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
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.