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GEON back from the dead if the debt goes away

Monday, 25 February 2013
By Patrick Howard

New owners, investment funds KKR and Allegro, indicate they will keep the business going if the receiver, McGrathNicol, sells it back to them without the debt.

In a classic phoenix play the investment funds, collectively known as KKRM, want GEON without any major liabilities. They acquired the company from former owner, Gresham, for a supposedly nominal sum after buying the outstanding bank debt of $92 million for an estimated $5 million in a distressed debt sale from Bank of Scotland International (BOSI).

Presumably this debt is to be extinguished along with others by the process of bankruptcy. Doubts remain as to whether the other debt to be disappeared might include employee benefits such as long service and holiday pay. Trade suppliers are likely to take a jaundiced view if their outstanding bills are also to be wiped. Any default to suppliers from a company the size of GEON would trigger a  tsunami of bad debts that would severely weaken the supply sector.

Graham Morgan (pictured), GEON CEO, in an internal memo to the employees confirmed that KKRM has made an offer to the receiver, but no details of what it involves are available. He expresses his confidence in the process, identifying KKRM as long-term believers in this business. He describes the offer as reinforcing the positive view KKRM has for the future of GEON. The funds are looking for a speedy take up of their offer.

He compares the current process as being similar to the default of the other major PE-funded player, Blue Star, which recently was picked up by former owners. In that case the Geoff Selig-led buyout assured all trade creditors their bills would be met.

Morgan maintains KKRM will retain the current management. They say the distressed state of GEON is because of the capital structure from when the company was set up in 2007 rather than anything that has happened since.

Update – dateline 13:58 February 22

IPMG chief executive, Stephen Anstice, is calling on GEON to pay all of its creditors if it is to be re-purchased by KKRM following the McGrathNicol receivership.

In a statement, released on 22 February, Anstice said:

“IPMG has been staggered by the reported news surrounding the appointment of receivers to GEON.

“We cannot conceive how the reported plan of KKR and Allegro to emerge as the new owners of GEON can be allowed without all creditors being paid and have called on the PIA to explore what action can be taken to protect the suppliers and staff of GEON.

“Many suppliers will be facing bankruptcy as the impact of this receivership is felt throughout the industry and its knock on effects could lead to serious consequences for many other suppliers, staff and customers.

“IPMG is considering instituting a policy where we will not support any suppliers who decide to do business with GEON should it re-emerge under the ownership of KKR and Allegro leaving creditors unpaid,” he said.

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26 Responses to “GEON back from the dead if the debt goes away”

  1. February 22, 2013 at 10:28 am,

    Privately Owned
    said:

    Oh Please Graham stop emabarassing yourself. If these people believe in their business like the rest of us they would back it with their house, personal guarantees and blood sweat and tears. Here is a wonderful opportunity for the entire industry suppliers and printers alike to stand up and be counted. We don’t want to see these (corporate bankers not Geon staff) in the ANZ Print market ever again.

    I look forward to seeing how well the restructure goes. They will have to seriously re invent the business model as I doubt any paper merchant or ink supplier or trade suppliers will support it no matter how positive a spin they like to put on it. If I were them I would simply apologise for the pain and suffering and vow never to darken the print industry’s door again.

  2. February 22, 2013 at 10:46 am,

    PMc
    said:

    The idea that the new owners could retire all of their debt and then continue to trade is frightening. How can smaller printers compete when a large organisation operates for years at a loss, and then when it fails, asks staff & suppliers to carry the cost. C’mon – tell me this is illegal – please!

  3. February 22, 2013 at 11:21 am,

    Inky McFee
    said:

    Hey, i’m no great fan of Bluestar, but they never went into receivership prior to the sale of the Australian or New Zealand businesses. In fact all the way through the sales process they went to great lengths to make themselves available to creditors, employees and to clients – within the limits of commercial confidence of course. For Graham Morgan to make any kind of comparison is quite simply a barefaced lie. This is a classic fly by night phoenix play by KKR to flip a cheap asset out of an excessively debt burdened one. It’s a disgrace and an insult to the intelligence of employees and creditors.

