QAV AU 841 — Activism, Audio & Agency: Gabriel Radzyminski on Fixing Value Traps

 

Cameron: [00:00:00] Wel­come to QAV. We’re record­ing this on the 14th of Octo­ber, 2025, and today we have a very spe­cial guest, Gabriel Radzymin­s­ki from San­don, cap­i­tal Val­ue Investors, activist Investors.

Tony men­tioned Gabriel, coin­ci­den­tal­ly I think last week when we were talk­ing about the South­ern Cross Media and Sev­en West Media merg­er. But, uh, want to give a shout out to one of our lis­ten­ers who sent me a rec­om­men­da­tion that we should have a chat to Gabriel because he thought he would be a great guest.

Wel­come to the show, Gabriel.

Gabriel: Uh, thanks for hav­ing me. Um, you’ll have to tell me who did the shout out so I can give them a thank you as well.

Cameron: I will. Um, let me just dig up that email. It was, uh, no, I don’t know. I don’t have it. That’s right. Well, who­ev­er it [00:01:00] is, thank you very much for think­ing of this.

I’ll get back to you. So, uh, why don’t we start by giv­ing us a lit­tle bit of back­ground on San­don Cap­i­tal. I believe you’ve been around since 2008. That was an aus­pi­cious time to start a fund.

Gabriel: Yeah. Look, uh, aus­pi­cious time, start a fund. I think it, uh, high­lights that, uh, when it’s a good time to invest is not nec­es­sar­i­ly when it’s a good time to raise mon­ey.

Sure. Um, we were in, in an envi­ron­ment where we thought this was like, wow, the whole world has reset. What a great time to be invest­ing.

Cameron: Yeah.

Gabriel: Sort of under­es­ti­mat­ed that. Most peo­ple, despite the tough talk, when things are going, uh, pear shaped, just want to go and hide under a rock and do noth­ing.

Cameron: Yeah. And so tell me about the, your, your think­ing behind why to start a firm at the time.

Gabriel: Look, I, I’d sort of devel­oped, uh, some habits as an investor where I would sort of do a, a, a, almost like [00:02:00] a liv­ing post­mortem of invest­ment. So, you know, you’re con­stant­ly reeval­u­at­ing things. And I start­ed think­ing in sim­ple quad­rants of invest­ments that did well, invest­ments that did not so well. But then in those two, uh, cat­e­gories, think­ing, was it because I did good work, good analy­sis, or did I get lucky or did I do bad work, bad analy­sis, and was I un unlucky or unfor­tu­nate?

And in going through that exer­cise with invest­ments, um, I start­ed to real­ize that there were some things where it did­n’t work out the way we’d liked. Um, we might have had a dif­fer­ent out­come, had things occurred dif­fer­ent­ly. That was for me, the, you know, the slow evo­lu­tion into, uh, what I did­n’t real­ize at the time, but sud­den­ly was, uh, uh, more wide­ly known as activist invest­ing, where rather than leave to chance what might hap­pen with a busi­ness, leave it in the hands of the peo­ple run­ning it, um, [00:03:00] we took the view that maybe there was mon­ey to be made by, uh, encour­ag­ing peo­ple to do things dif­fer­ent­ly and ulti­mate­ly for the, you know, to do things that are in the clear­er, bet­ter inter­est of their own­ers, which is us as share­hold­ers.

Cameron: And, uh, as I under­stand it from some of the inter­views I’ve seen with you and, uh, read­ing through your web­site, you see your­self in the val­ue invest­ing camp. That’s your basic approach to invest­ing. Yeah. How do you find being a val­ue investor these days, Gabriel? Because I know that, uh, it’s dead. We, we cov­ered an arti­cle just recent­ly where some­body said, yet again, that val­ue invest­ing is.

Gabriel: Well, if it, if it’s, uh, dead, they sort of, uh, for­got to give us the memo. Um, look, I think I read, I read a, a, a book a few years ago, quite a few years ago, um, by a, uh, an investor, um, well, it was just lit­er­al­ly one Broad­way com­ment in a [00:04:00] book by a chap called Ralph Whit­worth, uh, well-known, uh, dis­tressed, uh, dead investor.

And he explained, um, effi­cient Mar­kets hypoth­e­sis, and keep­ing in mind, I, you know, stud­ied, uh, finance, did all the the­o­ries, you know, under­stood them and then under­stood them well enough to know that they sort of work in the­o­ry, but not in prac­tice. And Whit­worth gave an expla­na­tion that, for me, res­onat­ed real­ly well.

Um, mar­kets are effi­cient depend­ing on who you are. So if you ask some­one with lit­tle access to infor­ma­tion, lit­tle access to unique insights, then the mar­ket is pret­ty effi­cient in that it’s incor­po­rat­ing as far as you are con­cerned, every­thing you know, is incor­po­rat­ed into the stock price. Every­thing then moves on from degrees of, uh, uh, vari­a­tion from that.

And so for us, look, maybe val­ue invest­ing is dead for some, for us. It’s not. We still, we still see, uh, oppor­tu­ni­ty. I’d [00:05:00] also high­light that in my career, I’ve, uh, had the call, uh, the call of death for val­ue invest­ing made a num­ber of times. Um, and yet we still keep com­ing back. Maybe, maybe val­ue, val­ue investors and true val­ue investors are like the cock­roach­es of the invest­ing world.

I don’t know if that’s, uh, uh, uh, an appe­tiz­ing or flat­ter­ing descrip­tion of us, but we don’t sort of con­cern our­selves. I think it’s dif­fer­ent to what it used to be. You know, there was a time, uh, decades ago where if you actu­al­ly picked up an annu­al report, if you turned up to a gen­er­al meet­ing, you gen­uine­ly were able to get an edge because most peo­ple did­n’t turn up, par­tic­u­lar­ly in small­er com­pa­nies.

Um, but I think if you are work­ing dili­gent­ly with a view to try to find some­thing and make a dif­fer­ent insight to, uh, what oth­ers are doing, um, I still think there’s a room, there’s room for val­ue invest­ing. I mean, at the end of the day, you, what we’re all try­ing to do is to buy things that we con­sid­er to be mis­priced [00:06:00] or under­val­ued.

Cameron: Well, that was gonna be my fol­low up ques­tion is if you had to define your approach to val­ue invest­ing as an ele­va­tor pitch, what would it sound like?

Gabriel: Yeah, that’s one. We haven’t actu­al­ly got down pat the ele­va­tor pitch. We’re not good at those sorts of things. Um. But look, at the end of the day, we’re, we’re, our approach is all about try­ing to iden­ti­fy mis­priced secu­ri­ties.

Um, and I use the word inter­change­ably between mis­priced and under­val­ued. They are some­times the same, but not always the same thing. The activism for us is then an over­lay, which is, if we iden­ti­fy the mis­pric­ing or under­val­u­a­tion, what’s caus­ing it is step one. And then step two is, or step three if you will, step one is iden­ti­fy it.

Step two is what’s caus­ing it. Step three is, is there any­thing that can rea­son­ably be achieved [00:07:00] that might over­come, um, that mis­pric­ing or under­val­u­a­tion?

Cameron: And this is where the activism com­po­nent comes in.

Gabriel: Yeah. Yeah. So what we’re try­ing to do, I think if you, if, if you think, if you think of, uh, you know, the clas­sic.

Book­ish val­ue invest­ment, uh, approach is iden­ti­fy some­thing that’s under­val­ued and buy it, own it for a long time. And in, in, you know, in the full­ness of time, mar­kets will reflect its true val­ue. Uh, we’re not nec­es­sar­i­ly con­vinced that that will always work, because often the mis­pric­ing is down to some­thing, is down to a, there is some­thing that is caus­ing the mis­pric­ing.

Some­times it can be, um, uh, you know, poor record of cap­i­tal allo­ca­tion. It can be, uh, you know, uh, agency con­flicts. I, I think agency con­flicts are prob­a­bly the sin­gle biggest fac­tor. Um, but then for us it’s about, well, what can you change? What can you do to change the cir­cum­stances that might deal with that [00:08:00] mis­pric­ing?

Tony: Tony, can I fol­low up on that? Yeah. Fol­low up on that ques­tion. Thanks. So that was the, uh, the sort of theme I want­ed to explore with you, because as a val­ue investor, you some­times get caught in val­ue traps. Yep. So does the activist investor. You flick on when you’ve bought some­thing that looks valu­able or under­val­ued and then you’re fine, there’s a prob­lem.

Or do you go in with your eyes wide open say­ing, I know why this is now under­val­ued and I can fix it and help turn it around.

Gabriel: Uh, the lat­ter, Tony. Um, what we’re try­ing to do is if you think back to pri­ma­ry school maths, um, we’re try­ing to think of the world in Venn dia­grams. Um, so the first cir­cle that we’re try­ing to iden­ti­fy is mis­pric­ing under­val­u­a­tion.

So some­thing that is, you know, can be bought for less than we think it’s worth. The sec­ond part is then say­ing to our­selves, what’s the oppor­tu­ni­ty to make changes to that? Um, and it’s where the two inter­sect that we try and invest, where [00:09:00] we believe there is an attrac­tive, uh, dis­crep­an­cy in mar­ket price ver­sus our assess­ment of intrin­sic val­ue and where we believe there is a rea­son­able, uh, pos­si­bil­i­ty that we can affect the changes that are need­ed to over­come that gap.

