CBH bid to tighten restructure voting

27 Jan, 2018 04:00 AM
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CBH directors entering the 2016 annual meeting shake hands with a lone grower protesting at the Australian Grains Champion bid for control of CBH with backing of major competitor GrainCorp. It was the genesis for CBH asking members at this year's annual meeting to approve a rule change requiring at least half of its members to vote on any significant structural change decisions.
CBH directors entering the 2016 annual meeting shake hands with a lone grower protesting at the Australian Grains Champion bid for control of CBH with backing of major competitor GrainCorp. It was the genesis for CBH asking members at this year's annual meeting to approve a rule change requiring at least half of its members to vote on any significant structural change decisions.

GRAIN growers attending CBH Group’s annual meeting next month will be asked to approve a new rule that will require at least half of the group’s 4200 members to vote on future decisions regarding significant structural change.

The new rule proposal to be considered at the Friday, February 23 meeting at the Perth Convention Centre, aims to put to rest concerns highlighted by some growers in a 2016 structure and governance review survey.

Those concerns about protecting, for future farming generations, CBH’s accumulated equity – including net assets valued at $1.7 billion – built up over past generations, had their genesis in a bid earlier that year by Australian Grains Champion (AGC) for control of CBH.

AGC proposed CBH should transition from a non-distributing co-operative to a listed public company paying a dividend to shareholders.

With financial backing from major CBH competitor GrainCorp, AGC promised cash and shares in the new entity in an attempt to elicit grower support for a proposal set out in an indicative offer submitted to the CBH board.

That offer was never tested by a formal vote of CBH members – it was rejected by the CBH board and subsequently withdrawn by AGC.

Had it succeeded and CBH been listed with the Australian Securities Exchange as proposed, it is likely GrainCorp could have become the largest single shareholder with effective control.

While it failed, AGC’s offer demonstrated how a relatively small number of members, under current rules, have potential to exert significant influence over the future direction of the co-operative and possibly irrespective of the views of a greater number of members.

Under the Co-operatives Act 2009 and current CBH rules, any significant change to the organisation needs to be approved by a special resolution put to members.

A special resolution relating to significant structural change requires a 75 per cent approval by those members who vote on the change.

But only 12 members have to vote, either in person or by proxy, at a general meeting to pass a resolution and there is no minimum participation requirement for resolutions voted on by postal ballot.

Theoretically under the rules, CBH could be corporatised if as few as 12 members voted on a proposal, such as the AGC offer, at a general meeting and nine of them vote in favour of it.

CBH company secretary and general manager legal and risk David Woolfe said if the proposed new rule was approved at the annual meeting, then a significant change to CBH’s structure in the future would require more than half of all grower members to participate in the vote on that change.

He said the objective was to ensure that any proposal for structural change reflected the majority view of members.

“The structure and governance review was our biggest survey yet (of members),” Mr Woolfe said.

“A significant majority of members indicated they wanted CBH to remain a co-operative and many of them wanted it to remain a non-distributing co-operative.

“But also, in the additional information that many members provided, they said they would like to see changes to ensure that the genuine view of a majority of the members is represented in any future vote on structural change.

“Many said they wanted the equity built up in CBH over the years to be protected for future generations.

“The proposal to be put to the annual general meeting is in response to those members’ comments.”

Mr Woolfe said two thirds of members voting at the annual meeting would need to approve the proposal before the new rule could be introduced.

In December 2016, after the structure and governance review, CBH chairman Wally Newman announced “almost eight out of 10 growers want some form of a co-operative, with most of them supporting a non-distributing co-operative,” after 63 per cent of members completed a survey.

In CBH’s 2017 annual report released last week Mr Newman said, “last year growers provided a strong mandate for CBH to strengthen the protection of the collective equity that has built up in the co-operative over many generations for the benefit of current and future generations”.

“As a result, CBH will seek to implement a minimum voting participation threshold for significant decisions such as a winding up, takeover or corporatising of the co-operative,” Mr Newman said.

“Currently these types of changes require a minimum of 75pc member support, but only of those members who vote on the change as there is no minimum voting participation threshold.

“The board will take a proposal to the 2018 annual general meeting to introduce a new CBH rule requiring a greater than 50pc minimum voting participation for significant changes to the co-operative to ensure that those changes represent the genuine will of members.”

Apart from exposure under current rules to potential loss of member control, the AGC bid also revealed to many grower members not familiar with corporate power struggles, the potential financial imposts and sensitive information disclosure risks inherent in take-over bids, irrespective of whether they are friendly or hostile.

Had the CBH board signed a process agreement allowing AGC’s indicative proposal to be investigated further then subsequently decided it was not in members’ best interest and withdrew, or entertained a rival proposition, CBH could have been liable to pay a $16 million exit fee to AGC.

Any due diligence entitlement for AGC to examine CBH’s books and inner workings could potentially have exposed its strategic plans for the future to a competitor.

Some CBH members who attended the 2016 annual meeting said answers given by CBH directors and senior management to grower questions about the AGC offer during a closed two-and-a-half-hour session, was the first time they became aware of the exit fee and due diligence exposure risks.

Only active members are entitled to vote on CBH special resolutions.

To be an active member a grower must have delivered more than 600 tonnes of grain to CBH in the past three seasons, have accepted an invitation to become a member and hold a nominal $2 CBH share.

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