  4. February 22, 2013 at 11:29 am,

    About time
    said:

    You have got to be joking. It is not the managements fault!! and they will be retained. A fair chunk of this problem was that management could not see or had the capability to see what was going on in the marketplace. How can a supposedly intelligent individual even try to cover the inept style of the management structure.
    Oh!! Thats right its spin and covering ones own backside.

  5. February 22, 2013 at 1:59 pm,

    micke
    said:

    Lets hope the paper merchant insurers grow a set and take on this mob
    and move to have their own receivers appointed

  6. February 22, 2013 at 6:16 pm,

    concerned
    said:

    I love all the comments about how they should not support this mob.. I can see they have burned or are going to burn many people.. that is why we have insurance.. Im still working at geon i need my job i have family and bills like the rest of you. If geon dont survive in some form there will be 1200 people suffering like me.

  7. February 22, 2013 at 7:14 pm,

    Dick Dotgain
    said:

    Micke wrote: “Lets hope the paper merchant insurers grow a set and take on this mob
    and move to have their own receivers appointed”
    Nice thought mate but it’s impossible. Only a majority vote of secured creditors can change a receiver and guess who the biggest secured creditor in GEON Group Pty Ltd ACN:123740036 is?
    KKRM has got ‘em by the same things as you suggested paper merchant insurers should grow!

  8. February 22, 2013 at 9:29 pm,

    Ian
    said:

    time the suppliers stood up to this type of activity and never supply them again

  9. February 23, 2013 at 1:53 pm,

    Buster
    said:

    Again the industry will be destroyed if suppliers allow this to happen. All suppliers need to take a stand f they do not get paid and refuse to supply the new company. This Phoenix will only increase insurance or worst still make the last remaining insurance group walk away impacting total industry. What IMPG have outlined is what is required by all in the industry, well done and gets my vote. Time has come to make a stand.

    I am also amused at how Graham CEO GEON keeps putting a spin on everything, why are there so many people in droves been leaving GEON, may be its to do with leadership or lack of it. May be it is due to the lack of trust and respect as well as integrity.

  10. February 23, 2013 at 7:34 pm,

    said:

    Did they actually ever turn a profit in all their years of trading, I think not. They thought they could drive the smaller players in the market to the wall with their predatory pricing, and they succeeded to some extent, all the while losing money hand over fist, money which belonged to faceless victims.
    The new owners obviously had this phoenix company planned, it cannot be allowed to happen, surely.

  11. February 23, 2013 at 7:49 pm,

    amused
    said:

    We need these rogues out of the industry. I emplore all major suppiers, ie, Paper Merchants, to refuse supply and bring this “poor excuse of a company” to its knees and get it out of the industry ASAP. Inept management, poor sales reps getting paid a fortune and poor decision making is the reason Geon is in the position it is. Selling a product at its cost or less is not intelligent, and a poor business model,which Geon is renowned for and now some people are shocked that Geon is in the position it is. They keep talking about reveneue, but they forget to talk about debt, profit or profit Margin. Because their debt, thanks to their poor business model, is higher than their revenue. And for all of this they have 8 teirs of management being paid a fortune.They are embarassing for the indusrty and the quicker they are gone and never seen again the better. If they do succeed what will change in 6 months. The same inept management and sales staff selling for “no Profit” and single handly bringing prices down for the entire industry. PLEASE, lets make sure they have no suppliers and are taken to the wall and lets make a statement that this is an unacceptable way of doing business and treating your suppliers. The sooner these rogues are out of the indusry and remove some printing capacity, the better for the indusrty

  12. February 23, 2013 at 10:01 pm,

    Former Employee
    said:

    I worked for GEON for 6 years and only left 6 months ago. My exit had nothing to do with the company or its people – I simply wanted a change of industry.