So it does­n’t avoid val­ue traps com­plete­ly, I think it avoids more val­ue traps than if you sim­ply looked at val­u­a­tion alone.

Tony: So if, if a lot of those issues are con­flicts of inter­est or agency con­flicts as you’ve called them, is it, is it a case of build­ing a big enough state to resolve that through share­hold­er pow­er?

Or is there, is it a nego­ti­a­tion? What, what’s the usu­al method of approach?

Gabriel: Look, we fol­low a rea­son­ably, um, pre­dictable path in the sense of, you know, we’ve got a, a, an approach that we take, which is we seek first to have bilat­er­al pri­vate [00:10:00] engage­ment with a com­pa­ny. Um, where, you know, we effec­tive­ly intro­duce our­selves, uh, dis­cuss what we believe is the prob­lem, and give them an oppor­tu­ni­ty to respond.

The fun­ny part of that is that the bet­ter com­pa­nies are the ones who engage and respond to that approach. Does­n’t mean we get an out­come nec­es­sar­i­ly, but they at least engage. The worst com­pa­nies are the ones who just ignore you. Um, at the end of the day, our view is that boards, as much as we’d like to say, you know, all direc­tors and uh, uh, CEOs of, uh, these com­pa­nies are all rat bags out to fleece the share­hold­ers.

It’s not true in our expe­ri­ence. The major­i­ty of, uh, instances are cas­es where you have peo­ple who are gen­uine­ly well-mean­ing and well-inten­tioned, but it’s just that the, the, the agency con­flicts means that they’re doing some­thing that is per­haps more in their inter­est than the inter­ests of their own­ers.

Uh, and for us it’s then a case of, [00:11:00] some­one asked me once, how do boards and man­age­ment teams typ­i­cal­ly respond to what we sug­gest? Um, and the real­i­ty is they respond.

Tony: Hmm.

Gabriel: You know, they know best they’re in charge. What, what, what could we pos­si­bly know, uh, that they aren’t already doing? And there­in lies one of the, the, the, the chal­lenges is that what we’re propos­ing is often not some­thing that has­n’t already been con­sid­ered, but it’s typ­i­cal­ly some­thing that has been depri­or­i­tized because it does­n’t suit the inter­est of the peo­ple mak­ing the deci­sions.

Tony: Hmm.

Gabriel: And so for us, our efforts then typ­i­cal­ly focus on con­vinc­ing oth­er share­hold­ers that what we’re propos­ing is in their inter­ests as well as ours. And that, that when there is a con­sen­sus that can emerge from share­hold­ers of the need for a change in direc­tion, that’s when boards either change their minds or ulti­mate­ly boards get changed.

Tony: Yeah. So, so there is a, an ele­ment of lever­age in there. If they don’t, if the [00:12:00] board has a con­flict, wants to keep act­ing. With that con­flict because it suits them and at some stage the share­hold­ers almost have to revolt and gang up and, and apply some lever­age, don’t they?

Gabriel: Yeah. And, and Tony, I think it’s impor­tant to, uh, you know, keep in mind when using the word con­flict, con­flicts of inter­est, it’s not nec­es­sar­i­ly malev­o­lence, it’s not malt intent.

Mm-hmm. It’s just a dif­fer­ent way of look­ing at, at look­ing at the same sit­u­a­tion. Um, you know, one of things. You search the

Tony: board to act in their inter­ests.

Gabriel: Yeah. Or again, that, that, that might be even, uh, in some instances, unfair. They think they’re doing what’s, they think they’re doing the right thing.

But that does­n’t mean that for me as a share­hold­er, I agree with it.

Tony: Mm-hmm.

Gabriel: So, might might be

Tony: help­ful to, to lis­ten­ers if they, if you, we can work through an exam­ple. Is there a, a glar­ing exam­ple that can illus­trate what you’re talk­ing about?

Gabriel: Well, there’s one [00:13:00] and if you can talk about, there’s one that’s right before us.

Uh, uh, right now, which is, uh, uh, South­ern Cross, uh, media Group. Um, so look, we became an investor in South­ern Cross, uh, late last year. Um, we’d been look­ing at the radio space for a lit­tle while. A few peo­ple had pitched ideas to us, um, none of which par­tic­u­lar­ly made sense to us. Um, and we start­ed look­ing intent­ly at the radio space and decid­ed that South­ern Cross was to start with the least worst propo­si­tion there.

Um, but also when com­pared to old media, um, what we liked about radio was that we con­sid­ered that we still do con­sid­er that it has some unique char­ac­ter­is­tics that make it far bet­ter than print and, uh, tele­vi­sion media assets. Mm-hmm. Um, and put very sim­ply, it’s because you’ve got a [00:14:00] cap­tive audi­ence for audio.

Now, yes, peo­ple lis­ten to, uh, radio and audio, uh, else­where. But as a, as a sim­ple way of explain­ing the the­sis, uh, we see that, uh, the auto­mo­bile is the last sort of, uh, cap­tive audi­ence for, uh, a pair of ears, giv­en that you have to have your hands on the wheel for the fore­see­able future. Um, they had been labor­ing under the, um, yoke of TV assets, region­al TV assets that were just not work­ing for them.

Um, and they’d announced that they were going to sell those assets at some point. So from our per­spec­tive, we thought, oh, this is inter­est­ing. It’s mov­ing from being a, you know, pret­ty unat­trac­tive com­bi­na­tion of radio and TV assets to being a pure play audio. Busi­ness. The pr, the share­hold­ers before we became share­hold­ers had borne the cost of, I think, near­ly $50 mil­lion of [00:15:00] invest­ment into their lis­ten­er pod­cast plat­form.

So again, for us, we, when we were look­ing at the com­pa­ny, we did­n’t have to be involved in spend­ing that mon­ey that was already a a a a sunk cost. And so we liked the all about audio, uh, strat­e­gy that the com­pa­ny was espous­ing. We thought, this is great. Then they sold the TV assets. This is get­ting bet­ter.

Um, and tak­ing a step, uh, uh, on the tan­gent for a moment. Over the years, we’ve made a lot of mon­ey invest­ing in what we call declin­ing busi­ness­es. Um, you know, indus­tries or com­pa­nies that have, you know, lim­it­ed growth prospects, but can still gen­er­ate good sol­id cash flows pro­vid­ed they return them to share­hold­ers.

Um, a way of think­ing about it is that. Com­pa­nies, I think, should be well attuned and well aware of where they are in their [00:16:00] indus­try and where their indus­try is in its life­cy­cle. Um, so if you will, uh, it’s impor­tant that, uh, com­pa­nies act the a act their age. Um, you know, it, it would­n’t do any of us any favors, includ­ing myself, for me to parade around as if I was a, you know, 17-year-old, um, you know, wear­ing a, you know, I don’t know, ripped jeans or what­ev­er else you might wear when you’re 17.

Um, I’d look a fool and every­one would be laugh­ing at me. Uh, where­as with South­ern Cross, we thought this, all of our audio strat­e­gy was actu­al­ly com­mon sense. The cri­tique we had of them and still have, is that we believed that they need­ed to be more aggres­sive in terms of cut­ting costs. Because when you are in that declin­ing indus­try, cost con­trol is a chal­lenge.

And it’s impor­tant because what you don’t want to see them do is invest as if they’re a grow­ing indus­try. When the return on that invest­ed mar­gin­al dol­lar is just nev­er gonna be there. Um, [00:17:00] so we sort of, uh, worked through pri­vate engage­ment to see if we might make some changes to the board that went down, as you might sus­pect, like a lead bal­loon.

No one wants to effec­tive­ly be told, we would like to replace you. You know, it’s like me com­ing up to you both and say­ing, uh, geez, uh, guys, you’ve done this great pod­cast. I think you’ve done won­der­ful things, but, uh, I’d like to see you off now because I think I can do a bet­ter job of it.

Tony: Hmm.

Gabriel: I I get it.

You know, the reac­tion is not gonna be pos­i­tive. Um, and then, so that was, that sort of cam­paign was, uh, uh, run­ning in the, in the, in the, uh, uh, back­ground. And then, uh. 29th of, uh, I think it was 29th of Sep­tem­ber, I wake up to an announce­ment that, uh, South­ern Cross has decid­ed to get back into the tele­vi­sion busi­ness by, uh, you know, offer­ing to buy, uh, sev­en West Media.

So sud­den­ly we went from a com­pa­ny that a [00:18:00] few days before was all about audio, and that mantra was repeat­ed ad nau­se­am. All about audio, all about audio. Again, we liked it. We thought it was a good strat­e­gy. Um, a few times in dis­cus­sions with, uh, the chair and man­age­ment, we were asked our views about media con­sol­i­da­tion.

And right from the first meet­ing, we always said that to us, those were one of the most dan­ger­ous com­bi­na­tions of two words ever imag­ined. Um, because the idea and notion of media con­sol­i­da­tion has destroyed enor­mous share­hold­er val­ue over the years, very few peo­ple have done well out of it, par­tic­u­lar­ly, uh, acquir­ing.

Par­ties in media con­sol­i­da­tion, and yet every man­age­ment team, I’m sure believes that this time it will be dif­fer­ent. Their case will be dif­fer­ent. Um, so that’s real­ly where we’re at. We’re in a sit­u­a­tion where what is oth­er­wise, what oth­er­wise should be a good, sim­ple, sol­id cash gen­er­at­ing busi­ness with a [00:19:00] medi­um to low growth pro­file over the next, uh, decade, has, uh, uh, gone back into the worst of the oth­er media assets, newsprint and tele­vi­sion, um, com­plete­ly at odds with the strat­e­gy they have espoused since 2023.

