EMMA ALBERICI: For the past five years, Telstra spin-off Commander Communications has pursued an aggressive growth strategy, paying top dollar for businesses which it financed through debt. But the strategy backfired, wiping 75 per cent and hundreds of millions of dollars from the value of its shares.
Management is now under extreme pressure to deliver profit growth in an increasingly competitive market place. Richard Lindell reports.
RICHARD LINDELL: Commander built a strong brand as a reseller of business phones when it was hived off from Telstra and listed back in 2000. But the phone market was mature and Commander set its sites on becoming an integrated communications and IT company.
MARK MCDONNELL, SENIOR ANALYST, BBY: It sounds great in theory and the slogan of the company is "360 degree solutions". The problem with that was that it was really almost a blank cheque to do anything.
RICHARD LINDELL: And the cheques were signed, buying up a raft of businesses to implement the 360 degree strategy.
But the company changing deal was the $150 million acquisition of Volante last year. It was a protracted and bloody takeover battle and one that's destroyed shareholder value.
TIM LINCOLN, MANAGING DIRECTOR, LINCOLN INDICATORS: They have had massive challenges with regard to the integration of Volante business and also their ordering systems and being able to deliver to their customers.
RICHARD LINDELL: At the same time, Commander rolled out franchises, converting many one-time employees into business owners, with mixed results. The company now has debts of more than $200 million and is struggling on a number of fronts.
Deloitte consulting partner Ian McCall says Commander is not alone. He says all players operate on wafer-thin margins with no room for error and now technological advances are making life in this space even tougher.
IAN MCCALL, CONSULTING PARTNER, DELOITTE: The market is migrating to world class and truly world scale solutions that do require the technical input. Having said that, the solutions are getting a lot simpler to configure, so there's a lot more self service by the user.
RICHARD LINDELL: The first profit warning came in may when the company booked a $16 million charge associated with rolling out its franchises and the Volante deal. By late June, Commander and Volante's order processing systems were still not working together, forcing the company to revise earnings downward. Again. And when in late August a full year net loss was revealed, large and small shareholders alike headed for the exit in a wave of panic selling.
The fall from grace was completed when the stock was dumped from the ASX 200 a week ago today. Nothing destroys confidence more than the combination of over-promising and under-delivering. And this pattern has analysts wondering if there's any more bad news to come.
Adding to those fears, most IT spending happens toward the end of the financial year, that means we won't know if Commander has turned the corner until the middle of 2008. In the meantime, there's no shortage of speculation as to what the future might hold.
TIM LINCOLN: The fundamentals of the business are great, there's no doubt about it, Commander is an established brand name and Volante also doing a couple of good things only a couple of years ago. At these prices they certainly are a takeover target, especially with a revenue stream of a billion dollars.
RICHARD LINDELL: AAPT, PowerTel, Optus and Telstra have all been touted as possible suitors, but a fire sale at or near the current share price is far from a foregone conclusion.
PAUL BUDDE, TELECOMMUNICATIONS ANALYST: I am a strong believer in Commander, especially under leadership of Adrian Coote. He's a very strong very long-term leader he knows exactly what the industry is all about. If anyone can do it, it's him. That's not to say that the pain is over yet. There is still more pain to come.
RICHARD LINDELL: Twelve to 18 months ago, iiNET faced similar problems and has since managed to turn the company around.
MARK MCDONNELL: Management was retained but there was significant changes at board level. With new corporate investors, strategic investors coming in and starting to make some hard decisions which involved divestment of assets and retirement or reduction in debt levels.
RICHARD LINDELL: But just company just two weeks ago the company was standing by its current strategy and assured investors past issues are being addressed.
TIM LINCOLN: If they come out with a downgrade based on the expected results going forward that they've released to the market, then that would be disastrous to the company, let's face it, it would be an absolute disaster and that would put severe pressure on the current management and the existing board.
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