Wednesday, November 11, 2009

Strong's other clobber isn't selling so well

suncorp insurance

James Strong just couldn't help himself. After the best part of an hour of delays to a press conference announcing the sale of the Kathmandu clothing chain late last month, the new chairman got right to the point.

Strong regaled the audience with how he and his wife, Jean Claude, climbed Mount Vinson in Antarctica back in 1991 with Peter Hillary - a name familiar to anyone who knows anything about mountains and climbing - wearing Kathmandu.

The personal endorsement didn't end there. He then detailed his experiences of expeditions to Papua and the US; there were mentions of his various treks and white-water rafting adventures all in the very same gear, not to mention his motorbike tours.

Some observers were left a little perplexed by the boy's own adventure tales, particularly from one who has made it a mission in recent decades to project the image of a dandy, with his flamboyant and extensive collection of bow ties. But it was vintage Strong, whose propensity for self-promotion and aggrandisement is legendary, right back to the days when, as chief executive, he wrote a column about himself for the Qantas in-flight magazine.

Unfortunately, his promotional skills didn't seem to hit the spot. Kathmandu came in at the lower end of the price range in the pre-float share allocation.

Despite a rollicking sharemarket, Kathmandu stock was doled out to investors yesterday at $1.70 a share, well and truly at the bottom end of the range.

No doubt the disastrous Myer float - flogged to investors at $4.10 by the private equity groups TPG and Blum Capital - had an impact, given it is still under water.

There was also the thunderbolt from the Kathmandu founder, Jan Cameron, a few weeks back that she was considering launching a new chain to rival her old shop.

Her outburst was even more extraordinary given the reclusive Cameron never speaks and apparently was under a no-compete clause after her sale of Kathmandu to the private equity groups now offloading the chain.

Coincidentally, this week Strong confirmed his intention to quit as chairman of Insurance Australia Group, a company with a less than distinguished record.

He also is the chairman of Woolworths, the undisputed king of Australasian supermarkets.

And there is an interesting distinction between the two companies. At Woolworths, Strong inherited a particularly robust management team which had a succession of talented and internally trained chief executives after Paul Simons led them out of the 1980s wilderness and looming bankruptcy.

At IAG, Strong inherited a company recently demutualised with a faction-riddled board more intent on wounding one another than running the company. But that was long ago. Strong joined the IAG board in 2001 and, since then, the company has been a perennial underperformer.

Despite inheriting one of the best brands in retail insurance, NRMA Insurance, its share price has been weak for almost the entire period of Strong's tenure. In 2001 it almost hit $3.50. It peaked around $6.50 in 2004 and 2006 but yesterday it closed at $3.94.

Strong enthusiastically promoted the management and strategic skills of his hand-picked chief executive, Michael Hawker, a talented rugby international and well-respected banker, but a man who predictably found it difficult to bridge the gap between his old industry and insurance.

Throughout Hawker's reign, the company regularly was touted as a takeover target, which occasionally served to boost the share price.

In response, Hawker and Strong expanded into the British market. In the time-honoured tradition of antipodean financial services groups, they were fleeced. And the operative word is they.

Panic then gripped IAG's upper echelons. Not surprisingly, Frank O'Halloran at QBE began sniffing around last year, dangling a prospective opening shot of $4.62 in front of shareholders. Sadly, Strong sent him packing without putting the offer to shareholders and O'Halloran kept his promise and walked. Shortly afterwards, Strong dismissed Hawker.

Given he had endorsed the series of strategic blunders undertaken by his chief executive, many thought Strong should have walked himself.

Luckily, he had a reserve in Mike Wilkins, the disaffected former boss of Promina, waiting in the wings. Wilkins, a seasoned insurance man, had joined IAG after becoming disillusioned with Promina's new owner, Suncorp, and there is every chance that there is plenty of scope for a new round of takeover activity looming.

While the focus right now is on the life insurance industry, with AMP's $11 billion tilt for Axa Asia Pacific, the general insurance market is ripe for consolidation.

QBE is still thought to harbour ambitions for a big acquisition, and particularly an expansion into retail insurance. And despite Strong's statement to the gathered faithful at IAG's annual meeting, the company is vulnerable.

Then there is the unresolved situation at Suncorp, where the newly appointed chief executive, Patrick Snowball - a former British Army infantry man - has warned potential buyers to ''keep your tanks off our lawn''.

A three-way battle may be looming, but Strong is unlikely to be caught in the crossfire.