Out with the old, in with the older

So the votes have been cast, and the battle is almost over. Members of the founding Anton family with some institutional support have elected four new directors to carpet manufacturer Victoria‘s board. The last two non-executives standing resigned the day before, when winning the vote became a mathematical impossibility.

Managing director Alan Bullock remains, and considering he was still swinging on Monday as he announced his colleagues’ resignations, I wonder if he’ll stay.

The battle was rancorous. If that wasn’t already apparent from the challengers’ response to a company circular sent to shareholders urging them to vote against the motion to remove the board members, it is now I have got my hands on the original circular, and a subsequent one.

One thing infuriates me.

The really spooky part of the challengers’ case was the assertion the board had newly stated it’s intention to leverage Victoria and embark on an acquisition spree. To load the company up with debt, the challengers said, would be unwise and dangerous.

It would have been a huge change to the low-risk strategy I backed when adding the shares to the Thrifty 30 portfolio. The board, under Bullock, had been protecting the company’s finances while nudging into closely related markets that are either growing, carpet tiles, or less cyclical, insurance replacement, than its business supplying carpet retailers.

The challengers’ claim made it look like the company had changed course, although I was uneasy about making that assumption without having seen the board’s circulars.

Now I have the circulars, I can find no evidence the old board intended to load up with debt. I have no idea what the basis for the challengers’ claim was. But the old board, did (this is from its second circular):

What leveraging of the Company is the Consortium talking about?

There is no intent to change strategy and the emphasis remains on being proactive in seeking out new and exciting growth opportunities for the Company. Any appropriate acquisitions that support growth will be within the Company's low risk strategy. For example, the acquisition of C&H Distribution was a modest outlay that gave the Company immediate traction in a new flooring product area, aligned with the aim of becoming the leading quality floorcovering brand in Australasia and the United Kingdom. The Board still believes this strategy is the right path for the business.

The Board currently has NO acquisition plans. However, as we highlighted in the Company's half-year results, we look to leverage the Company's great brand reputation and drive more sales of other flooring types through its current customer base.

It looks like the old board thinks the challengers took the word ‘leverage’ from one context and spun it into a totally different one. It substituted, I paraphrase, ‘making the most of Victoria’s brand’, with ‘loading up with debt’.

The outlay for C&H Distribution was ''0.4m, hardly a harbinger for an acquisition spree.

It’s sad.  Much of the dispute has been about how the company performed under its previous boards (Alexander Anton, who lead the challenge is a former chairman), and judging by how it has compounded shareholder wealth over the last ten years I don’t think it performed that badly. The share price languished, but it tremendously undervalued the company.

I was prepared to wait, a long time if necessary for the old board to realise the value. Now shareholders must put their faith in the new board, which leaves me torn. I’m convinced there’s value in Victoria, but feel duped by the new board and my faith in it will only diminish further if Bullock goes.