Wes­farm­ers, the cashed up cen­te­nar­ian, looks ahead to its next 100 years

Mer­chant bankers sali­vate over the prospect of Wes­farm­ers – the con­glom­er­ate with a fam­ily busi­ness feel – go­ing on a buy­ing spree

The Australian - The Deal - - News -

WES­FARM­ERS may be a $48 bil­lion top-10 com­pany, but the at­mos­phere in Wes­farm­ers House in Perth is that of a fam­ily com­pany. Some may rightly think it’s a lit­tle bit too much in the fam­ily, but in essence the be­he­moth is built on a fun­da­men­tal hu­man de­cency and re­spect, and a strict dis­ci­pline around re­turn on cap­i­tal.

This year, the com­pany, known to its friends as “We­sies” cel­e­brates its cen­te­nary – the Wes­tralian Farm­ers Co-op­er­a­tive was es­tab­lished on June 27, 1914. It also marks a re­turn to the sea­son of guess­ing which com­pany it will buy next.

Seven years af­ter the $19.3bn Coles ac­qui­si­tion and this year’s $3bn in­sur­ance sale, the com­pany has $1.5bn in ex­cess cash ready to be re­turned to share­hold­ers or ploughed into its next deal. One rea­son in­vest­ment bankers love to in­clude Wes­farm­ers in their lists of next ac­quir­ers is be­cause it has a fun­da­men­tal be­lief in its abil­ity to man­age most things and tends to do the ac­qui­si­tion thing well. But most of the ru­moured tar­gets on the list – in­clud­ing AGL, Ori­gin and Health­scope – can be safely placed in the rubbish bin.

Man­ag­ing di­rec­tor Richard Goy­der has raised the prospect of an over­seas bid, cit­ing the build­ing up of per­son­nel in Hong Kong to match the famed Perth-based cor­po­rate de­vel­op­ment team.

Perth is a big part of Wes­farm­ers; it’s the sort of town where you want to be a long-time res­i­dent to be part of the mix. It has its own brand of quiet con­fi­dence and has closer links to Asia and to the Abo­rig­i­nal com­mu­nity than any other Aus­tralian city.

Giv­ing op­er­a­tional free­dom to man­age­ment stars such as Bun­nings chief John Gil­lam with his head­quar­ters a long way from town also helps the con­glom­er­ate thrive and gives head of­fice a dif­fer­ent per­spec­tive.

‘Richard Goy­der will tell any­one who lis­tens he man­ages share­holder money and when he can’t find a bet­ter use for it he hands it back un­til he can’

Across the road is home to for­mer long-time au­di­tor Greg Meyerowitz (au­dit part­ner on 16 of 18 ac­counts un­til step­ping back last year) and his team at Ernst & Young.

Po­ten­tial heir ap­par­ent, Wes­farm­ers fi­nance di­rec­tor Terry Bowen, is a rar­ity in hav­ing mi­grated from Bri­tain as a child. He left the com­pany as re­quired when work­ing for Wes­farm­ers agribusi­ness arm, Land­mark, which was sold to AWB in 2003. Bowen left Land­mark to join Jet­star but was lured back to Wes­farm­ers in the wake of the Coles deal.

He was fam­ily, af­ter all, hav­ing started his ca­reer at Tube­mak­ers when Wes­farm­ers chair­man Bob Ev­ery was boss; about the same time, Goy­der was lured back to Perth by then fi­nance di­rec­tor Gene Til­brook. Til­brook had come to the com­pany at the re­quest of his for­mer AIDC col­leagues, Michael Chaney and Erich Fraun­schiel.

James Gra­ham, founder of in­vest­ment bank Gre­sham, has served on the board for more 16 years and was the key ad­viser to the land­mark $60 mil­lion CSBP ac­qui­si­tion 37 years ago.

Wes­farm­ers owns Gre­sham jointly with its ex­ec­u­tives, Chaney is the Gre­sham chair­man and the firm just hap­pened to ad­vise Wood­side, where Chaney is also chair­man, on the Shell di­vesti­ture.

The Gre­sham pri­vate eq­uity fund in­cludes pri­vate in­vest­ments from ex­ec­u­tives which has raised eye­brows and is cer­tainly not in the stan­dard cor­po­rate gov­er­nance texts.

The com­pany is not one for fol­low­ing pre­vail­ing cor­po­rate gov­er­nance norms. When asked by this re­porter why he stuck close to home with his ap­point­ments Chaney said: “What do you ex­pect me to do – ap­point people I don’t know or like?” Asked to ex­plain the con­fus­ing ref­er­ences in the an­nual re­port to his pay he replied: “that’s the whole point – you are not to meant to un­der­stand it.”

It is no small irony that the co-op’s roots, in 1912, were at meet­ings of like-minded wheat farm­ers in Keller­ber­rin who were con­cerned at the log of claims from the Ru­ral Work­ers Union for more pay and fewer hours. The same con­cerns are ex­pressed to­day in vary­ing de­grees of rigid­ity depend­ing on who is talk­ing.

Chaney is quoted in Peter Thomp­son’s his­tory of the com­pany as say­ing “it’s a great story of how to run a com­pany with a share­holder fo­cus, a rare thing these days.”

The for­mer co-op prided it­self on a cul­ture built around do­ing the right thing and be­ing “here for our mem­bers, not to cre­ate an em­pire”. That much holds true to­day but it is an em­pire and the ex­ter­nal met­rics have been changed from re­turns on cap­i­tal to to­tal share­holder re­turns.

Goy­der will tell any­one who lis­tens he man­ages share­holder money and when he can’t find a bet­ter use for it he hands it back un­til he can. That is the pe­riod we are go­ing through now which is fu­elling all the banker talk and gos­sip col­umn chat­ter.

For­mer boss Trevor East­wood and Chaney adopted John Ar­genti’s cor­po­rate plan­ning model which aims at sim­plic­ity – no more than six cor­po­rate goals and an ab­so­lute fo­cus on how to get there. The re­al­ity is the Coles deal trashed re­turn on cap­i­tal but at least im­prove­ments are be­ing made. In the last half, re­turn on funds in­creased to 9.4 per cent, be­low the cost of cap­i­tal but Coles hit 10 per cent for the first time.

A new met­ric of to­tal share­holder re­turn puts Coles at 6.1 per cent, which is not great but when mea­sured against the mar­ket it wins by four times. Over the past five years to­tal share­holder re­turn stands at 20.5 per cent against the mar­ket’s 12.2 per cent.

Man­age­ment has done par­tic­u­larly well in the pri­vate eq­uity type deals which al­lowed for­mer Coles boss Ian McLeod to walk from the job with $50m cash in his pocket.

Div­i­dends are not yet back to pre-Coles and GFC days but they are get­ting there and We­sies is ready for an­other 100 years or more.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.