an alternative view

Seven shareholders warned of the perils of Caterpillar
MICHAEL EVANS
April 10, 2010

TONY Gilmour has a simple message for Seven Network shareholders considering voting in favour of plans to expand their investment into the mining boom - don't take the risk.

As one half of Gough & Gilmour, an earthmoving company from the Hunter Valley that had the dealership contract to sell and maintain Caterpillar equipment in New South Wales until 2000, Gilmour watched his company go from a $400 million a year business to less than $4 million after Caterpillar terminated its contract under a 90-day notice.

''If I had to give them [Seven shareholders] one message, I'd say, 'You must not assume that dealership will go at any stage for any longer than 90 days','' Gilmour says. ''End of story. You can't assume anything other than that. You just can't.''

Seven shareholders are being asked to vote in favour of a deal proposed by their major shareholder, the billionaire Kerry Stokes, to merge with his earthmoving business WesTrac.

While WesTrac's profitable earth-moving business in Western Australia, NSW and the north of China provides the potential to tap into the mining boom, the company relies on a Caterpillar dealership contract that can be terminated without cause at 90 days' notice. That's what happened to the Hunter Valley-based company that had the contract in NSW before Stokes.

''I would say to anyone, as I have learnt so sadly, anyone can suddenly fall foul of Cat and you don't have to be a poor performer,'' Gilmour says. ''Anyone can and anyone has.

''We always thought you had to do something illegal or fail to perform, pretty much do something illegal or unethical.''

Asked if he thinks Seven shareholders are taking a big risk, Gilmour says: ''It's so big a risk now that I'm not sure how you'd quantify the risk.''

Gough & Gilmour held the Caterpillar dealership contract from 1989 to 2000 when they were approached by Caterpillar to sell the business to Caterpillar's preferred buyer, Stokes, as provided under their contract.

''We thought they just wanted to have less dealers for reasons best known to them and we always were aware they had a particular fondness for Kerry Stokes. I feel a lot of people in Caterpillar just love to be in Kerry Stokes's camp. You were flown first class all around the world, looked after extremely well. We were kind of more humble people with our team. We always figured that if we worked our backsides off looking after customers, looking after dealerships - it just wasn't to be.''

After sometimes testy negotiations with Stokes, Gough & Gilmour was unable to settle on a price, at which point Caterpillar moved to terminate the contract. Rather than a sale, it got nothing. Ten years later and Gough & Gilmour is still in court against Caterpillar.

Gilmour suspects Caterpillar wanted to rationalise its operations in Australia after Stokes gained the Caterpillar contract for Western Australia from Alan Bond, who had been sent to jail. Gilmour thinks changes in the Caterpillar hierarchy were also involved.

A new chairman was installed in 1999 and straight away things changed, Gilmour says.

''The other bloke had been saying, 'No, you can't do that [terminate Gough & Gilmour] they're going really well.' The new bloke came in and took a different view.

''My point here is these things are subject to the whim of a particular person that might come in and seek to do things differently. And it's interesting that the current chairman of Caterpillar [James Owens] is going in November this year and we can't help but feel that Kerry is getting all this stuff done while he's in charge because then he [Owens] will be gone.

''The new bloke might think differently about Kerry Stokes. So this is what we've learnt. I'd be saying, hand on my heart, Channel Seven shareholders, there's my story, you draw the conclusions.''

Asked about the impact on his business when Gough & Gilmour lost the Caterpillar contract, Gilmour says: ''Massive. The next morning we did almost no business at all. We didn't walk out on the floor and sack everybody. We thought we could make an alternative business and keep all our facilities. As it turned out it was extremely hard to find alternative parts and products to sell to those customers. You don't just walk out and offer another brand - your customer is a Caterpillar customer, you've spent your life getting them to be a Caterpillar customer.''

Stokes has emphasised the length of tenure with Caterpillar is central to its business relationships.