Company Interview / "I feel as though we're having a white tablecloth dinner on top of an active volcano..."

Key Points:

- Concerns over ASX listing rules and shareholder rights in major M&A transactions

- Aurora cited as a positive example of governance reform with stricter shareholder voting requirements

- Encouragement for KMD Brands to reduce debt and revaluate non-core assets

- Cautious outlook on current market valuations and increased volatility

Australia’s merger laws have come under intense scrutiny with the proposed combination of Seven West Media (ASX:SWM) and Southern Cross Media (ASX:SXL). Simon Mawhinney of Allan Gray states the core challenge lies in the ASX listing rules, which, in his view, fail to provide shareholders enough say in fundamental transactions. Mawhinney points to similar issues in previous company actions involving James Hardie (ASX:JHX), Pendal, and Perpetual (ASX:PPT), and calls out what he describes as a loophole that “smart investment bankers and lawyers exploit”. He suggests Australia trails markets like those of the US and UK regarding shareholder protections, although pockets of governance innovation have emerged.

Mawhinney highlights Aurora (ASX:ABW), in which Allan Gray holds a 20% stake, as an example where new limits on share issues were introduced to require shareholder approval beyond 25% issuance. He also cites the Woodside (ASX:WDS) and BHP (ASX:BHP) petroleum deal, where shareholders were given the right to vote, as emblematic of good governance.

Turning to KMD Brands (ASX:KMD), Mawhinney calls for accelerated debt reduction and a sharper focus on core retail brands, suggesting the Obōz brand could be divested if not monetised successfully. He characterises the market environment as stretched and advises caution around valuations.