Um, and to add, uh, insult to injury, they’ve done it by way of a scheme of arrange­ment, which means that South­ern cross share­hold­ers don’t get a vote on the, on the mat­ter.

Tony: Yeah. That’s inter­est­ing, isn’t it? I mean, there’s a whole, let me unpick that a bit. So walk­ing it back to the start of what you said, you’ve invest­ed in an audio, audio only com­pa­ny.

Yep.

Why did you seek to have board rep­re­sen­ta­tion when you first joined? Do you, were you still see­ing prob­lems with that strat­e­gy or was there some oth­er rea­son?

Gabriel: Because costs weren’t com­ing down fast enough.

Tony: Okay. And so the board could have sim­ply said, we’ll, add a direc­tor to the board, or two, or how­ev­er many you were seek­ing to do, and they could have engaged with you [00:20:00] from day one and avoid­ed a lot of angst, I guess, and poten­tial prob­lems going for­ward.

Gabriel: Uh, look, that sounds rea­son­able, Tony. That sounds like a real­ly, real­ly rea­son­able thing. Um, I imag­ine if, uh, the per­son we’d nom­i­nat­ed to the board had gone onto the board or No, we, we weren’t even nom­i­nat­ing, uh, because keep in mind, we were just sug­gest­ing some­one who we thought would have wide­spread. Um, uh, sup­port amongst a num­ber of share­hold­ers that was­n’t our nom­i­nee.

Mm-hmm. Um, but I dare say that if that per­son had joined the board, this trans­ac­tion prob­a­bly would­n’t have hap­pened. So per­haps that explains why they did­n’t want ours. Yeah, right. Any­one’s com­ing to join the board and spoil the par­ty.

Tony: Yeah. So they must have known about the con­sol­i­da­tion at some stage dur­ing your dis­cus­sion.

Gabriel: I, I don’t know. I, I, I don’t know. I can’t know that. Um, but giv­en the num­ber of times they asked about our views on media con­sol­i­da­tion, again, I can see why, you know, from a board and a, a [00:21:00] exec­u­tive per­spec­tive, it’s always bet­ter to be involved in a big­ger com­pa­ny that a small­er com­pa­ny you can see why they would, you know, grav­i­tate towards that.

Um, as an own­er, I’m very hap­py with a small, effi­cient, well per­form­ing, uh, com­pa­ny. Yeah. I’ve got no issue with that.

Tony: The, um, the scheme of arrange­ment, does that involve a vote at any stage or is it just sim­ply appoint­ed by, just sim­ply approved by court?

Gabriel: So you’ll be relieved to know that sev­en West Media share­hold­ers do get to vote on the, uh, trans­ac­tion.

Um, you’d hate to, uh, find your­self being bought by some­one with­out you, uh, being, uh, uh, giv­ing approval to be bought. Um, unfor­tu­nate­ly it does­n’t work the oth­er way around. The acquir­er does­n’t get, uh, an oppor­tu­ni­ty. That to us is one of the, um, loop­holes of the, of the sys­tem where­by, um, there are sig­nif­i­cant pow­ers, um, uh, giv­en to direc­tors when it comes to takeovers and [00:22:00] schemes of arrange­ment to dilute, uh, their share­hold­ers.

Tony: Is that an ASX list­ing rule, or is that a Cor­po­ra­tions Act loop­hole?

Gabriel: Uh, look, main­ly, uh, main­ly ASX. So ASX, if I could digress a moment just to, uh, give you the, um, sort of the, the pot­ted, um, sum­ma­ry of ASX list­ing rules. ASX accepts that issu­ing more than 15% of the issued cap­i­tal of the com­pa­ny with­out share­hold­er approval is a bad thing.

So if you are going to do a place­ment and it’s more than 15%, you need to get your share­hold­ers to approve it, stick that sounds good. Share­hold­er pro­tec­tions. Um, if you are going to issue more than a hun­dred per­cent of your issued cap­i­tal, uh, in a, so keep in mind that’s for replace­ment for cash. So 15% is your hard lim­it.

You can’t do more with­out share­hold­er approval. Yep. If you are going to issue shares that rep­re­sent more than a hun­dred per­cent of your issued cap­i­tal in a scheme or takeover, you got­ta get share­hold­er approval because [00:23:00] ASX con­sid­ers that to be a reverse takeover.

Tony: Mm-hmm.

Gabriel: So won­der­ful. ASX acknowl­edges that there are sit­u­a­tions where share­hold­ers of a com­pa­ny can be, I’d say, I’ll call it dis­en­fran­chised by share issuances.

S the loop­hole is what I described pre­vi­ous­ly to some­one else as the Bermu­da Tri­an­gle of share­hold­er val­ue, which is between, uh, 100% and below. So the trans­ac­tion with South­ern Cross is a trans­ac­tion that would see, uh, 98 point some­thing per­cent of the shares be issued. So the merg­er ratio would involve 50.1% of the post-com­ple­tion shares held by South­ern Cross share­hold­ers, and 49.9 held by sev­en West Media.

So it, it makes it with­in the rules by one 10th of 1%, but it’s not just about that [00:24:00] board con­trol. If the trans­ac­tion pro­ceeds will go to sev­en West, they will have a major­i­ty of the direc­tors appoint­ed to the enti­ty of the, the board of the merged enti­ty. And the sev­en West CEO is going to be CEO of the merged enti­ty.

So from my per­spec­tive as a South­ern Cross share­hold­er, whilst I might gain a, a, a mod­icum of com­fort in the exchange ratio, giv­ing me a one 10th of a per­cent, uh, lead over the sev­en West media share­hold­ers, I’m seed­ing board con­trol to sev­en West and man­age­ment con­trol to sev­en West two out­ta three mea­sures of con­trol as a lay­man, two out­ta three mea­sures of con­trol.

As a, you know, a, a rea­son­able per­son are in the hands of sev­en West Media. That to me is not, uh, a, a trans­ac­tion that, uh, should go ahead with­out share­hold­er approval. It is effec­tive­ly a nil pre­mi­um reverse takeover

Tony: seems that way. Why would [00:25:00] the Chair of South­ern Cross or the CEO of South­ern Cross want the sit­u­a­tion to end up like that?

How has it served them?

Gabriel: I, I dun­no, you’d have to ask them. Mm-hmm. Okay. I mean, the, the, the chair­man of South­ern Cross will become, uh, the chair­man of the merged enti­ty after Ker­ry Stokes steps down.

Tony: Mm-hmm.

Gabriel: Um, the CEOI, I dun­no, you’d have to ask them. Uh, I’m hop­ing that in a, uh, in doc­u­men­ta­tion that will come out, they might explain why.

Um, but to us aban­don­ing the all about audio strat­e­gy to buy into a, you know, the worst of the old media assets being TV and newsprint, which is beg­gar’s belief,

Tony: who, who sets the, these kinds of list­ing rules on the ASX. I mean, it used to be a group of stock­bro­kers who got togeth­er and did that, but who’s doing it these days?

Gabriel: Um, look that, to answer that ques­tion, I don’t know. Uh, the list­ing rules are, you know, the purview of the ASX. [00:26:00] Um, so ulti­mate­ly it’s got­ta be the ASX direc­tors who are, who have to be held account­able for these sorts of, uh, sit­u­a­tions. Um, but I think, look, it’s always worth think­ing, and we do this when we try to ana­lyze the com­pa­nies before we invest and as we’re invest­ing is we try and fol­low, um, you know, fol­low the mon­ey, fol­low self-inter­est.

There’s the old say­ing, you know, if there’s a a, a race with a horse called self-inter­est, always back that horse. Um,

Tony: at least, at least, you know, it’s try­ing.

Gabriel: Yeah, exact­ly. Yeah. Um, what’s inter­est­ing is that there’s been opin­ion pieces writ­ten about this trans­ac­tion and a few oth­ers, uh, you know, James Hardy, uh, before this and, uh, per­pet­u­al pen­dle before that.

And it seems that there’s a, uh, a cho­rus of, um, sup­port­ers of the sta­tus quo com­ing from the legal and invest­ment bank­ing fra­ter­ni­ties.

Tony: Now,

Gabriel: unsur­pris­ing­ly, that is where they earn fees. Mm-hmm. So, of [00:27:00] course I, I accept, I get it. Of course, they’re going to fight for their self inter­est. Um, the prob­lem is I think too often peo­ple naive­ly believe that they’re not self inter­est­ed.

Yeah. Nev­er asked

Tony: Bar­bara if you need the hair­cut.

Gabriel: Yeah. You know, the FY 25, um, ASX in our annu­al report, uh, in one of the tables, there’s a list of how much cap­i­tal they raised. And in 2025 or finan­cial year 25, they raised over, I think $91 bil­lion of new cap­i­tal was list­ed on the ASX. And 40 of that, I think, sor­ry, 90 bil­lion.

41 of that 90 bil­lion was in what the asex describes as oth­er sec­ondary rais­ings, includ­ing script for script, which is this sort of trans­ac­tion.

Tony: Right. Which is not new cap­i­tal real­ly is it?

