Well, the obvious shoe dropped at Insurance Australia Group yesterday.
CEO, Mike Hawker is out the door and has taken the blame for the poor performance, which exposed IAG to the unwanted merger approach from QBE which was rejected last week.
Now he’s gone and replaced by the former Promina CEO, Michael Wilkins who was unwanted at Suncorp after it bought Promina in 2006-07.
Wilkins was hired last October to be IAG’s insurance boss, but in reality, many in the market viewed him as the CEO in waiting, pending a coup or move by the board against Mr Hawker.
The QBE approach was clearly the trigger and Mr Hawker’s head was the price of big institutional shareholders supporting the company after fuming at the rejection of the QBE non offer proposal a week ago.
But the interesting thing about the news was the honesty Mr Hawker used to explain the decision.
There was none of this leaving to ‘pursue other interests’ or ‘spend more time with the family’.
He simply said he had lost the confidence of a number of shareholders.
"It’s with great personal regret that I have decided to resign from my position as CEO," Mr Hawker said in a statement issued by IAG announcing his departure and Mr Wilkins’s appointment.
"IAG is a tremendous organisation which I am proud to have led for the past seven years.
"I believe we are currently undervalued and our underlying performance is improving, however, I also believe I have lost the confidence of a number of our shareholders which is not tenable for the company.
"Given ultimate accountability sits with me, I have offered my resignation to the board."
Now that’s a level of honesty you’d love to have heard from any number of companies from BHP Billiton with Mr Gilbertson quit, to AMP when the likes of Paul Batchelor departed, and at Coles Group when the last lot quit ahead of the Wesfarmers takeover.
You would have hoped they would have been honest about their failure as Mr Hawker has been about the loss of confidence in him by major shareholders.
Mr Wilkins will be a good replacement, given his insurance background and solid reputation as the former managing director of Promina Group.
Suncorp didn’t want him after it bought Promina: it’s their loss and IAG’s gain.
IAG chairman James Strong said in the statement that the insurer had begun a review of "every aspect of its business in Australia and overseas" and expected to brief the market in early July.
If there’s no improvement by this time next year at IAG, then you’d have to be looking for a similar burst of honesty from some board members, even the chairman.
Last week, QBE finally withdrew its sweetened $8.7 billion bid after IAG rejected it as opportunistic.
IAG said QBE was trying to take advantage of short-term weakness in its share price, which it has blamed on frequent storms and soft insurance markets.
IAG’s share price tumbled last week after the QBE offer was removed.
Mr Hawker’s departure will rule out any new takeover move by QBE. Major shareholders, having tasted blood, won’t want to sell the company out from under the new management, otherwise someone might reveal their names and they would be pilloried in the market for their fickleness.
For various reasons, mainly bad weather, markets and the insurance cycle in this country, IAG has been suffering with three straight years of falling earnings.
While that was compared to a doubling of earnings at the spurned QBE, it ignored the $3 billion or so in acquisitions QBE has made in the past three to four years. That has boosted earnings as much as any improvement in its long term local insurance businesses.
IAG shares rose 3% before closing steady on %3.98; QBE shares lost 42 cents to $25.06 after hitting a day’s low of $24.84 as punters speculated that the interest in IAG was dead for the time being.
