Brought back to earth

It doesn’t seem that long ago Terry Peabody, the chief executive of waste management giant Transpacific Industries, was crowned Australia’s golden garbo.

Back in early 2007, Peabody was a sharemarket darling. His company had cut a swathe through the waste management sector with countless acquisitions of small and not so small waste companies. The value of Transpacific, which he floated in 2005, had risen from $480 million to $2.4 billion. His personal fortune was valued at $1.44 billion.

Fast forward and things look very different. Transpacific’s value has dropped to $574 million and is mired in $2.1 billion of debt. The value of Peabody’s fortune has fallen to $528 million. The golden garbo isn’t looking so golden any more.

After four months of negotiations, Peabody yesterday announced that Transpacific had agreed to an $800 million bailout package that will help it pay down debt and put the company on a firm financial footing. Under the terms of the arrangement, the company will raise $800 million, with US private equity firm Warburg Pincus set to become a cornerstone investor with at least an 18% stake.

Peabody, who is well known for his aggressive style and tight control of Transpacific’s fortunes, will be forced to let go to some degree.

His personal stake in the company will be diluted from 38% to 19%. The company’s board, which formerly consisted of four executive directors and just three non-executive directors, will be expanded. Warburg Pincus will appoint one board member, and Peabody will also be forced to find two more independent non-executive directors.

If that’s not enough, Peabody has also been forced to accept “other corporate governance arrangements” the biggest of which is that Peabody must obtain approval from Warburg Pincus “prior to undertaking certain actions” such as asset acquisitions and sales, equity raisings or share buy-backs.

“This is a sign of the times – it was necessary. We have to get with the times and today people are looking for investment-grade balance sheets,” Peabody said yesterday.

Peabody is right – he was left will little choice but to accept the deal and the conditions that come with it. But there’s no doubt that he is going to have to change his entrepreneurial style in a major way.

Like many entrepreneurs, Peabody is a man used to getting his own way and controlling the destiny of his company. But the aggression, the quick decision making and the heavy use of debt that have become hallmarks of his leadership at Transpacific will now have to be tempered.

Peabody will need to get used to working with a potentially demanding key investor and two new independent directors. He’ll have to get used to getting any major deal ticked off by Warburg Pincus. And he’ll have to get used to owning a lot less of his baby.