Gabriel: No, it’s recy­cling, it’s shift­ing from one to the oth­er. I mean, yes, they might be buy­ing pri­vate com­pa­nies and doing it, but at the end of the day, a decent chunk of, [00:28:00] as X’s rev­enues is com­ing from, of course, these sorts of trans­ac­tions of, yeah.

And again, look, I’m not, uh, I’m not an ASX share­hold­er. I, the, the mar­ket is full of con­flicts. That’s the nature of a free mar­ket. Mm-hmm. And that’s okay. It’s just that at the end of the day, as a share­hold­er, um, and a share­hold­er who’s, who’s on the receiv­ing end of what I con­sid­er to be a pret­ty poor trans­ac­tion, I’d like an oppor­tu­ni­ty to vote for it.

Tony: Mm-hmm.

Gabriel: Or for me, I’d like the oppor­tu­ni­ty to, to vote against it and to cam­paign against peo­ple vot­ing for it. Um, but at the moment, we don’t have that oppor­tu­ni­ty because it tick many years, ticks the box.

Tony: Yep. Many years ago, I went through a sim­i­lar sit­u­a­tion as a share­hold­er of West Aus­tralian News, WAN.

And, uh, it’s, it again was a reverse merg­er. Um. Of oth­er media inter­ests, and it seemed to be a, um, some­thing you could­n’t stop. And it was main­ly [00:29:00] about con­sol­i­dat­ing debt rather than con­sol­i­dat­ing equi­ty. Um, and this seems to me, seems, seems like Akins.

Gabriel: Yeah. Some unkind souls have, uh, made men­tion of that, um, as well as the fact that some actors are the same in those two sit­u­a­tions.

Cor­rect. West

Tony: Aus­tralian News was a won­der­ful monop­oly busi­ness. The only news­pa­per in Perth. It was a clas­sic buf­fet play, and it was stray­ing off lots of cash and it was low growth, but it was pay­ing good yield. All those kinds of things as you are describ­ing with south­ern cross media. Yeah. And his­to­ry’s repeat­ing again, I think.

Gabriel: Look, Tony, I, I, I think, uh, uh, you know, for any­one who’s been around for a while, or at least as a stu­dent of his­to­ry, you do, uh, you do know, and you are com­plete­ly con­vinced with the idea that, uh, while his­to­ry may not repeat, it cer­tain­ly rhymes. And some­times the rhyme is pret­ty, uh, uh, pret­ty close. And this one is, you know, sim­i­lar sit­u­a­tion.

Um, look, to me, it just, there are trans­ac­tions where I, I see, uh, them hap­pen­ing [00:30:00] and I can at least under­stand why some peo­ple might like it, even if I don’t. This one, I just strug­gle to see the ben­e­fit for a South­ern Cross share­hold­er. You know, we, we’ve got a cur­rent­ly, uh, man­age­ment team and the board have done a great job get­ting debt down to rough­ly 33% debt to equi­ty ratio as at the, uh, bal­ance state, 30 June, um, South­ern Cross, uh, sev­en West Media, uh, as at that same bal­ance state have 133% debt to equi­ty ratio.

So if you think of the exchange ratio, what’s hap­pen­ing, if this trans­ac­tion goes ahead, as a South­ern Cross share­hold­er, I’m gonna go from a 33% debt to equi­ty to 87% debt to equi­ty. Not good, don’t like it, don’t like that kind of lever­age. But as a sev­en West Media, I’m going down from 133 to 87. That sounds a lot more appeal­ing.

Yeah. Unfor­tu­nate­ly. Exact­ly. You know, I’m not a sev­en West share­hold­er. I’m a South­ern cross share­hold­er. [00:31:00]

Tony: So where does that leave you? I mean, you, you are los­ing out on the board, you’re los­ing out on the deal. Are you, are you a sell­er or are you still going to agi­tate for change some­how?

Gabriel: Oh, look, we’re, for us, the, the, the fight is well and tru­ly on.

Um, we have a num­ber of things that we will run to ground before this is said and done. And I think it’s impor­tant to not over­look the fact that as a val­ue investor and as a care­ful, uh, uh, you know, care­ful stu­dents of val­ue, we do try and make sure we buy well. And South­ern Cross, we were for­tu­nate in that we bought very, very well.

Tony: Right.

Gabriel: Um, so, you know, even today we are in, well, well, uh, uh, prof­itable ter­ri­to­ry. It’s real­ly a case for us of. We don’t want to be leav­ing all this mon­ey on the table that we think is there to be had as a south­ern cross share­hold­er in a pure play busi­ness.

Cameron: Well, I want­ed to ask [00:32:00] you a bit about the cur­rent pric­ing of SXL because it’s had a great run.

It’s been on our buy list, you know, for a cou­ple of years, real­ly on and off, and I know it’s up a hun­dred per­cent rough­ly in the last 12 months. And, but look­ing at the reac­tion, the mar­ket reac­tion to the news of the pro­posed merg­er does­n’t seem to have gone one way or the oth­er. Do you, what do you read into the mar­ket’s mut­ed reac­tion to this?

You’ve obvi­ous­ly got a very strong reac­tion to it. Why has the mar­ket sort of been ho hum about this news?

Gabriel: Uh, look, Cameron, I, I dun­no what the mar­ket, you know, I, I could, my guess is as prob­a­bly good as any­one else’s. I think what I might con­sid­er as objec­tive evi­dence is that the fact that it has­n’t moved means that prob­a­bly there’s a diver­gence of views.

There’s not a con­sen­sus that it is either good or [00:33:00] bad.

Cameron: Right. Um, a fre­quent guest on our show over the years has been Steve and Mabb, who is, uh, last I heard the, uh, chair­man of the Aus­tralian Share­hold­ers Asso­ci­a­tion. I know he’s been ral­ly­ing to get their mem­bers involved in vot­ing on issues like this.

Do do you engage your­self with oth­er share­hold­er asso­ci­a­tions to try and I know you do a lot of media work, a lot of out­reach. Do you engage your­self with oth­er groups of, uh, share­hold­ers to try and increase your

Gabriel: look? Where, where we can, um, you know, we usu­al­ly, uh, reach out to a SA on issues. Um. Our focus is typ­i­cal­ly on insti­tu­tion­al share­hold­ers.

Um, we will some­times reach out to, you know, a whole bunch of share­hold­ers on the reg­is­ter. I mean, when we ran a cam­paign a cou­ple of years ago at Karoon Ener­gy, um, [00:34:00] we were com­mu­ni­cat­ing direct­ly with I think the top thou­sand share­hold­ers, um, just to, you know, make sure that they were aware of what we were say­ing and doing.

Um, the, the chal­lenge I think with a lot of, um, retail investors is A, get­ting their atten­tion and b uh, deal­ing with the iner­tia that comes from, gen­er­al­ly the idea is that, oh, the board must know what they’re doing. Mm-hmm. Um, you know, I was, uh, I spoke to some, uh, investors a few about a month ago, uh, in South­east Queens­land.

One of the ques­tions from the audi­ence, some of our, so the audi­ence was some of our investors and some oth­er peo­ple, and one of the ques­tions from the audi­ence was, how could you pos­si­bly expect us to believe that you know bet­ter than the com­pa­ny? Mm-hmm. And look, it’s a fair ques­tion. I mean, you know, we’re on the out­side, we’re work­ing with pub­lic infor­ma­tion.

The main dif­fer­ence is, as I said [00:35:00] before, it’s rare that we’re propos­ing some­thing that the com­pa­ny has­n’t already con­sid­ered and either dis­card­ed or depri­or­i­tized. What we’re try­ing to do is get some­thing to esca­late, to be a num­ber one pri­or­i­ty, IE some­thing that will actu­al­ly be enact­ed. Um, and more often than not, it’s, it’s sim­ply com­mon sense.

Mm-hmm.

Tony: You think in the case of a com­pa­ny like SXL, which, you know, we’ve described as a kind of a cash print­ing machine in a, a low growth indus­try, do you think there’s anoth­er. Large share­hold­er in their rear whis­per­ing, and I, I don’t, maybe I should­n’t use SXL specif­i­cal­ly with a com­pa­ny like SXL and they’re say­ing, you got­ta find some growth for us.

That’s, that always seems to be the Oh, absolute­ly.

Gabriel: Yeah. Yeah. Look, and, and I think that’s the chal­lenge is that, you know, I don’t envy the role of A‑A-A-C-E‑O or a board because share­hold­ers have dif­fer­ent per­spec­tives. You know, some share­hold­ers sim­ply say growth, growth, growth. And we just [00:36:00] want every com­pa­ny in our port­fo­lio to strive for growth.

We sim­ply accept that it’s more nuanced than that. And some com­pa­nies should strive for growth and oth­ers should actu­al­ly just accept where they are and, you know, squire their cash as best they can and get it into the hands of their share­hold­ers. You know, this con­cept of act­ing your age, um, we had a, a few years ago we had an invest­ment in a com­pa­ny called On the House.

So on the house was a, uh, uh, sort of a tech, uh, busi­ness. And it had two parts to its busi­ness, the On the House web­site, which want­ed to be the dis­rup­tor to REA and Domain. Mm-hmm. Um, and then the sec­ond busi­ness, which was sort of under the bon­net, was a real estate, um, uh, real estate agency, uh, oper­a­tional plat­form, which is the busi­ness that we were inter­est­ed in.

