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Coles Myer update

Coles Myer update

ADRIAN THIRSK: Late and lacking, is the effective verdict following Coles Myer's attempt this week to satisfy the demands of disgruntled shareholders.

Members of the Myer family have this morning written to the nation's newspapers revealing they have been pressing for a change at the top. They also say they find it unacceptable for directors of Coles Myer to be selling substantial quantities of goods and services to the Coles Myer group.

The biggest institutional investors on the Coles Myer share register have also declared their hand this week. Bankers Trust Australia, the AMP Society, and the New South Wales State Super Corporation say they will be proposing a number of independent non-executive directors to replace some of the existing directors at the company's annual general meeting next month.

The move follows an announcement by Solomon Lew that he has stepped aside from his executive role, although retaining chairmanship. There are also plans to spin off the company's major retail divisions into separate public companies. At the heart of the conflict are the dealings between Coles Myer and Mr Lew's private companies, as well as those of fellow director, Lindsay Fox.

Chairman of the Melbourne branch of the Australian Shareholders Association, Doug Hawley, says the latest proposal from the Coles board does not go far enough and is a diversion from the real issue.

DOUG HAWLEY: We believe that the major problem with Coles Myer is its perception in the marketplace that it is not acting independently of the interests associated with Mr Lew. And therefore, to overcome that, we believe that he must stand down from his position as chairman.

ADRIAN THIRSK: But former New South Wales Premier, Nick Greiner, has been appointed joint deputy chairman, and with specific responsibility for corporate governance issues. Does that allay concerns at all?

DOUG HAWLEY: Well, I think that it goes part of the distance. But I think the key concern is the position of Mr Lew himself as chairman. And how can Mr Greiner allay fears about related party transactions?

ADRIAN THIRSK: But what about the promised appointment of three independent directors as soon as possible? Isn't that what you wanted?

DOUG HAWLEY: Well I think it is heading in the right direction. But we believe that the board must be seen to be independent. That requires a majority of independent directors, acting under an independent chairman.

ADRIAN THIRSK: The Coles board has this week proposed a restructure of the company which it says will unlock the true value of the company. To what extent would you judge that value is indeed locked up?

DOUG HAWLEY: Well, that could be quite correct. We don't have too much to say on that. However, we do think that that is a diversion from the main issue. However, if that is an appropriate strategy for the company to take, we certainly believe that that implementation of the strategy should be undertaken by the structure that we suggested - an independent board with an independent chairman. Rather than under Mr Lew, as I understand, he is planning to oversee the restructuring.

ADRIAN THIRSK: But there wouldn't be any objection in principle to separating out the four operations - Coles supermarkets, Target, Myer/Grace Brothers, and K Mart?

DOUG HAWLEY: No, I think that as long as that makes good commercial sense we certainly wouldn't have any problems with that.

ADRIAN THIRSK: And if there are new public companies created around the four core businesses, Mr Lew says neither he nor any of the other current Coles Myer directors presently considered to have significant related party transactions, will stand as directors. How significant a proposal is that then?

DOUG HAWLEY: The actual way in which these subsidiary or satellite companies will be formed, the details of that restructuring are still to be released. And so it is difficult to comment at this stage. But what we would be most interested in seeing is how the control of Coles Myer itself as the parent company would be exercised on the subsidiary or satellite companies. And if there is any control, then with Mr Lew still in his position as chairman of the board, as he proposes, then we would have to question whether that control would actually flow through to the subsidiary or satellite companies.

ADRIAN THIRSK: So then, to what extent do you view all these latest changes as simply a gambit to head off a spill of board positions at next month's annual general meeting?

DOUG HAWLEY: I think so. I think that what we do know is that this is going to take a long time. The company has said that it may take up to twelve months, and I think that is totally unacceptable, with this crisis of confidence that the company is currently having in the marketplace.

ADRIAN THIRSK: So where does that leave the Shareholders Association?

DOUG HAWLEY: Well we'll be certainly continuing to push for Mr Lew to stand down from his position as chairman of the board, and we'll also be pushing for the appointment of additional independent directors to the board.

ADRIAN THIRSK: Doug Hawley, chairman of the Melbourne branch of the Australian Shareholders Association.