    I can assure you the management team at GEON is one of the best I have worked under. Also i am not sure where so many people get the idea that GEON ruined the industry by dropping price!

    In many cases GEON lost work to smaller printers due to pricing discrepancies of over 25%. I can also attest to GEON losing major contracts for the same reasons. In many cases these losses were against print managers who work with smaller printers to attain the cheapest price possible.

    Now as an outsider I think it is high time the entire industry take a good hard look at itself and stop blaming GEON and Blue star.

  13. February 24, 2013 at 1:32 pm,

    paul
    said:

    I believe if GEON does survive, the current management should all go.
    The company has been badly run no mater what Graham Morgan says.
    I feel sorry for the employees and suppliers who at the end of the day will be the ones to loose out while those fat cats carry on as usual.

  14. February 24, 2013 at 7:18 pm,

    opportunity knocks
    said:

    The print industry has been in a steady decline for more than 2 decades, we are all running the gauntlet and players are well aware of the hazards.
    We in the industry MUST support KKRM and Allegro in their bid to buy GEON because if the doors close there will be more than 1200 people out of work across NZ and Aus, and with the NZ unemployment rate up around 7% at the moment the chances of re employment for 300 more people are very slim.
    Suppliers must also support GEON as losing a company this size will affect their future earnings and growth potential.
    Yes there is bad debt and bad feeling and yes there will be looses but it is what it is and that’s business.
    The people that have made GEON great are proud, skilled, talented industry leaders that need our support.
    So lets put paid to that great Kiwi attitude and stand by them.

  15. February 25, 2013 at 9:56 am,

    Rotten at the start
    said:

    None of the employees trusted the spin coming from the Executive Team for a long time. I remember when they hired a Young ALP member to write the Quarterly presentations. You simply cant trust anything they said then, so why now?
    I do agree with the stmt about the debt structure. But Morgan was there from the start, he helped set up that structure!!
    The current management cannot leave, as I’m sure there’s agreements that they will be repaid their equity they put in when they joined. That’s my guess.

  16. February 25, 2013 at 10:04 am,

    said:

    Have a look at Geon’s website. Smokie Mirrors and a whole lot of steriod pumping about their natural growth.

    Also have a look at the Worlsley private equity’s website and see what they say about their response in acquiring Bluestar Group
    These PE Guy’s are taking this industry as a big joke.

  17. February 25, 2013 at 10:24 am,

    Supplier
    said:

    I feel sorry for the Employees of GEON. However, I feel extremely agitated for the suppliers who will be expected to draw a line in the sand under the current debt owed to them by GEON and continue to be a supplier. How do the suppliers recoup their money? The suppliers have had to pay Suppliers, Wages, Running costs etc themselves – do they not pay those costs or if they had paid do they ask for the money back because GEON can’t pay them?
    GEON survives at what cost to the rest of the Industry?

  18. February 25, 2013 at 10:36 am,

    said:

    The only way that anything can come of all of this that even resembles anything other than corporate greed is for some trust to be regained. Creditors must be paid and staff entitlements honored. This is not America where these things are looked at as acceptable. We have seen how US monetary policy and practices have worked in past few years and even though they would like to think we Australians are backward compared to them I submit that the way we do business has proved a far more successful model recently. This is not just from a financial point of view but also a moral one.

    Knowing how Geon works and the people in middle management the lack of any real leadership and management skill is staggering. I dare the new owners to do an audit on the training and management skills in this company.

    People are only in their positions because they are YES men/women. This is a large part of the reason that they have ended up in this situation. The inability or actual unwillingness to question insanely bad ideas over the journey has lost customer confidence in the company and allowed things to just roll on without any checks and balances because managers are too scared to say anything. This is not management, it’s just a way of keeping your comfortable overpaid job as a lap dog.

    The fear culture is toxic where some managers manage through their title and not their deeds.