But the chal­lenge with on the house, and it was prob­a­bly a [00:37:00] good, um, les­son that we took from that was part of the rea­son they got them­selves into trou­ble was that when they start­ed, I think they had a good idea, but for a num­ber of rea­sons, when they did their IPO, they weren’t able to raise as much mon­ey as they had hoped for.

And there­fore when they got crack­ing on the, uh, con­cept of on the house, they could­n’t spend as much mon­ey as quick­ly as they want­ed to. And they were rely­ing on the. Cash flows from the soft­ware busi­ness to help fund the growth. And so their growth pro­file was actu­al­ly quite con­strained. And even though we don’t invest in those sorts of com­pa­nies, I can under­stand and accept that if you are, uh, uh, for exam­ple in a new, uh, uh, indus­try in tech­nol­o­gy and you believe you have an oppor­tu­ni­ty to, you know, dom­i­nate that indus­try, you should move as quick­ly and spend as much mon­ey as you can to get that dom­i­nant posi­tion.

Because the [00:38:00] half-life of that invest­ment is actu­al­ly gonna be very short. So if you are in a grow­ing indus­try, yes, you should try and grow as fast as you can, as quick­ly as you can, and to get as dom­i­nant as you can. But the con­verse is also true if you’re in a declin­ing indus­try, it’s not the same atti­tude, it’s not the same strat­e­gy that you should pur­sue.

And so to, to, to us. There are share­hold­ers who will say, grow, grow, grow, with­out con­sid­er­ing that per­haps that indus­try and that com­pa­ny should­n’t grow. And the way I would look at it is that’s why ulti­mate­ly you should have a diverse port­fo­lio.

Tony: It’s also a bit more nuance than that though too, because if you have a com­pa­ny in a low growth indus­try and it’s throw­ing off lots of cash, some­times share­hold­ers, well, a share­hold­er makes the argu­ment, let the com­pa­ny hold that cash and then make a, uh, an adja­cent invest­ment, which is bet­ter off for share­hold­ers than giv­ing it back.

So what’s your view on cash going to share­hold­ers ver­sus cash going to the com­pa­ny? [00:39:00]

Gabriel: Look, unless the com­pa­ny can prove and demon­strate, typ­i­cal­ly with a track record of doing so, um, pro­duc­tive­ly and, uh, prof­itably, you’re bet­ter off giv­ing it to the share­hold­ers

Tony: and they can invest in a growth com­pa­ny.

Yep.

Gabriel: Yep.

Tony: Yeah. Yeah. Look, I come out of the retail space and. Plen­ty of exam­ples of what you’re say­ing. I mean, David Jones is the clas­sic one. A com­pa­ny in a niche mar­ket throw­ing off lots of cash, pres­sured for growth, and then tried to expand into rolling out their food halls Yeah. As sep­a­rate food busi­ness­es.

And that just does­n’t work. They, they’re core busi­ness and, and I, I think, I think I need lots of

Gabriel: cash. That obser­va­tion rein­forces the idea that if you are, if the fun­da­men­tal nature of the indus­try you are in is of low growth, there ain’t noth­ing you can do that’s gonna change that. Yeah. And, and if you look back at, uh, uh, at his­to­ry of com­pa­nies that have tried to change it, the ones that don’t accept the real­i­ty of [00:40:00] their world are the ones that tend to destroy enor­mous amounts of share­hold­er val­ue because they, they try and be some­thing else.

Tony: Hmm. And there is this, and there is this share­hold­er or sh share mar­ket imper­a­tive to grow, to grow up bet­ter than grow, grow up bet­ter than CPI to grow up bet­ter than index, to grow bet­ter than GDP. And yet there are plen­ty of busi­ness­es, the super­mar­ket busi­ness­es grow at GDP every time they’ve tried to grow it above GDP, they’ve invest­ed mon­ey and it’s been false­ly invest­ed.

Wrong­ly invest­ed.

Gabriel: Yep. Yeah. It, it’s, uh, I mean that’s, uh, I think the def­i­n­i­tion that’s used there is just mal invest­ment. You know, it, they’re, they’re, they’re not opti­mal deci­sions. Um, yes, the econ­o­my as a whole should grow at X, but that does­n’t mean every busi­ness and every indus­try in the, in the econ­o­my is grow­ing at the same rate.

Some are grow­ing at two, three times the rate, and oth­ers are grow­ing at a 10th of the rate. That’s just the nature of things. And so for us, it gets back to this con­cept of, as an, as an own­er of a busi­ness, [00:41:00] I want the busi­ness to act its age. I want it to act to be age appro­pri­ate. To the life­cy­cle of the indus­try that it’s in now as investors, we tend to be more attuned to the needs of com­pa­nies at that low­er growth declin­ing end of the mar­ket, just because we see it as a, a bet­ter risk adjust­ed return.

Um, yeah.

Tony: Are there, is there a, a, a com­pa­ny out there which is too big for you to invest in, which you would con­sid­er as a can­di­date for action? If, if you had the mon­ey, what would you do?

Gabriel: Um, there are com­pa­nies that are, and, and I’ll, I’ll, I’ll be eva­sive in my answer, Tony, but there are com­pa­nies that we believe, uh, at var­i­ous times, mis­priced, larg­er com­pa­nies.

The prob­lem with them, and the rea­son we don’t think, no mat­ter how much mon­ey we had, we don’t think their, uh, rea­son­able tar­gets is that [00:42:00] their own­er­ship base is too dif­fuse. There’s sim­ply far too many peo­ple with dif­fer­ing inter­ests for us to be con­fi­dent that we can find a con­sen­sus posi­tion.

Tony: Right.

Gabriel: And so, uh, to give you an exam­ple, uh, sor­ry, go ahead.

Tony: No, sor­ry. Don’t mean to talk over you. I’m sor­ry. I was just gonna ask, so there­fore hav­ing a block of votes is very impor­tant. I do it all the time, so please don’t, it’s, it’s a prob­lem with Zoom. I think we lag a lit­tle bit.

Gabriel: Oh, thank you. I, I, my wife would sug­gest it’s not a prob­lem with the tech­nol­o­gy, it’s just me.

Um, it’s not nec­es­sar­i­ly about know­ing that there is a block that we can count on. It’s being con­fi­dent that there is a block that can emerge. Right. So to give you an exam­ple, and we’ve nev­er been an investor, but you brought it up ear­li­er and I think it’s a good, uh, illus­tra­tion at this point. Um, with Wool­worth’s, uh, Wool­worth’s a few years ago when they got them­selves into trou­ble with the, uh, mas­ters deba­cle.

Tony: Mm-hmm. [00:43:00]

Gabriel: Um, we were look­ing at that think­ing, wow, this is inter­est­ing, to say the least. But what we very quick­ly real­ized as we were look­ing at that was that there was not a sin­gle share­hold­er who owned more than one, one and a half per­cent of Wool­worths.

Tony: Right.

Gabriel: And just doing the maths, it’s real­ly hard to get a con­sen­sus there.

Um, we also find that there dif­fer­ent investors where dif­fer­ent peo­ple with­in the same orga­ni­za­tion will have dif­fer­ent per­spec­tives on things. So, you know, in larg­er orga­ni­za­tions, you might have a port­fo­lio man­ag­er who has com­plete over­sight over the invest­ing deci­sion. But it has to seed an ele­ment of, uh, uh, of deci­sion mak­ing to their stew­ard­ship team.

When it comes to vot­ing at, uh, gen­er­al meet­ings

Tony: right

Gabriel: now in our firm and our way of look­ing at the world, the two are inex­tri­ca­bly linked. There is no sep­a­ra­tion between gov­er­nance and invest­ing. They’re, they’re, you know, two sides of a [00:44:00] sim­i­lar coin or the same coin. Where­as we’ve got with oth­er instances where the pe you’ve got peo­ple wear­ing invest­ment, uh, tint­ed glass­es and oth­ers wear­ing stew­ard­ship tint­ed glass­es.

And Karoon was a good exam­ple a cou­ple of years ago where we were run­ning a cam­paign, which was encour­ag­ing larg­er investors to vote against the remu­ner­a­tion report. More so because we want­ed to send an unequiv­o­cal mes­sage to the board that share­hold­ers were unhap­py. We did have some con­cerns about the remu­ner­a­tion struc­ture.

I remem­ber sit­ting, uh, in a meet­ing with, uh, uh, an invest­ment per­son who said, yep, agree furi­ous­ly with what you’re say­ing. We’d love to sup­port you, but it’s our stew­ard­ship team who will decide. And then speak­ing with the stew­ard­ship team who explained that they would­n’t be rec­om­mend­ing a vote against the remu­ner­a­tion report because they did­n’t have a prob­lem with remu­ner­a­tion at that com­pa­ny.

And we were like, well, we don’t either real­ly, but we just wan­na send a clear mes­sage to the board. Oh yeah. But [00:45:00] we can’t do that because we don’t have a prob­lem with the remu­ner­a­tion pol­i­cy, there­fore we have to vote to sup­port it to us. Every­thing that’s, there is a tool to be used to fur­ther our objec­tives.

Exact­ly. And so when you get to the, you know, larg­er com­pa­nies, there’s just so many more peo­ple that you have to con­vince. Mm-hmm.

