While some companies have ditched their chief executives lately the trend does not signal a change in management practice or the reluctance to pay a dividend, Christopher Ecclestone of Hallgarten & Co. argues.
“Some [share] holders seem to think that various heads rolling in the corporate suites in recent months means that there is a change of direction,” Ecclestone writes in an end-of-the-year research note to clients. “However, we are more tempted to think that directors have used the sacrificial offering of a CEO on the altar of public opprobrium as a band-aid to cover business as usual."
“While we don’t doubt that the heads that have rolled deserved their fate, we do doubt that the chopping should end at the CEO’s doorstep,” Ecclestone continues. “Did Kinross make multi-billion dollar takeovers without the board’s approval? We doubt it…Instead of ‘off with his head’ the cry should be ‘off with their heads.’”
Ecclestone also contends that “bad acquisitions have now been compounded by bad capex decisions and bad management practices in the past (letting costs run riot being now a major sin in retrospect).” What is necessary, the London-based mining analyst adds, is more than just new blood, but new practices.
At the same time, cash is piling up as projects and future capex are either cancelled or delayed, while gold mines continue to rake in the money. And that, he believes, begs the question: Where does the saved money go if not into projects? “Showcase M&A deals are largely out (wasn’t that why we chopped the former CEO?), so there are few tricks left in the box except to pay a dividend,” he reasons.
As for buybacks, Ecclestone argues, they “tend to discriminate against long-term holders who might have capital gains embedded in their holdings.”
“As cash starts to pile up, the most obvious decision would be massive hikes in dividends,” he reasons. “In fact, with projects frozen there is not much reason for anything more than minimal retention of profits and 80% distribution of gains would be a welcome reward for long-suffering shareholders.”
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