VGI’s attack on Corporate Travel Management ‘not supported by the facts’, target says

Activist hedge fund target Corporate Travel Management has responded for the first time to VGI Partners’ claims its accounting raises “red flags” and it runs a network of “phantom” offices, saying the hedge fund “misunderstands or misrepresents” aspects of the listed travel business.

The company separately told the market it was trading at the “top end” of its issued 2018-19 guidance, being “underlying” earnings of $144 million to $150 million. However this was not enough to counter the weight of VGI’s claims. Corporate Travel’s shares were down 20 per cent at $22.01.

​Managing director and founder of the Brisbane-based group, Jamie Pherous, told investors on a conference call: “I want to make it crystal clear there are absolutely no issues of substance identified in the review.” He claimed that in his interactions with VGI, ahead of it going public with its concerns, the hedge fund took an informal tone that masked its real intentions.

“‘I’d love to know more about your technology, it sounds really cool’, or a phrase like that,” Mr Pherous recalled of how a specific e-mail exchange read. “They’ve certainly been shorting us on and off for at least a number of years, we know that for a fact.”

On Sunday, VGI Partners wrote to its wholesale investors telling them it had taken a short position in Corporate Travel, meaning it stands to profit if the share price falls. Corporate Travel shares have been in a trading halt until Wednesday’s response was issued.


In its reply, Corporate Travel denies a change to its accounting treatment identified as a “red flag” by VGI had any material impact on earnings in 2017-18.

The adjustment was worth only $500,000 according to Corporate Travel’s response filed on Wednesday ahead of its annual meeting. Further, a decline in cashflows recorded for the second-half of its financial year was attributed to “timing differences”, the company said, explicitly rejecting the suggestion of “poor revenue quality”.

Lower cash balances versus listed peers is a reflection of the business rather than leisure travel tilt of Corporate Travel’s model, and with respect to VGI’s accusation of Corporate Travel maintaining a network of ghost offices, the company said its global footprint was never intended to rest on a bricks and mortar model. It is running down leases in locations where maintaining an office is unprofitable or not relevant to the expanded business. In other locations it requires only a small shopfront for regulatory or transactional purposes.

“We are concerned about the potential impact on shareholders from VGI making claims that, in our view, are not supported by the facts,” said chairman Tony Bellas, who agreed on Wednesday to continue as chairman in the short-term.

Share sales conducted by Mr Pherous were linked primarily to the founder’s property purchases, and in the case of North America head Chris Thelen and Mr Bellas, for “personal reasons”.

Corporate Travel did admit it referred to its technology as “patented” erroneously, after VGI found there were no such patents held in the company’s name.

At the company’s annual meeting in Brisbane, Mr Bellas conceded the company needed to update its web listings for global offices, and said the criticism of its Dutch Harbor, Alaska office presence was unfair. VGI found the office was not where it was listed, and in fact at the baggage claim area of the local airport.

“I suppose it is our fault we didn’t update the website,” Mr Bellas told the meeting. “This poor bugger [from VGI] ended up in the carpark of a Safeway supermarket.”

The Alaskan office supports its fisheries business and is open 364 days a year. Mr Bellas also said VGI used an out-of-date screenshot for the Glasgow office, which employs 73 people. A lot of the report, which committed 58 pages to Corporate Travel’s global footprint, aired claims that were “misleading” he added.

“VGI is very clear that it stands to benefit from a fall in share price,” he said. “The timing of the report is unfortunate. This company is in great shape.”

Mr Bellas said revenue was up 14 per cent in the past year, with earnings up 22 per cent and net profit up 41 per cent.

“Everything about the financial side we completely reject,” Mr Pherous reiterated. “The business model works. End of story.”

The bulk of the 200 shareholders crammed into an office of law firm Allens in Brisbane’s CBD were supportive of the board, although issues raised by the VGI report linked to vagueness around the business’s global presence and technology were put to the company again.

Shareholder and prominent Brisbane businessman Howard Stack called VGI “bottom-dwellers” when asking a question about the short-sellers. Mr Pherous said short-sellers were a part of doing business, and stated that Corporate Travel was listed 83rd amongst companies with short-sellers having a presence on their register.

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