The sudden change of chief executive at the recently merged shopping centre trust Federation Centres raises questions about who runs the company and casts doubts on whether the group will execute its post-merger strategy, according to CLSA.
CLSA analyst Sholto Maconochie called on the board to conduct an international search for a new chief executive, questioning Angus McNaughton’s track record at Novion and his ability to implement the proposed merger benefits at the $11.46 billion company.
“The termination of Steven Sewell as CEO of the newly merged Federation and Novion businesses raises serious questions as to who runs the company -- the board or management? We question the timing of the CEO’s departure less than two months into the merger and two weeks prior to the company reporting,” Mr Maconochie said in a research note.
The board’s sudden change of mind was “disturbing”, he said, adding that the biggest risk of the change was implementing the strategy it took to shareholders in May.
“The architect of the merger (Federation) is no longer around to implement the vision,” Mr Maconochie wrote.
“Investors voted for a merger with a majority (6/11) Federation management team, but with a conservative board stacked (6/11) in Novion’s favour. On paper this seemed like a perfect marriage -- entrepreneurial management with conservative board. Now we have a situation whereby both the incumbent CFO and CEO have been replaced with their former Novion counterparts and the old band is back together again!”
Mr Maconochie noted that Novion underperformed Federation for “several years”.
“One of our key investment theses on Federation was management’s ability to deliver on the proposed merger benefits. We question the new management’s ability to reliably execute and deliver the $40m of synergies and manage the merged group going forward. We also still require clarity on strategy which may now differ under a new CEO,” Mr Maconochie said.
“Whilst Angus McNaughton may be perceived by the board to be the best person to run the company, investors obviously do not with the stock off 6.3 per cent since the shock announcement. We believe the board needs to conduct an international search for a new CEO that considers both existing and future candidates.”
This article first appeared in The Australian Business Review