Tony: Right. Um, and I guess that brings me to, um, the ques­tion of the cur­rent invest­ing envi­ron­ment with a lot of pas­sive invest­ment going on. Do you think the role of an activist invest investor is even more per­ti­nent or impor­tant giv­en that there’s so many pas­sive investors who don’t vote the there at the moment?

Gabriel: Okay, so, uh, I think it’s impor­tant to dis­tin­guish, um, index funds. Pas­sive funds in that sense for us, are an impor­tant stake­hold­er because they are a, a, a, a stake­hold­er group that we con­sid­er to be open to per­sua­sion. Where there’s an [00:46:00] increas­ing­ly pas­sive and inac­tive, uh, non-vot­ing block is, uh, in retail investors who invest through plat­forms.

It’s very hard to vote your shares there, par­tic­u­lar­ly if you’re vot­ing against a board rec­om­men­da­tion.

Tony: Why is that? Does the plat­form act as a gate­keep­er in some respect?

Gabriel: Yes. Yep. Yep. So for exam­ple, uh, you know, we had, um, uh, with Karoon for exam­ple, we had a block of shares, you know, what­ev­er it was a num­ber of shares that were held in, you know, one or two of the very pop­u­lar admin­is­tra­tion plat­forms.

And we knew that the under­ly­ing investors sim­ply did­n’t get any of our cor­re­spon­dence. Okay. So there’s, you know, there’s a, there’s a, a, a, an iner­tia is one of the biggest chal­lenges we face, and the iner­tia is some­times struc­tur­al. At oth­er times, it’s, uh, you know, [00:47:00] intrin­sic. I, peo­ple don’t care. Some­times it’s because they can’t be made to care because they don’t have vis­i­bil­i­ty on what’s hap­pen­ing.

Tony: That’s inter­est­ing. So if you go on req­ui­si­tion list of share­hold­ers, you can’t com­mu­ni­cate with them because they’re they’re list­ed as a, as a plat­form Yes. Rather than an indi­vid­ual share­hold­er.

Gabriel: Yeah. Look, we, you can oblige, um, uh, asic to get a ben­e­fi­cial inter­est reg­is­ter, which is effec­tive­ly a look through.

Yep. But, you know, then you get into sort of, uh, you know, peel­ing lay­ers off an onion and, uh, you end up, uh, you know, speak­ing with, um, you know, Mr. And Mrs. Uh, uh, Jones with 10,000 shares and those 10,000 shares might be crit­i­cal­ly impor­tant to us, but there might be, you know, 2000 of those size share­hold­ings, it becomes a lit­tle bit unwieldy.

Tony: Right. So it’s inter­est­ing. I, um, I, I guess I go on what I’m read­ing in the media, but I would­n’t have thought some of the big index funds were, uh, act that active in, in cam­paigns. So you state streets and, uh, [00:48:00] the like

Gabriel: Black rocks. They will usu­al­ly vote, uh, dif­fer­ent, dif­fer­ent funds have dif­fer­ent poli­cies, um, but they will, uh, often vote accord­ing to rec­om­men­da­tions from var­i­ous proxy advi­so­ry firms.

Right. Okay. We reach out to proxy advi­so­ry firms to make a case.

Tony: Mm-hmm.

Gabriel: Some­times we might get sup­port, oth­er times we don’t. But again, it’s impor­tant to con­sid­er that what we’re doing is ulti­mate­ly try­ing to ensure that there is a healthy con­test of ideas, our ideas ver­sus those of the board.

Tony: Right. Do you, in some of the oth­er exam­ples you’ve men­tioned, have you run hos­tile nom­i­na­tions for board posi­tions and how have they gone?

Gabriel: Look, we have, we have in the past. Um, what we’ve found is that in Aus­tralia, unlike, um, else­where in the world, par­tic­u­lar­ly the us, um, there seems to be an antipa­thy, uh, from fund man­agers. [00:49:00] If they think anoth­er fund man­ag­er has got some­thing that they don’t have very zero sum think­ing, you know, if you have some­thing, it means they’ve lost some­thing.

And so what we’ve found is that it’s much eas­i­er and more effec­tive to make changes to boards if peo­ple can be effec­tive­ly brought on by accli­ma­tion rather than overt­ly being some­one with our stamp of approval. You know, the real­i­ty is if I, if I was able to, you know, bring back from the nether­world, uh, you know, Char­lie Munger, Steve Jobs, and, um, I don’t know, pick anoth­er, uh, dear­ly depart­ed and put them for­ward for a board seat, almost every board would reject them sim­ply because I had nom­i­nat­ed them and not me per­son­al­ly, but because an investor had nom­i­nat­ed them.

Tony: Right.

Gabriel: Um, you know, we, we wrote, uh, I wrote a, an opin­ion piece a while back, um, talk­ing about the, uh, you know, the, the. The facade or the, the, the mirage that direc­tors, [00:50:00] um, want to por­tray, which is that inde­pen­dence is some­how a super­pow­er. It’s not, um, what we’re try­ing to do is com­mu­ni­cate this idea that direc­tors are not as inde­pen­dent as they might like to think because they’re inde­pen­dent, but they’re still behold­en to their, uh, their, they’re sub­ject to patron­age because of the way they get invit­ed to join boards.

Tony: Mm-hmm.

Gabriel: So, you know, one of the things that we’ve said for years and years and years is that the qual­i­ties that you need to become a direc­tor are almost the antithe­sis of the qual­i­ties that you want in a direc­tor as an own­er. So if you think about it, to become a direc­tor, you’ve got to be some­one who is, has some con­nec­tions.

Yes, you’ve got­ta have a bit of expe­ri­ence, but that is becom­ing, I think, less impor­tant. And you’ve also got­ta be seen as some­one who will be part of the team. Where­as as an own­er, I want to know that there’s some­one on the board who’s going [00:51:00] to, you know, call things out when every­one agrees, call things out, when it does­n’t make sense.

Um, we don’t think that there is, uh, we don’t think that boards should be friend­ly col­le­giate envi­ron­ments where every­one sort of, uh, uh, enjoys the, the process. Um, I, I’m some­one who thinks that the best out­comes occur when there is a healthy ten­sion between dif­fer­ent stake­hold­ers.

Tony: Yeah. So you’re speak­ing to a com­pa­ny direc­tor and my spouse as a com­pa­ny direc­tor, so I under­stand what you’re say­ing. Apolo­gies. No, no. It’s, it’s exact­ly what, um, it’s a, it’s a tight rope that we walk of, of pro­vid­ing, uh, enough input to rep­re­sent the share­hold­ers and not enough to have to take your Bat­ten ball and go home real­ly.

Gabriel: See on that point, Tony, I think there, there are, there, and this is a dif­fi­cult one because you know, there’s com­mu­ni­ty expec­ta­tions, uh, that mat­ter. But [00:52:00] the chal­lenge is that for a lot of pro­fes­sion­al direc­tors, they need the gig. Yeah. Which means that they can’t afford to take their baton ball and go home.

Because if you do it once, you might get away with it. If you do it twice, you get, you get kicked out of the club because you are gonna be seen as some­one who does, who isn’t a team play­er. And yet that may well be the sort of per­son that more boards need.

Tony: No, exact­ly. There’s a, um, you, you’ve remind­ed me of an anec­dote of the chair of the com­pa­ny that I’m a board mem­ber of and who said it’s, it’s, it’s good to have you on.

He’s talk­ing about me because, um, it’s good to have suc­cess­ful peo­ple on the board ’cause they’re not there for the gig. Yeah, yeah. They’re there as an investor and to pro­tect their invest­ment.

Gabriel: And, and that’s a, that’s a chal­lenge, um, because there’s this com­mu­ni­ty expec­ta­tion that as long as you’re inde­pen­dent, every­thing will be okay.

Um, there’s a, uh, there’s a fel­low who, whose work I real­ly, uh, enjoy. Um, pro­fes­sor Peter Swan, um, [00:53:00] who’s emer­i­tus pro­fes­sor of finance at UNSW. And Peter’s done a lot of work on the per­for­mance of, uh, uh, com­pa­nies with inde­pen­dent and non inde­pen­dent direc­tors. And, and I’m, I’m sort of, uh, poor­ly para­phras­ing a life­time’s worth of work.

But one of the con­clu­sions from his work is that the com­pa­nies with what are con­sid­ered the least inde­pen­dent boards are actu­al­ly the best per­form­ing com­pa­nies.

Tony: Mm-hmm.

Gabriel: And so, from our per­spec­tive, we believe that good gov­er­nance is, you know, the most impor­tant thing in a com­pa­ny. But impor­tant­ly for us, good gov­er­nance isn’t what is com­mon­ly.

Accept­ed as good gov­er­nance. I, we do not accept nec­es­sar­i­ly that the ASX or a ICD def­i­n­i­tion of good gov­er­nance is good gov­er­nance. We think, just as you high­light­ed before when I was talk­ing about, uh, you know, low growth, high growth, we think good gov­er­nance is actu­al­ly incred­i­bly nuanced and is dif­fer­ent for dif­fer­ent [00:54:00] busi­ness­es, dif­fer­ent for dif­fer­ent, um, uh, uh, per­son­al­i­ties.

Tony: And of course, you know, bal­anced with what you’re say­ing, which I agree with is, is, you know, the, the large body of expe­ri­ence and work about own­er founders, it can have ter­ri­ble what’s called cor­po­rate gov­er­nance, I guess in the clas­sic sense, because they. Run the busi­ness that they’ve start­ed. Um, they keep, they have the major­i­ty con­trol.

