Fai Nibbles Away At Skase Empire
Sydney Morning Herald
Thursday January 19, 1989
Rodney Adler has intensified his late father's fondness for television and resort mogul Christopher Skase by firming FAI Insurances' toehold on the Skase empire.
FAI has snapped up a further 3.5 per cent of the Skase holding company Qintex Ltd, to take FAI Insurances' stake to 16.5 per cent. Adler paid $3.50 a share, or 30c below the market, for a parcel of 600,000 Qintex Ltd shares. The deal was handled by McIntosh Securities, a firm supporter of Skase and Qintex, so the purchase is not considered to be a threatening one, for the moment at least. The seller was funds manager Equitilink, which must have been keen to sell given the discount to the market price of $3.80 bid.
Interestingly, FAI has lifted its shareholding in Qintex Ltd, the thinly traded holding company capitalised at only $60 million, rather than the much larger trading entity in the Qintex group, Qintex Australia Ltd (QAL).
Qintex Australia Ltd is 50.2 per cent controlled by Qintex Ltd, which in turn is 50.3 per cent held by Skase.
FAI has taken a deliberate decision to put its money where Skase has staked his personal fortune rather than the downstream QAL. Comparisons with Bell Group and its far richer, but poorly treated, subsidiary Bell Resources are irresistible. Inevitably, the wealth and earnings of the downstream company will be shunted up to the holding company, a tendency which has proved costly to Bell Resources shareholders since Bond Corporation's takeover of Bell Group.
FAI is displaying increasing aggression in Qintex Ltd, despite the fact that it is a low-yielding stock, paying about half the 10 per cent-plus return of its subsidiary QAL.
More importantly, though, Qintex holds the key to control of the group. For an outlay of $2.1 million this week, it bought 3.5 per cent of the holding company. For the same amount, it would have acquired 0.86 per cent of the subsidiary.
On top of its 16.5 per cent holding, FAI has the 4.5 million preference shares it bought from Qintex Ltd in April last year for $20.8 million. On conversion, these prefs translate to 4.1 million shares, but because Skase has an option to redeem 51 per cent of the prefs, FAI can move to a maximum of 23 per cent only on conversion.
If it wanted to convert all of its entitlement, however, and go above the 20 per cent takeover threshold, FAI would need shareholder approval, which in effect means Skase's say-so.
At the time FAI bought the prefs, its former chairman, Larry Adler, enthusiastically expressed his admiration for Skase and declared that the Qintex strategy was in tune with his own belief that tourism and media were the growth industries of the future.
Although Adler may have liked Skase, he drove a very tough bargain. The prefs carry a punishing interest of 25 per cent, plus dividends. This usurious rate suggests that Skase was finding things tighter than he would admit publicly at the time.
More recently, however, Qintex appears to be emerging from its ambitious program of asset accumulation and deepening debt to a period where it is starting to earn a return, albeit a modest one.
On a deconsolidated basis, Qintex has reduced its borrowings to $147 million and has issued convertible notes worth $70 million. It has cash of about $5 million. QAL is still carrying heavy debt of $1.1 billion, compared with shareholders' funds of about $700 million.
Qintex Australia made $28 million last year, after reporting a modest $3 million net earnings in 1987, and analysts are looking at $45 million-plus net earnings this year and up to $55 million in 1990, still a poor return on assets.
As a result, the stock (QAL) is largely being ignored in the market and is trading on a multiple of only 6.9 times prospective earnings. It is not popular at a time of high interest rates and the price gradually has slipped over the last 12 months from $3.60 to yesterday's close of $1.60.
Skase, who has a proven record as a very astute asset trader, is capable of greatly lifting group income by selling assets for a profit.
There have long been rumours that he is negotiating with the big Japanese trading house Mitsui to take up a stake in Qintex's two Mirage resorts in Queensland. A sale of a half share would pump in more than $200 million, but equally there are suggestions that Qintex and Mitsui are having trouble agreeing on the size of the equity sell-off.
Skase presumably would prefer to keep at least 51 per cent, while Mitsui is said to be pushing for at least 50 per cent. Mitsui already has agreed to help Qintex sell apartments in the Mirage resorts.
Nibbling away at the top of the pyramid controlling these assets is FAI. By any measure, the insurance house is taking an increasingly influential slice of the Qintex holding company.
Skase, however, is assured of continued control so long as he can maintain his personal holding above or close to 50 per cent.
Looking over his shoulder though is FAI's Rodney Adler, striving to recapture ground in the market following the share slide in the wake of the death last month of his father. Qintex is greatly undervalued in the market and potentially is a choice prize.
IN a less high-profile play in the market, small industrial group Richardson Pacific has bought the 18 per cent stake in J.C.Ludowici and Son held by rebuffed former suitor, Belmont Holdings.
Richardson is controlled by former Pioneer Concrete finance director John Iliffe and Potter Partners' senior dealer Peter Meurer, and can be expected to display increasing aggression under new managing director Geoff Abbott.
The $1.71-a-share price paid by Richardson values Ludowici, one of Australia's oldest industrial companies established in 1858, at $18.6 million, or 8.3 times historic earnings.
Ludowici has established a fairly profitable niche as a manufacturer of hydraulic seals, wear resistant parts for the mining industry and conveyor belts. Richardson can see considerable growth potential in the company.
Belmont launched its $1.20 a share bid for Ludowici in September 1987, but attracted sufficient acceptances to lift its holding to 18 per cent after Ludowici directors firmly rejected the offer.
Following Richardson's acquisition yesterday of the strategic Ludowici holding, the two parties no doubt will start some constructive talks.
BOND Corporation is dragging its feet finding ways to "commercialise" the$580 million worth of Bell Group convertible bonds it inherited when it acquired Bell in the $520 million takeover in July last year.
The task is not so simple as merely to drop the conversion rates (of between $3.92 and $10.02) closer to the Bell market price ($2) to enable Bond to regard the bonds as equity rather than debt.
Should the investors decide to convert in this case, Bond would be faced with the task of refinancing this cheap money at a considerably higher interest cost at a time when Bond is desperately trying to reduce its borrowings.
The bonds at present pay investors between 5 per cent and 11 per cent. Although Bond Corp promised faithfully to commercialise the bonds as one of the conditions of his takeover of Bell, this process seems as far away as ever.
© 1989 Sydney Morning Herald
Share This