Luke Girgis puts his reputation on the line in Vinyl Group legal battle
Welcome to a Thursday update from Unmade. Today, the reputational stakes in Luke Girgis’s battle with Vinyl Group.
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Luke Girgis enters the legal lion’s den
On one level, yesterday’s news that Luke Girgis is suing Vinyl Group is not particularly surprising.
It was obvious that his abrupt exit from the business just five months after selling Brag Media was unplanned. He had signed up to run the publishing division of Vinyl Group and was granted 5m share options to incentivise him to stay on board. He reported in to group CEO Josh Simons. Instead Girgis departed last June, with a terse Vinyl announcement to the ASX making it clear that the exit was anything but amicable.
The circumstances, however, were murky.
Plenty of media acquisitions go through a bumpy phase when the prediction of future growth is not met. Notoriously, iSentia acquired King Content for a headline price of $48m back in 2015. When the promised growth instead became shrinkage, King Content founder Craig Hodges departed the business, only to be followed out of the door by iSentia CEO John Croll when the investment market lost belief in the company’s strategy.
For the most part, however, such disappointments do not lead to litigation. A buyer does due diligence and decides whether the promise of the business plan makes sense. Usually there are warranties about the accuracy of the books, but nobody guarantees the future.
That’s what makes yesterday’s development unusual. Girgis has gone legal, arguing that he was illegally dismissed, costing him not just his salary but the opportunity to earn the $2m that was at stake if he had had the opportunity to stick around and hit the numbers. Incidentally, the fact that Vinyl Group describes those taking action as being in the plural suggests that Girgis’s business partner in Brag Media Sam Benjamin is joining in the action too.
It’s yet another curious development for one of the most unusual listed media companies in the country. There’s the unique business model - a bunch of revenue-light tech-first offerings such as Jaxsta, Vampr and Serenade servicing the music industry, backed (in theory at least), by profits from a publishing division being built via acquisition.
The Vinyl Media division includes the mastheads Rolling Stone Australia, Variety Australia, Mediaweek and, the soon-to-be-acquired Concrete Playground.
The publishing acquisitions have been possible because of Vinyl Group’s high market capitalisation which allows for deals to be funded by issuing new stock into the market and to vendors. Last week it hit an all-time high of a $177m market cap. That’s despite reporting a loss of $16.9m on revenue of $4.9m last year.
The high market cap comes at least in part thanks to the dominance of two major shareholders - Paul Wiltshire and Richard White own well over half of the business. White is no stranger to his own controversies having recently resigned as CEO of WiseTech after the Australian Financial Review’s revelations about the intersection between his business and personal activities under the headline “The LinkedIn Lecher”.
None of it is publishing as usual.
It was Vinyl Group that disclosed the case to the ASX yesterday. And escalated the matter, saying it would be lodging a counterclaim, alleging financial impropriety by Girgis. The claim is much more serious than one that Girgis merely failed to deliver on the anticipated numbers. According to the Vinyl Group statement: “Following an external investigation, Mr Girgis was terminated for serious misconduct, including but not limited to financial misconduct.” Read all the parts of that sentence slowly.
To be clear, we do not allege in this article that Girgis behaved in such a manner, only that this is the allegation made in Vinyl Group’s ASX announcement.
Cases like this have a habit of being settled before going all the way to a civil trial. Such proceedings are costly and distracting, with plenty of financial risk, even where one has a strong claim.
That may be one reason why shares in Vinyl Group sank by 10.7% yesterday. That’s the equivalent of an instant $18m loss in market capitalisation. It’s already becoming an expensive battle. For Girgis, who is now CEO of meal delivery service Providoor a full court case would be equally distracting.
However, the Antoinette Lattouf unlawful dismissal case against the ABC has demonstrated that despite the off ramps, including judges encouraging mediation, such matters can go all the way.
If they do, the role of the judge (there’s usually no jury for civil cases) in an unlawful termination case is to examine the facts, hear the testimony and then to remove the grey areas until only the most credible version of events remains.
If we get to that point, the judge will have to decide between two alternative paths.
In one version, Girgis has been badly wronged by Vinyl Group and has had more than $2m unjustly snatched away. He’d also be entitled to feel seriously aggrieved at Vinyl Group’s allegation yesterday of financial misconduct. His reputation as a trustworthy business person is at stake.
In the other version, Girgis behaved badly and, despite having seen Vinyl Group already pay $8m for Brag Media, decided he wanted the rest. As Judge Michael Lee memorably phrased it in the Bruce Lehrmann defamation case against Network Ten, having escaped the lion’s den, Girgis is going back for his hat.
Only one version can be correct. From the outside, it’s impossible to say which of the two options is reality. It will now be for the legal system to decide.
BOTW: The Brag's curious new owner; What a Paramount merger means for Ten; The ABC sacking playbook
Indicators go green for SWM and ARN Media
Seven West Media and ARN Media both had strong days on the Unmade Index yesterday, with SWM rising by 5.8% and ARN by 2.5%.
Ooh Media also rose by 1.6%.
With the biggest local weight on the Index, Nine, slipping by 0.3%, the overall Unmade Index dropped slightly by 0.15% to 491.6 points.
Next week will be a big one on the Index with Ooh Media, Nine, Southern Cross Austereo and ARN Media all due to report half year or full year numbers.
Time to leave you to your Thursday. We’ll be back with more soon.
Have a great day.
Toodlepip…
Tim Burrowes
Publisher - Unmade & Mumbrella
tim@unmade.media
