New MGX chief outlines strategy

By Iain Scott for MGX Holdings
Johannesburg, 28 Nov 2002

Turnaround specialist Peter Flack, who took the helm at MGX this morning, says no action will be taken at the company until January at least.

Yesterday Flack was named executive chairman and acting CE after the departure of CE Chris Hills and director Aletha Ling. He has been tasked with heading a strategic review of the business.

Flack says FRM Strategies, the turnaround business of which he is a principal, was approached by the MGX board.

FRM Strategies achieved a turnaround at electronic and software company IST. Flack was also brought in to rescue the now defunct LeisureNet, although analysts say it was too late for anyone to reverse the damage at that company. He was also behind the major restructuring of the gold industry in the 1990s.

He says the approach taken at IST is similar to the one being taken at MGX. "First we try to understand the business. We believe that for every organisation to be successful, whether it is a club, a church or a corporation, four things have to be in place."

He lists these as sound leadership; competent and cohesive management; a well thought-out and comprehensive strategic plan; and the plan broken into manageable bits.

"This is the first phase, which we are now in." He says the idea is to go through the plans for each division and report to the board, which may then choose to ask FRM to implement those plans.

FRM does not charge a fee for its services. At IST it was issued stock options which it exercised at the determined strike price, making its reward dependent on its success.

Flack says shareholders will be issued with an update in January, but as the aim is first to understand the business, no action will be taken before then.

More in the closet?

An analyst says Flack has no emotional connection with the business, which means he is likely to take immediate steps to close down an operation that is simply not working.

"They still have EC-Hold hanging over them, so they`ll first probably handle as quickly as possible those things that are causing trouble.

"I think there may also be some more coming out of the closet with CCH."

MGX has been clashing with the Securities Regulation Panel (SRP), which ordered the company to increase its offer to minority shareholders in EC-Hold. MGX has steadfastly refused, and the SRP says it is taking the matter to court.

After the acquisition of CCH, MGX disclosed that there had been undisclosed liabilities, making the deal more expensive.

The analyst says the lack of cash and the high level of debt are cause for concern, as they may make a turnaround difficult to pull off.

"Financing is going to be a big problem. MGX wanted to sell Software Futures because it needed the cash. Then that fell through and it didn`t get the cash it needed."

The MGX share, which lost 40c or 13.79% yesterday, was untraded at 250c on the JSE this morning.