The Shoeshine Column: Cue rebels fight to repel Aussie invaders

Friday 30th March 2001

Shoeshine regrets prior engagements will prevent him from attending Cue Energy's extraordinary meeting of shareholders in Wellington this morning.

The event promises to be the best show in town. It will be the first meeting in Shoeshine's recollection that has been called specifically to sack the present board of directors and appoint another.

Wielding the axe, if all goes to plan, will be Todd Energy's Richard Tweedie and Browse Petroleum's Geoff Albers.

On the plane back to the Lucky Country will be, if shareholders so vote, Leon Musca and chairman Michael Tilley.

If the putsch is successful Todd and Browse intend to steer Cue back to its unspectacular 20-year history of oil exploration and production. If not Leon plans to turn it into a dotcom.

Given the recent track record of turning ailing old-economy companies into insolvent new ones shareholders need to think hard before they vote.

Paynter Timber's owners are still mourning the demise of E-Force and New Zealand Salmon's foray into telecommunications as Newcall has come to an untimely end.

The jury's still out on Heritage Mining (now E-cademy) and Spectrum Resources (now Wel Technology). Only Iddison Vietnam (now IT Capital) has undeniably pulled off the turkey-to-tech transition.

Leon's plan, it has to be said, doesn't look any more convincing.

The Australian lawyer's corporate career began at Cambridge Gulf Exploration which, under Leon's chairmanship, bought a company called UDC Group which promised to take Cambridge into all manner of racy high-tech ventures.

Renamed Cable & Telecoms, the company, through its subsidiary Palmcove Asset Pty, picked up a 30% shareholding in Cue in late 1999. The old board resigned and Leon appointed himself and two mates, Tilley and Peter Jermyn, to replace them.

He lost no time seeding Cue's modest exploration and production portfolio with some high-tech punts.

In June last year Cue bought an 18% stake in Bambuu Ltd, which sounds like an Aussie explorer but actually has an unpromising line in software.

Cue now owns 19.04% but the half-year result, published two weeks ago, doesn't mention how Bambuu's performing. An indication is given by the share price which has plunged to a third of the price Cue paid.

A similar fate has befallen Data & Commerce Ltd, in which Cue bought 3.8 million shares in November. Again, the half-year report doesn't bother shareholders with trivial performance details but assures them DCL is involved in "innovative digital datacasting and broadcasting technology."

Cue also holds 1.2 million shares in an unlisted outfit named Escape 3d NL. Heaven knows what it does or why Leon saw fit to invest shareholders' money in it.

Leon has also been busy trying to flog off the mining assets.

He did manage to sell a 17.65% interest in exploration permit 363 in Australia's Carnarvon Basin but negotiations to sell a 15% stake in the Sampang permit in Indonesia fell through after one of the rigs had a gas blowout and a fire.

Cue's losses were insured but the payments have been spread out, putting the company's resources "under considerable strain."

In the latest half-year the company also blew an unspecified sum farming into a permit in Queensland's Eromanga/
Cooper Basin. Two wells were drilled, plugged and abandoned.

To shore up its finances and raise funds for further dotcom buys Cue sought approval from its shareholders to place, to unspecified parties, up to 100 million shares at 4Ac, with a free option attached to each share.

This would be underwritten by Cable & Telecoms and by Michael Tilley. Approval was also sought to establish a 100 million option scheme for directors and staff, and for Leon and Michael to be issued with 15 million options apiece.

Sadly their plans didn't find favour with Cue's other shareholders, notably Todd and Browse, whom the Aussies had neglected to consult about the change of direction.

Proxies were solicited and the November annual meeting voted down all the resolutions.

As a prospective underwriter Cable & Telecoms couldn't vote its 30% stake. Peter Jermyn lost his board seat after failing to gain re-election.

The dissenting shareholders lost no time requisitioning an extraordinary meeting to throw the two surviving Musca-teers, Leon and Michael, off the board.

Cue's response, after considerable delay, was to announce a one-for-four pro rata rights issue. Browse immediately asked the High Court to grant it relief against oppression. It argued the aim of the issue was to dilute the dissident shareholders' voting power.

Cue argued to postpone the issue would put the company in financial jeopardy but Justice John Wild wouldn't wear it. He ordered Cue not to proceed with the rights issue until shareholders had voted at this morning's extraordinary meeting.

Leon and Michael can expect some close questioning from shareholders.

What is the nature and extent of Cue's dealings with Mike's stockbroking firm? Ditto with Palmcove directors' private companies? (It should be mentioned here that Michael is in no way connected with Merrill Lynch Australia chairman Mike Tilley).

How did Cue's lawyer, David Quigg of Wellington's Quigg Partners, find his way on to the board as an alternate? Ditto Quigg partner John Horner?

What do the dotcom investment companies actually do, what are their prospects and are they tied up with Leon and Michael or their mates?

And, last but not least, how does Leon explain the decline of the share price to 4c from 9c when he came aboard, despite the high price of oil?Although Shoeshine can't attend, his spies will be lurking. Watch this space.

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