They put their mates on the board, et cetera, but they can be ter­rif­ic invest­ments for share­hold­ers. Um, so that, and like­wise, you can have peo­ple who tick box­es, um, yeah. To the A ICD in rec­om­men­da­tions who are ter­ri­ble at run­ning a com­pa­ny.

Gabriel: Yeah. Look, I, I agree. I think it’s also impor­tant, like at the moment there’s a, a, and I think part­ly because it’s top­i­cal, um, there’s a great debate about, you know, founder led com­pa­nies.

Um, I think that it’s impor­tant to also acknowl­edge that sim­ply being founder lead [00:55:00] does­n’t mean that every­thing’s gonna be plain sail­ing. Um, you know, if you think back to every busi­ness that exists today, at one point it was found a lead. Some­one had to start the busi­ness some­time. Um, and I think it’s also worth touch­ing on and, and, uh, remind­ing your, your lis­ten­ers that.

For all of the crit­i­cisms that I might make for all of the, you know, exam­ples of what I con­sid­er to be, you know, poor gov­er­nance mis­pric­ing and what have you. It’s impor­tant to remem­ber that our econ­o­my is large­ly well-func­tion­ing, um, because most com­pa­nies do okay. Some do very well, some do real­ly poor­ly.

But gen­er­al­ly our com­pa­nies tend to do okay. They tend to do well. I mean, one of the things that, uh, ag, again, going back to the thing of what investors expect of direc­tors, I think there’s also [00:56:00] unre­al­is­tic expec­ta­tions put on direc­tors in terms of what they can do. Um, and if you think about going back to indus­try, we do believe that indus­try dynam­ics are the largest deter­mi­nant of how a, a, a com­pa­ny will.

Per­form to the point where I would, uh, tongue in cheek sug­gest that you could put an a a an NRL team, uh, onto the board of a big four bank, and the bank will prob­a­bly do well except for maybe a NZ. Um, because at the end of the day, the biggest thing that deter­mines the bank’s return is the struc­ture of the indus­try.

And that is that it’s an oli­gop­oly.

Tony: Yeah. The four pil­lars, although a NZ has been on our buy list for a long time, and I own it, it’s doing quite well, espe­cial­ly since the strat­e­gy day on Mon­day.

Gabriel: Okay. Ever hope­ful.

Tony: Ever hope­ful. Exact­ly. Yeah. Um, I, I’d like to flesh out a bit more about your feel­ings on direc­tors.

Um, yeah. You know, again, there are rules around direc­tors and do [00:57:00] you think they should be changed? So for exam­ple, it, should there be one year terms for direc­tors?

Gabriel: No, I think that is, so we’re, we are a medi­um to long term investor. We don’t just say it. Uh, my port­fo­lio has large posi­tions in stocks that we have owned for more than 10 years.

So we don’t trade, we don’t, you know, buy and sell willy-nil­ly. Um, short-term per­for­mance, short-ter­mism is I think ulti­mate­ly very dam­ag­ing to long-term prospects. And we often get accused when we want a com­pa­ny to do some­thing dif­fer­ent­ly. We get accused of being short term because you’re a fund man­ag­er, there­fore you must be short term.

Yet when we look at com­pa­nies and poor deci­sions, what we observe is actu­al­ly short-ter­mism, couched as masked as long term, but ulti­mate­ly short-term deci­sions pre­vail­ing, which is why we get inter­est­ed. So [00:58:00] I know that there’s been talk about, uh, chang­ing the cor­po­rate gov­er­nance prin­ci­ples and that ones sug­ges­tion might be, oh, well let’s put, uh, annu­al elec­tions.

I think that would be ter­ri­ble. That would just rein­force to the direc­tors that all they need to wor­ry about is short term pla­cat­ing of their share­hold­ers and every­thing should be okay. Now, as it is. Most com­pa­nies get North Kore­an style vot­ing in favor of their res­o­lu­tions,

but that, I mean, most investors just vote to sup­port the sta­tus quo, come hell or high water. It takes real­ly egre­gious cir­cum­stances for most investors to say, oh, we bet­ter vote against some­one.

Yeah. Mean it’s, in today’s paper, there’s a, sor­ry, go ahead.

Tony: No, I was just gonna say that’s often the case where you see if there’s a protest vote against the direc­tor, um, you should add a zero to it real­ly, to, to under­stand the feel­ing behind that protest vote.

Gabriel: Yep. And look, uh, [00:59:00] you know. The, the, what I call the direc­tor, ti the direc­tor class, um, has man­aged to con­vince those who are not part of the class, that they are some­how inte­gral in that con­ti­nu­ity and their, their con­tin­ued pres­ence is crit­i­cal­ly impor­tant to the sur­vival of the, of the com­pa­ny.

Um, in response to that, I would sug­gest you con­sid­er what hap­pens when a, anoth­er com­pa­ny takes over a, a, a com­peti­tor or a pri­vate equi­ty fund takes over a com­pa­ny. Who are the first peo­ple who typ­i­cal­ly get the shot, the, the chop, the direc­tors, because they are not need­ed for con­ti­nu­ity.

Tony: Mm-hmm.

Gabriel: You know, usu­al­ly there might be one per­son who gets a gig in the merged enti­ty or in the tar­get, the acquir­ing com­pa­ny.

That’s often actu­al­ly just part of the nego­ti­at­ing, uh, uh, tac­tics as opposed to they are absolute­ly crit­i­cal­ly need­ed to, uh, uh, deter­mine the future of that invest­ment. [01:00:00] So, you know, direc­tors like to make out that they are crit­i­cal­ly essen­tial to, uh, the future of the busi­ness. I think that is, uh, per­haps well over­stat­ed.

Tony: If you could, talk­ing of the direc­tor class and the direc­tor, direc­tor hier­ar­chy, if you could make a change to, I guess the, the wider ecosys­tem for direc­tors, what would it be? And I’m think­ing, you know, we take on a fair bit of risk in, in being a direc­tor. Um, we, uh, have all the things you’ve out­lined about, um, hav­ing to, um, team­work, hav­ing to influ­ence, all that kind of thing.

What we tend to see the same faces on big­ger com­pa­nies. What, what changes would you make to get a bet­ter class of direc­tor­ship in Aus­tralia?

Gabriel: Well, if I want­ed, if I want­ed to, um, sup­port my self-inter­est, uh, Tony, and make sure that I have lots of invest­ment oppor­tu­ni­ties, I’d say don’t change a thing. Um, at the risk of [01:01:00] also being argu­men­ta­tive, I would, um, uh, call you out on the state­ment of the risk direc­tor’s face.

Um, I was at a, a a, a dis­cus­sion a cou­ple of years ago, uh, where a direc­tor made that obser­va­tion say­ing, oh, you know, as direc­tors we take on enor­mous risk and, you know, it’s unfair. We, we take a sig­nif­i­cant lia­bil­i­ty, and so on and so forth. And, um, a well-known proxy advi­sor stood up and, uh, called I was about to do it, and he got in before me.

I was on the pan­el. And, uh, this per­son made the point that, uh, his sis­ter was a pri­ma­ry school teacher, and he said, if you want­ed to, if you wan­na talk about risks and the risk of end­ing up in jail, you’d be a pri­ma­ry school teacher. And he rat­tled off a list of all the things that could go wrong. And frankly, any­one in that room should have had these, their jaws drop­ping.

Um, yes, direc­tors face risk. How often do, do those risks ever man­i­fest them­selves? Rarely. You know, it’s, it’s almost, [01:02:00] uh, you know, it’s, it’s impor­tant to think of, yes, there is the pos­si­bil­i­ty, what is the prob­a­bil­i­ty? Very low. There are plen­ty of oth­er, uh, uh, jobs, uh, out there where the pos­si­bil­i­ty is there too, and the prob­a­bil­i­ty is high as well.

Um, and they don’t get paid any­where near what most direc­tors get paid. So I, I, I do have an issue with that because that is used to, uh, either jus­ti­fy or absolve a lot of poor behav­ior by say­ing, oh, yes, but, you know, there’s, there’s, and usu­al­ly it’s a, we a real­ly well artic­u­lat­ed arti­cle by a law firm that explains how bad the risks are.

Um, but then again, you know, I take, um, I’ll take a, a Panadol from time to time. Might not do the same. If I read the, uh, the, the, the lit­tle slip of paper in the pack­et that tells me all the things that could pos­si­bly go wrong with me tak­ing a Panadol. The real­i­ty is I’m prob­a­bly gonna be [01:03:00] okay if I fol­low the, the instruc­tions on the label.

And I’d say the same to direc­tors to me, and I’ve been a direc­tor on a pub­lic com­pa­ny boards, if you ensure that your dis­clo­sure is top notch or you don’t hide things from your share­hold­ers, you should be okay. If you man­age your, your debts ex well, you should be okay. Make sure your work­ers are safe. I mean, the fact that you need to be remind­ed of that is a prob­lem in itself.

But make sure that every­one who turns up to work gets to go home, um, and make sure that your prod­ucts don’t kill any­one. If you do, if you man­age all those things, you should be pret­ty, pret­ty well, right. Um, I think, again, I. Try­ing to solve the prob­lem of direc­tors to me is not the solu­tion. What’s impor­tant is ensur­ing that there is a healthy ecosys­tem where share­hold­ers over­see direc­tors with Gus­to, direc­tors gen­uine­ly over­see man­age­ment with gus­to and [01:04:00] vice ver­sa, and, and, and sort of share­hold­ers with man­age­ment.

