was enough to take at least $15 billion in debt from the government’s books which in budgetary terms is a huge win.

This was a point the analysts felt was not generally appreciated in the market, that the sale of just over half the assets was enough to clear all the debt.

The report went on to say the bleeding obvious: that the sale of an income-producing asset like a road or rail project which didn’t produce income would affect the budget before accounting for increased economic activity from the new investment and asset sales. So far so good except in a politically charged environment like an election a headline like “State wins, budget loses” may be misused and it seems the NSW government was unimpressed.

This was an issue because the government is a big client given UBS is advising on the sale. UBS quickly made the change to incorporate the $30bn boon to the state calculated by Deloitte on increased activity to flesh out the position and changed the headline accordingly.

The change made was immaterial to the thrust of the research piece, which was to highlight the debt freedom but satisfied the corporate political antennae and arguably fleshed out the report.

The issue here is to show the tortuous lines trodden by full ­service investment banks when selling independent research, and in this case the corporate client’s interests “won the day”.