The battle for Victoria

Until yesterday’s statement from Victoria shareholders trying to replace the company’s chairman and its senior non-executive director with four of their own candidates, I didn’t have much sympathy for their cause. I might change my mind.

Initially, my instinct was to back the management team I’d endorsed when I added the shares last October, but its actions since worry me. Meanwhile rebel shareholders led by Alexander Anton the former chairman, who’s family founded the company have broken their silence.

Victoria has put itself up for sale in the expectation of a firm offer by the end of this month in a move intended to slake the thirst of institutional investors who haven’t the patience to wait for the company to realise its plans, and might otherwise be won over by Anton’s group.

But with the shares so cheap and the industry in a down-cycle I think this is a bad time to sell, unlikely, if it happens at all, to realise the full value of the company.

Should no acceptable offer be forthcoming and the existing board win the vote, it will apparently now switch the emphasis from the plan I supported, growth through new products like carpet tiles and new markets like insurance replacement, to acquisitions.

Unfortunately I haven’t seen the circular explaining the board’s plans as Victoria will only release it to shareholders and since the Thrifty 30 is a model portfolio, it’s not entitled to a copy.

But if Anton has represented the company’s position fairly in his response, in what is, admittedly, an increasingly acrimonious battle, I fear a "fall-back strategy… of leveraging Victoria to embark on acquisitions" is too risky.

Shareholders with access to Victoria’s circular may come to a different conclusion (please send me a copy if you have one), but it seems Victoria’s management is adopting a stance that might appeal to institutional investors hoping to make a quick profit but it’s Anton’s group that are emerging as the kind of long-term stewards I’d favour.

Although they don’t rule out acquisitions, their promises to sell off non-core assets, minimise debt, and manage working capital, and their commitments not to close down the UK business, which is much less profitable than its Australian counterpart, or take the company private, are reassuring.

I’m unsure what to make of the fact that Geoff Wilding, one of the proposed new directors, is a shareholder in Flooring Brands, a major Australasian carpet retailer and customer of Victoria’s. Anton claims it’s an opportunity, Victoria sells more carpets in Australia than anywhere else and Wilding can bring a new perspective. Reading between the lines of his statement, the existing board fears the link might cause conflicts of interest between the company and its customers.

The vote, which will take place on 6 March, is delicately poised, Anton claims the support of 46% of shareholders and 50% is all the group needs to elect four new directors and outnumber the remaining three members of the current board.