Business Hall of Shame

formInvestorsFriend’s Canadian Business Hall of Shame

The following are some companies that I am metaphorically inducting into a “Hall of Shame”. These are companies that I judge to have been exceedingly poorly managed and which deserve some “recognition” in that respect.

TransAlta Corporation

Here is a link to TransAlta’s stock price chart going back as far as Yahoo Finance has the data.

As I write this on July 11, 2015, TransAlta’s stock price is $9.44 which is the lowest price on the chart. The oldest data on the chart is January 1995 when TransAlta traded at $13.63. It subsequently rose to about $24 in 1999. It fell to about $14 in early 2000. It then quickly rose to almost $30 in 2001 but then slid back to about $16 in the Summer of 2004. It then rose steadily for four years reaching its all time high of about $37 in August 2008. In the seven years since then it has fallen all the way back under $10.

When a stock has managed to fall 30% over a 20 year period, that would seem to call into question the ability of its management.

TransAlta is a utility company headquartered in Calgary Alberta. In 1995 its assets were mostly in regulated power generation, transmission and distribution. 86% of its assets were in Canada while 14% were invested in New Zealand, Australia and South America.

Subsequently, TransAlta appears to have made poor decisions in capital allocation.

In the year 2000 TransAlta opted not to participate in an auction to buy 20 year contracts on the output of Alberta electric generation plants as Alberta deregulated electricity generation. The companies that did participate in the auction have made excellent returns on those investments.

Also in the year 2000, TranAlta sold its Alberta regulated distribution assets to an American utility. Several years later these same assets were purchased by Fortis Inc. of Newfoundland and have subsequently provided excellent returns and growth for Fortis.

In 2002, TransAlta sold its regulated electric transmission assets to AltaLink which enjoyed years of strong returns and growth and then sold the assets to Berkshire Hathaway in late 2014 at a large gain.

TransAlta apparently invested the proceeds mostly into unregulated generation assets in Argentina, Australia, New Zealand, the United States and Mexico. Given the stock price performance, it does not appear that much of that was wise.

Partly mitigating the terrible share price performance over the past twenty years is the fact that TransAlta has paid a quarterly dividend . The dividend of 98 cents per share per year was increased to $1.00 per share and to as high as $1.16 per share. However it was cut to 72 cents per share in early 2014.

In my view, this dividend mitigates but in no way makes up for the terrible share price performance.

It seems remarkable that this poor performance was achieved by an Alberta-headquartered utility in the past twenty years, a period over which the Alberta economy has done extremely well.

To my knowledge, TransAlta’s share owners did not receive any proceeds from various asset sales such as special dividends or shares in any entities that were “spun-off”.

Many other Alberta utilities including TransCanada, Canadian Utilities Ltd, Enbridge and AltaGas have done very well over this period of time.

My conclusion is that TransAlta’s poor performance indicates poor management. In my view, its Board of directors have also performed very poorly by not ensuring that competent management was in place. Share owners are also to blame to some degree for not voting in new directors.

Since this is a Management Hall of Shame, it seems appropriate to “recognize” the CEOs of TransAlta over this period of time.

Steve Snyder was  the President and CEO of TransAlta Corporation for a 15 year term from 1996 to 2011. During that 15 year period the share price started at about $15 and finished at about $21. Steve Snyder presided over many of the capital allocation decisions that have apparently worked out so badly. Long-time employee Dawn Farrell was named CEO in January 2012. So, far she does not appear to have been able to correct the situation and the stock price has fallen by over 50% during her tenure.

In summary, I believe that TransAlta and its top management and Board members over these last twenty years are well qualified to be “recognized” in my Canadian Business Hall of Shame.

Shawn Allen, President of InvestorsFriend Inc. July 11, 2015

Additional companies to be added over time. (Spots are reserved for Bombardier and for Barrick Gold in particular.)