  19. February 25, 2013 at 10:58 am,

    Good Luck
    said:

    I am sympathetic to all past and present GEON employees that are impacted by this.
    A lot of people are making a lot of assumptions as to the quality of management of GEON so I assume you have all had first hand experience. Otherwise, like most public forums, will all need to take with a grain of salt. From my experience, GEON were very rarely the cheapest in the market.
    One thing that continually bemuses me is how non manufacturing print managers seem to escape any criticism for the state of the industry and the pricing levels that we now see. Is it not as a result of the larger print managers guaranteeing cost savings to large corporate clients that have contributed more so. Then smaller and also GEON / BS sized manufactures need to price and manufacture at this low level to at least win some work and keep presses running.
    Not saying that GEON hasn’t made some questionable decisions and had some questionable people making them but maybe GEON is not solely responsible for the state of the market. Instead, maybe they are simply more responsible only for their own predicament.

  20. February 25, 2013 at 5:59 pm,

    said:

    Profit is the price to stay in business !!!
    sorry for GEON but they have to go …. out of the printing business.
    Read their article in print 21 february 2010 .. MEET THE NEW GEON… Bad management , but good workers as I met a lot of them in ANZ .. and honestly I only feel sorry for them…

    wipe out !!!

  21. February 25, 2013 at 6:43 pm,

    new management
    said:

    As an employee of GEON, having gone through the many restructures caused by bad management, I would be disgusted if the present management were to survive. They may as well close the whole operation down now if that is their master plan. Also, it is completely beyond me how Graham Morgan still survives as CEO. Is no one held accountable any more?

  22. February 25, 2013 at 8:13 pm,

    Former Employee
    said:

    I wholly agree with Good Luck. Unless you have dealt with GEON intimately it is hard to judge their quality. I for one can sure you Graham Morgan is a terrific leader. I have worked under him and he leads by example.

    I also agree that it’s the print managers that are driving the price down. And who feeds them? It’s is the smaller printers! GEON and BS very rarely deal with them and then it is the same small printer that comes on here and kicks a company and its people when they are down!

  23. February 25, 2013 at 9:23 pm,

    Buster
    said:

    I think the industry will take an open view once KKR show they mean business and that they remove senior managers, CEO and appoint someone who is respected business person, trust respect drives loyalty.

    A business has gone into receivership but the CEO remains means they are not serious about the future of the industry or its people.

  24. February 27, 2013 at 9:06 am,

    plain MAD
    said:

    Imagine a world where paper & ink companies would refuse to supply companies that did this crap.
    We allow it and wonder why so much print is going offshore.
    We the printing industry need to take a stand together as one against this being allowed to happen again and again. I started in this industry on Dec 10th 1979 and was proud to be part of a respected industry. We are letting this industry be turned into a joke!
    If this Phoenix rises I am happy to pay a few dollars more per thousand sheets for my stock and I will boycott those paper/ink companies that then supply them.
    IT IS ABOUT TIME WE THE INDUSTRY STOOD UP AND SAID ENOUGH AND WORK ON ONCE AGAIN MAKING THIS INDUSTRY PROD AND STRONG

  25. February 27, 2013 at 9:50 am,

    PeeKay
    said:

    Just listen up you suppliers.
    If Steven Anstice says that IPMG will blackball you for supplying a “dodgy” phoenix company, then they will do it.
    You cannot say you haven’t been warned.

  26. February 27, 2013 at 3:56 pm,

    Andrew
    said:

    So GEON was purchased for an estimated $5 million, and now goes into voluntary administration.
    The Administrators get their “fees” first (my estimate several thousand dollars per hour); then comes secured loans $$$?; any funds remaining are then paid to employees (3 levels of payment depending on $’s in the bank. Then, if any capital remains, the unsecured creditors (paper merchants, ink suppliers etc)_
    I pity them!
    Senior management has known since possibly November 2012 that this was coming. At least they did one good thing for employees by closing down over the Christmas period and paying annual leave.

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