Myer and Ten: 2017’s two epic corporate battles

MYER.100517.AFR PIC BY PETER BRAIG. MYER Two great corporate battles from 2017 will long be remembered in the annals of corporate history. Myer versus Solomon Lew and Lachlan Murdoch/Bruce Gordon versus CBS.

The brawls are littered with strategic blunders, public slandering, financial carnage, board casualties and own-goals.

But only one has a declared winner. CBS almost effortlessly outmanoeuvred Murdoch and Gordon. The Murdoch’s strategy to take control of Ten Network was so littered with mis-steps that CBS was virtually handed victory. More on that later.

The Lew and Myer action, however, has barely reached half-time.

Lew seems to be incrementally edging ahead in this fight. But while he has notched up some points, his victories have a hollow element. Perversely, his assault on Myer gains momentum only as Myer’s performance deteriorates.

Lew invested more than $100 million buying Myer shares earlier this year, the value of which has now halved – thus the more he wins the battle to highlight Myer’s troubles, the more he loses.

Technically, Lew was in a handicapped position when he took on Myer. With a shareholding of a little over 10 per cent, his ability to destabilise the Myer board and exercise any control was limited.

Waging a media blitz, including a liberal smattering of zingers, Lew has attacked his opponent with political precision.

Who can forget his description of Myer’s clearance floors – “the inventory belongs in the Salvation Army” – or his scathing reference to Myer’s turnaround strategy – “I see only weeds, no green shoots”. My personal favourite has been Lew’s headline-grabbing play on Game of Thrones where he warns Myer that “Summer is Coming”.

His most tangible victory in 2017 was to jettison the department store’s chairman, Paul McClintock, a move for which he had the support of other large shareholders.

But his bold attempt to vote off all Myer directors up for re-election at November’s annual meeting was a flop.

Other large Myer shareholders and their proxy advisers wouldn’t have a bar of it. As far as the big Myer investors were concerned, if Lew wanted to control Myer badly enough, he would need to make a takeover offer.

These shareholders live in hope that Lew will cave and make a bid but that would be a last resort for the wily retail veteran, who has plenty of form with tactical warfare and lots of patience.

His numerous threats of legal action against Myer, which he said misled shareholders by being tardy on its continuous disclosure obligations, have achieved something at least. Myer has twice over recent months updated the market on its underperformance – the latest of which was to warn that Christmas trading is down on last year.

This is bad news for most shareholders but for Lew it provides more ammunition for another attempt to get some seats around the Myer boardroom table by calling an extraordinary general meeting in 2018.

He probably won’t convince big shareholders, but retail investors may be frightened enough to back him.

Myer’s market capitalisation has halved this year – in part because its turnaround strategy is finding little traction and in part because the retail environment is a disaster.

At today’s share prices, the online upstart Kogan has a bigger market capitalisation than Myer.

As far as battle number two – Murdoch/Gordon versus CBS – what should have been a lay down misere win for Murdoch and Gordon was decided after the pair kicked a spectacular own-goal.

The strategic blunder committed by this pair is epic. From the start they had pole position. They were the major debt guarantors, the largest shareholders, and had the support from other major shareholder and Murdoch associate, Foxtel.

There were a series of sensible options, including retaining financial support for Ten, until the media ownership laws changed and allowed them to make a (cheap) takeover bid.

They pulled the trigger too early.

Instead they withdraw financial support, in effect forcing the company into the hands of administrators – thus making their shareholdings worthless and powerless.

This opened up the field for a competitor like CBS, which was not constrained by ‘s media ownership laws and was happy to pay out Ten’s debt.

The foolishness of the Murdoch/Gordon strategy rendered them unfit contestants and ultimate losers. No amount of legal manoeuvrings could salvage a win.