Future Direction of Travel?...22 May 2024 13:32
The trouble with buybacks and GKP is that they have a raw history….
During the last buybacks in 2019, which were to Treasury, the motives for Jaap Huijskes were very different than this time.
Jaap Huijskes (Chairman at the time) wanted to create a pool of shares that he could re-invest in incentivising his employees as required.
Trouble was, he wasn’t honest about it to us humble shareholders.
And as a consequence, investors (rightly) scratched their heads and legitimately asked what the point of the buyback was. He deployed the ‘accretive value’ and the ‘defence to hostile attack’ arguments which was literally unbelievable. There was no accretive value in buying back to Treasury. Nor was there any evidence of an impending hostile bid for GKP. In fact, it turns out the shares were bought back to Treasury with the intention of rewarding loyalty (and maybe) performance for employees.
In any case nobody believed him and the share price never responded in any significant way.
But the consequences, though laboured, were dramatic. Neither he nor Jon Ferrier ever received the 80% shareholder confidence vote at any AGM thereafter. In 2020 he had no choice but to cancel those $50m shares sat in Treasury and write them off the Balance sheet anyway. He could have bought them back for cancellation in the first place as he should have done. The share price would almost certainly have moved North, given timings and the financial position of the Company at that time. But he didn’t. The result was a substantial loss to the business for no perceivable benefit whatsoever. He then sacrificed his CEO who fell on his sword and announced his retirement in 2020 (though he took his bag of unearned swag worth $ms with him!).
And it’s not good enough to state that buybacks are just a form of capital returns to shareholders. Everything depends on motivation. I note that Juijskes chose buybacks rather than dividends…
Apologies for a summary of more recent GKP history, but context is important so as best to understand more about the current buyback and its potential consequences.
With the arrival of JH in Jan 2021, there was a change of mood. Self-serving motives were crushed and replaced with a new vision, one where the shareholders best interests were primary in management terms…as it should be. Huijskes has now gone (no doubt with his own bag of swag) but the Board clearly have a new outlook. One that at least attempts to act on behalf of the owners’ best interests. Yes the Board will wish to recoup their lost earnings over the last period, but:-
1) They’ve shut down the cost base;
2) They are replacing the volumes, albeit at discounted prices;
3) They’ve joined in the shareholder survival enterprise by slicing their own earnings;
4) There’s a new model in Town; one which has its own real value going forward.
Hence the new buyback initiative, this time for CANCELLATION. And that’s the key.
TBC…
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