The following was published on Global Value Investment Corp.s website on May 10, 2019.
Bristow Exemplifies Broken Corporate Governance
By JP
Geygan
In a June 28, 1927 letter to John D. Rockefeller Jr. and the finance committee of the Rockefeller foundation, a young Ben Graham opined,
The cash capital not needed by these pipe line companies in the normal conduct of their business, or to provide for reasonable contingencies, should be returned to the stockholders, whose property it is
Mr. Graham wrote to
urge support for his push to compel Northern Pipeline Company whose common stock traded around $65 per share to distribute the investment securities held on its balance sheet to its shareholders equivalent to about $90 per
share. Months earlier, in a meeting with Northern Pipelines senior management, Mr. Grahams proposal was readily dismissed, an
all-too
familiar refrain. It seemed as though management viewed
themselves as accountable to nobody. However, after coming under considerable pressure, and with the support of the Rockefeller foundation, Northern Pipeline had agreed to a shareholder distribution by its 1928 annual general meeting.
Nearly 90 years later, poor corporate governance remains pervasive among publicly traded companies. Directors and executives are compensated handsomely,
despite the transparency offered by annual proxy statements that detail the (often flawed) rational behind renumeration. While such compensation is occasionally warranted, often directors and executives benefit while shareholders suffer.
Recent developments at Bristow Group, Inc. exemplify poor corporate governance, entrenched directors and executives, and self-enrichment in the face of gross
mismanagement and disregard for equity owners.
Global Value Investment Corp. (GVIC) has been a shareholder in Bristow since 2017. At the time of our
investment, we were confident that Bristows tangible book value per share, which at the time was nearly $35, represented incredible value compared to the $7 share price. Bristows recovery would surely follow improvements in offshore oil
and gas exploration and production activity. If not, Bristow had a plethora of marketable assets that could easily be sold. We trusted the board of directors and senior management to run Bristow for the benefit of its equity owners.
How misplaced that trust turned out to be. As profits remained anemic, Bristow was slow to adjust. Cost cutting was undertaken sheepishly. Unprofitable assets
were retained and continued to operate unprofitably. Debt piled up as Bristow attempted to borrow its way out of trouble. Naïvely, we maintained our confidence in management to protect our economic interests.
In November 2018, Bristow proposed to acquire Columbia Helicopters, Inc. On its face, the transaction seemed logical. As time progressed and the financial
terms became clear, we were stunned Bristow intended to dilute its shareholders by a whopping 93% in order to consummate a high-risk acquisition. Incensed, we penned a letter to the chairman of the board of directors, Tom Knudson, that
expressed our concerns.