But it’s that tri­par­tite, uh, ten­sion that I think ulti­mate­ly deliv­ers the bet­ter results.

Tony: So how, how do, okay. How do you bring that into force in a com­pa­ny?

Gabriel: Gen­er­al­ly speak­ing, I think, uh, a good cohort of active man­agers as share­hold­ers, because most man, most active man­agers in Aus­tralia will tell com­pa­nies what they think, good, bad, or indif­fer­ent.

Um, I think it’s impor­tant for boards to have. Direct lines of com­mu­ni­ca­tion from investor rela­tions so that some­one on the board hears direct­ly from IR what is hap­pen­ing, not some report that is fil­tered through the CEO. I think it’s impor­tant for direc­tors to speak to share­hold­ers. You know, we, we find a lot of com­pa­nies, if we, and look, we do it delib­er­ate­ly, you might say, to wind them up, but we [01:05:00] gen­uine­ly, uh, some­times try and approach direc­tors to talk about issues.

And we get stern let­ters from the chair say­ing that all ques­tions are to be direct­ed, uh, through the chair or the CEO. Um, direc­tors should­n’t be afraid to speak to their share­hold­ers. And at more than just the ag GM over tea and bis­cuits, um, I think it’s, it’s ensur­ing that there is an open-mind­ed­ness.

And again, lot of good com­pa­nies take all of those things on board. Keep in mind, we have a very small port­fo­lio rel­a­tive to what’s list­ed on the ASX. Ergo, there must be a lot of com­pa­nies doing a good enough job that do not come to our atten­tion, and that’s a good thing.

Tony: Mm-hmm. Sure. Cam, I think I’ve exhaust­ed my line of ques­tions and, uh, and, uh, lead ins to tease out Gabriel’s points.

What do, do you have any­thing to add?

Cameron: Look, I’m just keep­ing an eye on the time.

Want­ed to fin­ish with one quick ques­tion that Trent, [01:06:00] Trent Howard, who actu­al­ly sug­gest­ed you as a guest, want­ed me to ask you.

One of the big issues for us and our audi­ence over the last year in par­tic­u­lar has been the. Fail­ure From our per­spec­tive of con­tin­u­ous dis­clo­sure, it seems dur­ing con­fes­sion sea­son, we, uh, we used to be able to rely on the fact that if there was bad news com­ing up, we would hear about it dur­ing con­fes­sion sea­son and we would be able to make deci­sions based on that.

In the last year, year and a half, that seems to have evap­o­rat­ed. We get hit time and time again by com­pa­nies we’ve invest­ed in that all of a sud­den the results come out. Bad news, the price drops 10, 20% in a day. And we’ve, we’ve spo­ken to the share­hold­ers asso­ci­a­tion about it. We’ve been try­ing to get ahead around why [01:07:00] the ASX and ASIC aren’t doing more in this regard.

Have, have you wit­nessed this same phe­nom­e­non or is it just our para­noia?

Gabriel: Look, I think so. I think gen­er­al­ly speak­ing, um, most com­pa­nies com­ply with their con­tin­u­ous dis­clo­sure oblig­a­tions. I mean, that goes back to the point, uh, that I made to Tony about direc­tor lia­bil­i­ty and direc­tor respon­si­bil­i­ties.

Fail­ing in your con­tin­u­ous dis­clo­sure oblig­a­tions is one of those big no-nos. That’s where you do put your, you know, neck on the block. And I think that most com­pa­nies prob­a­bly do a good job. The ques­tion is a, some­times they become aware of things very late in the piece. Um, but I also think that investors them­selves have become, and, and this envi­ron­ment, I sus­pect investors have become far more skit­tish in their reac­tions to any­thing that is not good news.

Mm-hmm. We’ve seen, [01:08:00] um, so I think there is, from what I know, and again, I’m, I’m, I’m not that close to it, uh, real­ly, but I do think there is a rea­son­able amount of. Like scruti­ny of con­tin­u­ous dis­clo­sure oblig­a­tions. Um, what I think none of us can con­trol is how every­one might react to things. And I think that’s the, the chal­lenge of invest­ing short term ver­sus long term is, and, uh, you know, I hes­i­tate to, um, uh, you know, invoke this, but it’s the old, um, you know, buf­fet, Munger, uh, descrip­tion of the mar­ket being a vot­ing machine in the short term and a weigh­ing machine in the long term.

The prob­lem is that there are increas­ing­ly today far more investors and far more cap­i­tal that is lit­er­al­ly invest­ed in data points pre­dict­ing the next data point. And if that next data point does­n’t come out as expect­ed, boom, cut and run, move on to the next one. And I think that exac­er­bates short-term moves.

Mm-hmm. [01:09:00] Ulti­mate­ly, we see that as being to our ben­e­fit if we are tru­ly a long-term investor. Mm-hmm. I’d also make a point, just more gen­er­al­ly on dis­clo­sure, is in Aus­tralia we’ve been con­vinced as a whole that we have the world’s gold stan­dard in terms of dis­clo­sure, com­pa­ny report­ing and so on and so forth.

I don’t agree. Um, I’d encour­age any of your lis­ten­ers to go and read the annu­al report of any US com­pa­ny, and par­tic­u­lar­ly to read the man­age­ment dis­cus­sion and analy­sis sec­tions where they will lit­er­al­ly give you a detailed, fac­tu­al, uh, expla­na­tion of their busi­ness mod­el. Mm-hmm. Where­as in Aus­tralia, you’ve got­ta read through, you know, pic­tures and pho­tos and graphs and charts, and even then you might not under­stand exact­ly what the busi­ness mod­el is because they’re not inter­est­ed in telling you.

Um, I think that [01:10:00] Aus­tralian annu­al report­ing cer­tain­ly and half year, but annu­al reports in Aus­tralia are. Not that great, par­tic­u­lar­ly com­pared to what you get out of the us. Inter­est­ing. And inter­est­ing­ly on the, sor­ry to jump in, Cameron, inter­est­ing. On the sit­u­a­tion of, um, say a South­ern cross, sev­en West media in the US that would­n’t be allowed South­ern Cross share­hold­ers would auto­mat­i­cal­ly be giv­en a vote on such a mat­ter.

So, you know, in Aus­tralia there’s often a, a, a hack­ing back to either the US or the UK when it suits peo­ple. You know, like when there was the, the, the debate on whether they should do, um, hybrid, uh, sort of remote only meet­ings for AGMs. We were one of the groups that argued strong­ly that they main­tain hybrid I in per­son and uh, remote­ly.

Um, and they were all say­ing, oh, but in the US and the UK they’ve uh, decid­ed to just do remote meet­ings well. That was sort of true, but that was a ret­ro­grade step in both those coun­tries and in [01:11:00] fact in the uk the invest­ment asso­ci­a­tion, I think that’s what they call the group that rep­re­sents insti­tu­tion­al investors, said, yeah, while the law allows for that, we believe best prac­tices to still have face-to-face meet­ings, but those same peo­ple who were look­ing to the low­est stan­dards in, in the US and the UK as com­pared to Aus­tralia, don’t make the same com­par­i­son when it comes to the list­ing rules and share­hold­er votes.

They, they, they’re sort of silent on that one. It does­n’t suit them

Cameron: cher­ry pick­ing. Um, well just, just to wrap up, so, uh, I have men­tioned ear­ly on that, uh, SXL and sev­en West Media have been on our buy list on and off over the years. Good chance. I, I don’t think Tony or I are share­hold­ers, but there’s a good chance some of our mem­bers are, if they want­ed to par­tic­i­pate in your activism.

What should they do? How should they respond to [01:12:00] all of

Gabriel: Look, every­thing that we will do that requires, or that offers an oppor­tu­ni­ty for any­one to do some­thing, will be made pub­lic. Um, you know, you can keep an eye on our web­site, keep an eye on the media. Um, that’s prob­a­bly the best way. Um, if peo­ple wan­na drop me a line, feel free to, our details are, you know, on pret­ty much every­thing that we, uh, put out.

If you, you know, we get a lot of, uh, emails unso­licit­ed through the info, uh, email, and we do our best to respond. Um, so, you know, peo­ple can reach out. Keep­ing in mind that we won’t give any­one any spe­cif­ic advice. We’re not licensed to give any advice to retail investors. We only give gen­er­al advice to whole­sale.

Um, and also we’re not a tip sheet, so we don’t give run­ning com­men­tary, nor are we oblig­ed to give run­ning com­men­tary on what we’re up to. The only time we’ll speak on these things is when we are doing so in the fur­ther fur­ther­ance of our cam­paign to try and stop this trans­ac­tion. [01:13:00] Hmm.

Cameron: Alright. Ter­rif­ic.

Well sand on cap­i­tal. Gabriel, thank you so much for com­ing on and hav­ing a chat today is great to hear more about what you’re doing in that space.

Gabriel: Uh, thank you. Thank you Cameron. And thank you Tony. Thank you both for the oppor­tu­ni­ty and the uh, good ques­tions. I enjoyed the dis­cus­sion.

Tony: Thanks Gabriel.

Thanks for your time. It was, it was a great chat.

Gabriel: Good stuff. Thanks. Cheers guys.