Ansell snubs retail investors

Massive placement dilutes existing mum and dad shareholders

Another Australian company has shown retail investors what it really thinks of them, with glovemaker Ansell (ASX: ANN) raising $338 million from institutional shareholders.

While the company has also announced a Share Purchase Plan (SPP) of $100 million for existing shareholders, that’s no excuse for conducting a non-renounceable rights issue. Instead, unnamed, favoured clients of investment bank UBS will be allocated shares in Ansell at a 4.9% discount. Those clients are likely to be the ones paying UBS the most in brokerage fees, in a ‘scratch my back, I’ll scratch yours’ example of cronyism.

A non-renounceable rights issue to existing shareholders would have been the fairest means of raising capital, allowing smaller shareholders to sell their rights on market, if they didn’t want to buy additional shares, and compensating them for dilution of their existing holding.

Ansell also ignored another facility that would have made it fairer for investors, by bypassing the ASX BookBuild facility. ASX BookBuild allows all eligible investors and ASX Brokers to participate in a capital raising. Retail investors can still be excluded if the issuer or their Lead manager chooses, but at least it’s an open and fairer process than the current institutional placement.

Owner of the Athlete’s Foot shoe stores, RCG Corporation (ASX: RCG) is also guilty of ignoring its retail and smaller investors. Yesterday the company announced that the RCG Board and management had decided to sell down their shares from a 34% holding to 23%. Securities were sold via an after-market bookbuild at 75 cents each, a whopping 9.6% discount to the last trade price. Some shares were also sold to institutions and ‘sophisticated investors’ who did not previously hold shares in the company. Why the company could not have offered the shares to existing shareholders deserves an explanation from the RCG board.

Both companies need to take a look at Corporate Travel Management’s (ASX: CTD) recent capital raising as an example of how to treat all shareholders fairly. Corporate Travel is raising $53.3 million by way of a 4 for 27 pro-rata, renounceable, rights issue, which is open to existing shareholders.

Foolish takeaway

Retail Food Group (ASX: RFG) is another company that recently conducted a placement to institutional shareholders and treated its mum and dad shareholders unfairly. We’d like to see Australian companies make more of an effort to treat all shareholders equally.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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