Michael Pascoe, associate editor of Eureka Report, writes:


Not all board failures involve a company
going broke or running away from asbestos victims or paying kickbacks to
corrupt regimes. Boards also fail by selling out the company too cheaply in far-too-cosy
agreed takeovers.

The MIM board’s rush into Xstrata’s arms
three years ago is the most obvious example – Xstrata couldn’t believe what a
good deal it pulled off while former MIM shareholders can only wonder about the
billions of dollars they left on the table.

And now it looks like the SFE board is
doing something a little similar by going along with the ASX “merger”, if one
of Australia’s most respected research houses is correct.

Capital Partners is a rare beast that
exists to sell genuinely independent research to major institutions. Its
clients own about a third of SFE and they’re being advised to reject the ASX
bid as materially inadequate.

Capital Partners is also a shy beast,
believing its clients pay for the research so the media shouldn’t get it for
free, but co-founder Peter Doherty agreed to his first video interview for
Eureka Report (subscription but a free trial for
the asking on the site) to put the case for rejecting ASX.

Doherty reckons ASX is over-valued and SFE
in under-valued, that SFE’s management is superior and the futures exchange is
growing faster. His first choice is for
ASX to simply go away. Second prize would be ASX offering about $19 cash for SFE
shares instead of the present paper bid that’s worth about $16.

While everyone’s been concentrating on the
Toll/Patrick and Alinta/AGL battles, the agreed ASX/SFE deal has slipped under
the radar, but Doherty believes it will fail as enough SFE shareholders will
realise they’re getting a lousy deal. What’s interesting in a broader sense is
his answer to a question about whether Australian boards give in too easily on
cosy mergers:

What I think surprises us in
this firm is that companies don’t have a better idea of what their worth is and
if your job is to maximise the value of shareholder, then you really do need to have an idea of
what your company is worth and that seems surprising to us in this situation
where the SFE board have decided to accept currency in another enterprise which
significantly undervalues their business.

Does it happen very often? I think in general people look at the
current
trading price and then expect a premium to that but that’s not very
robust or technically based. The current price could be wrong. In this
case we think it’s markedly wrong.