Monday, July 20, 2009

Transpacific Industrie's Capital Raising is Trash

I feel for Transpacific Industries [TPI] NZ | AU shareholders. I say this because shareholders like myself benefited from their Executive Director and Chairman, Terry Peabody's generosity when he shelled out over NZ $800 million to buy Waste Management NZ in 2006.

Some say he overpaid, I say the asset was a stunner and I got shafted long-term but nevertheless I got a 50% return on my investment for a year and the money came from debt Peabody was able to raise from idiotic investment bankers who took a percentage cut for arranging such loans for Peabody to go mad with.

I really have TPI shareholder money in my back pocket, thanks for that, but the borrowing of the last few years had its wrap up of sorts today where the company is trying to ironically raise about $AU800 million to fend off bankers (ahh there they are again to collect) and eventual liquidation.

They have managed to raise around AU $620 million so far from institutions and a cornerstone shareholder, Warburg Pincus (another investment banker/private equity player) and will ask for the remaining balance from those poor old suffering shareholders at the princely sum of AU$1.20 per share.

If the institutional capital raising is anything to go by the interest in pouring more money into this company is low. It only just reached its minimum target.

My message to those shareholders is, don't do it!

The architect of the company failure is still there at the head of the business, it is unbelievable that he hasnt been pushed out or had the decency to walk the plank, but Terry Peabody is an arrogant man and he will not admit that he has done much wrong. He has destroyed around AU$ 3 billion in capital in the business that he manages and an arrogant man doesn't change his ways easily.

The cornerstone shareholder should reign him in though.

It seems to me though that the cornerstone shareholder,Warburg Pinkus, who will hold 20% of the company or more once the capital restructure is finalised, and that should be in early September, might want to extract as much value from their investment at the expense of minority shareholders and Peabody, who will also have a large stake, will want to continue with the staus quo.

Cut your losses TPI Holders, it ain't worth it chasing good money after bad.

There is of course short money to be made here.

Just a heads up for New Zealand investors. It seems to me that Transpacific's best assets still lay in its New Zealand operations. Waste Management and parts of Envirowaste and other companies that TPI run here are virtual monopolies, making good money and the fact that an investment banking organisation/private equity company has a large stake in TPI could mean a sell off of some of those assets in the future.

Slightly more than a stab in the dark from me, but nevertheless we could get it back on our NZX one day.

Just though a good rumour was warranted.

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The Private Equity Edge: How Private Equity Players and the World's Top Companies Build Value and Wealth
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c Share Investor 2009

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