As shareholders call for massive changes at Harvey Norman, Gerry Harvey has moved into the pub business after buying the Steyne Hotel in Manly, along with long-time mate, John Singleton.
The move comes after an extraordinary general meeting, designed to grant million dollar pay rises to several executives, was called off due to a lack of support by shareholders. There are also calls for a new set of directors and a major rethink of the company’s strategies for moving forward.
Some shareholders are also calling for the establishment of a major online operation to compete with Radio Rental’s Big Brown Box and JB Hi Fi’s fast growing online operation.
In March, the mass retailer floated a plan to issue 17,500,000 fully paid ordinary shares to six of the company’s executive directors, including Chairman, Gerry Harvey and David Ackery, General Manager of Electrical.
Under the proposal, David Ackery would have received 3,000,000 shares; Arthur Brew, 1,000,000; Gerald Harvey, 3,000,000; Chris Mentis, 3,000,000; Katie Page, 4,500,000; and John Slack-Smith, 3,000,000 shares.
If the proposed share distribution had gone through, Katie Page’s salary would have increased from $1,313,119 to $3,845,000, Gerry Harvey’s from $1,042,807 to $2,380,000, Chris Mentis from $809,592 to $2,530,000, David Ackery’s from $1,250,482 to $2,980,000, John Slack-Smith’s from $1,250,495 to $2,980,000 and Arthur Brew’s from $518,936 to $960,000.
According to the Sydney Morning Herald, Harvey Norman is now facing pressure from shareholders and analysts to spin off its $1.8 billion property portfolio into a separate listed entity to strengthen shareholder value.
The SMH went on to say that key investors and analysts are starting to question Harvey Norman’s strategy, which includes a grab bag of overseas operations, a massive property business which is not being properly valued by the market, related party transactions that muddy the water and a relatively low corporate governance ranking.
Writing for the Intelligent Investor, analyst, James Greenhalgh, recently said, “Gerry Harvey’s proposed issue of 17.5m options to six executives, including 7.5m to him and his chief executive wife, Katie Page, really is beyond the pale. Essentially, these options will replace previous options that didn’t work out – because the share price has fallen from $7.15, with more favourable ones, in other words, the options are effectively being re-priced. It’s a bit like widening the goalposts because you haven’t managed to kick the ball through the narrower ones”.
Several shareholders are also calling for review of shareholders given that several of them have been on the Harvey Norman board for more than 15 years.
The SMH said that the criticism has become so loud that executive chairman Gerry Harvey said he would spend the next six to 12 months meeting analysts and shareholders. Two years ago he decided to step back and let other executives do most of the jawboning with the market.
“We are not the flavour of the month. I have taken over talking to the analysts over the next six to 12 months to see if I can make any headway on the way they think, and convince them that keeping the property business is smart,” Harvey said.
Earlier this month, Harvey Norman reported flat sales of only 1.2 per cent on a like-for-like basis. Executives are also indicating that the next quarter could be even worse.
One major shareholder told ChannelNews that it was time for Gerry Harvey and several of his board to step aside and let new management take over the struggling retailer.
“There are a lot of things wrong with Harvey Norman; it is all based around what Gerry Harvey wants and believes and he is not always right. Several years ago he said that online was set to be a flop, now look what is happening online. Stores like Aldi and Costco are fast expanding in Australia and you only have to look at the returns that Bunning is delivering to realise how poorly Harvey Norman is performing”.
“We often talk to their suppliers and across several categories they are seen as bullies. They are disliked by several vendors who only do business with them because of their size. In comparison the vendors like doing business with JB Hi-Fi and The Good Guys, who both growing their operations at a significantly faster pace than Harvey Norman.”
One major Japanese vendor told ChannelNews last week that they were deliberately going out of their way to establish distribution via retailers other than Harvey Norman. The vendor who currently sells several product categories via JB Hi-Fi, Big W, The Good Guys and Bing Lee said “They are shocking to do business with, they bully, demand money for marketing and catalogues while often delivering poor results”.
To extract value, pressure is on Harvey Norman to spin out its property empire to free up the balance sheet, improve return on equity, and, more importantly, allow management to focus on its core businesses of retail and franchising.
The SMH said that Gerry Harvey acknowledges that investors would like him to put the property business into a separately listed trust but said he would not consider it while he was in charge. “There is no question it would release shareholder value in the short term. If private equity took us over tomorrow the first thing they would do is do this, but it is a short-term gain and a long-term loss,” Harvey said.