John Kinghorn saves the day at Allco
February 2, 2010
Dear Mayne Report subscribers,
as we come to the end of a tumultuous week on the market, Allco founder John Kinghorn has used some of the $600 million in cash he pocketed from his house of cards RAMS float last year to rescue his mate David Coe and scoop up 25 million shares in the teetering Allco Finance Group.
Who cares about getting margin called if you can just flog the shares to a mate? Handy, eh!
Kinghorn's hand-written substantial shareholder notice was lodged with the ASX at 3.35pm this afternoon and helped the market finish with a final flourish, as the All Ords stacked on 280 points.
All my 2008 and 2007 share purchases - a total of 487 different acquisitions - are now up on the website and I'm feeling pretty good about the 23 stocks we bought on Tuesday when the market crashed by 400 points.
We've got plenty of other lively material in today's edition, including a story on how the Qantas takeover bid indirectly stuffed the Allco executive team and pointing out the Australian connection to the sub-prime wipe-outs that savaged Merrill Lynch and Citigroup.
We've also done a video on the demise of The Bulletin, which features a few of the memorable Murdoch and Packer covers from over the years, and highlight the ridiculous workload of Sir Rod Eddington as most of his gigs get caught up in some sort of major drama.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.
as we come to the end of a tumultuous week on the market, Allco founder John Kinghorn has used some of the $600 million in cash he pocketed from his house of cards RAMS float last year to rescue his mate David Coe and scoop up 25 million shares in the teetering Allco Finance Group.
Who cares about getting margin called if you can just flog the shares to a mate? Handy, eh!
Kinghorn's hand-written substantial shareholder notice was lodged with the ASX at 3.35pm this afternoon and helped the market finish with a final flourish, as the All Ords stacked on 280 points.
All my 2008 and 2007 share purchases - a total of 487 different acquisitions - are now up on the website and I'm feeling pretty good about the 23 stocks we bought on Tuesday when the market crashed by 400 points.
We've got plenty of other lively material in today's edition, including a story on how the Qantas takeover bid indirectly stuffed the Allco executive team and pointing out the Australian connection to the sub-prime wipe-outs that savaged Merrill Lynch and Citigroup.
We've also done a video on the demise of The Bulletin, which features a few of the memorable Murdoch and Packer covers from over the years, and highlight the ridiculous workload of Sir Rod Eddington as most of his gigs get caught up in some sort of major drama.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.
How the Qantas bid helped destroy the Allco inner circle
Investment banking and financial engineering firms rely enormously on their reputations, which is why it is hard to see a way back for David Coe's Allco Finance Group.
Sure, shares in AFG recovered 54c to $3.40 today - which is not that far from where the old Record Investments was trading at a few years back. Indeed, I first bought into Record at $5.38 in April 2005 and then sold half this stake for $10.65 a pop a year later before the extraordinarily complex merger with Allco and backdoor float was completed.
However, the biggest asset of financial engineering houses are the people and morale at Allco must have hit rock bottom given all the negative publicity, the plunging share price and December's huge related party transaction with Coe's close mate Gordon Fell, the man who paid $30 million for a Point Piper mansion last year.
So how did all these sophisticated Allco players get themselves on the hook with an over-geared equity exposure that triggered a margin call earlier this week? The answer is partly Macquarie Bank's Qantas takeover dreams.
Whilst Macquarie is a competitor of Allco, the two finance houses worked hand in glove on the $11 billion Airline Partners Australia bid for Qantas, with Allco Equity Partners CEO Peter Yates being the key connection thanks to his long years at Macquarie.
Macquarie persuaded the Allco family to stump up 35% of the equity and Coe was eyeing plenty of benefits seeing that he'd supplied aircraft to Qantas for more than 25 years and there was more than $1 billion in fees to be made on the transaction across the various parties involved.
Go here for the announcement by Allco Finance Group of its $300 million APA investment on December 6, 2006. David Coe claimed at the time this would deliver an 8.4% economic stake in Qantas that would serve as a "seed investment for a wholesale fund".
Just two weeks later, AFG announced the successful competition of a $500 million entitlement offer which is what has completely stuffed the founders and key staff, given they controlled a majority of the stock at the time.
Shareholders could either take up their entitlement at $8 a pop or sell the entitlement into the book build and instead pocket $4.60. Only 15% were smart enough to sell the entitlement and I'll bet the pressure was on for all the Allco insiders to take up the new stock at $8.
The big margin loans when Allco plunged below $2 this week, including this one revealed by NAB, were clearly to enable staff to bulk up the company for the Qantas tilt.
The post-raising executive shareholdings are laid out as follows in the 2007 AFG annual report:
Allco Principal Investments: 175 million shares
David Coe, executive chairman: 21.25 million shares
David Veal, head of aviation: 11.35 million
Nick Bain, head of infrastructure: 11.75 million
Chris West, co-head of corporate finance: 10.43 million
Rob Moran, co-head of corporate finance: 3.43 million
John Love, head of shipping: 2.75 million
Mark Worrall, head of rail: 4.17 million
Justin Lewis, head of strategy: 1.04 million
When Allco shares cracked $13 on expectations they would bag Qantas on the cheap, these boys were all seriously rich. When the stock got crunched this week, some of them were probably looking at negative equity.
Spending some of that Qantas cash buying out Coe and his Allco board mate Gordon Fell from their Rubicon property management group has also proved to be a disaster, given that Rubicon is over-exposed to over-geared property in tumbling markets such as the US and Europe.
Those Allco executives with big exposures to the stock but no connection to the $300 million Rubicon deal have every right to be furious.
Given that Melbourne's Liberman family got a sweet-heart deal from Coe to be taken out of Allco Equity Partners, you'd have to wonder how many other people have their hand out for some more cash from Coe.
And how ironic that it was Allco founder John Kinghorn who came to the rescue this week, snapping up those 25 million shares margin called shares.
As a RAMS shareholder, I'd really appreciate John also making a bid for that company at somewhere near the $2.50 float price. Alas, RAMS closed tonight at 25.5c.
Sure, shares in AFG recovered 54c to $3.40 today - which is not that far from where the old Record Investments was trading at a few years back. Indeed, I first bought into Record at $5.38 in April 2005 and then sold half this stake for $10.65 a pop a year later before the extraordinarily complex merger with Allco and backdoor float was completed.
However, the biggest asset of financial engineering houses are the people and morale at Allco must have hit rock bottom given all the negative publicity, the plunging share price and December's huge related party transaction with Coe's close mate Gordon Fell, the man who paid $30 million for a Point Piper mansion last year.
So how did all these sophisticated Allco players get themselves on the hook with an over-geared equity exposure that triggered a margin call earlier this week? The answer is partly Macquarie Bank's Qantas takeover dreams.
Whilst Macquarie is a competitor of Allco, the two finance houses worked hand in glove on the $11 billion Airline Partners Australia bid for Qantas, with Allco Equity Partners CEO Peter Yates being the key connection thanks to his long years at Macquarie.
Macquarie persuaded the Allco family to stump up 35% of the equity and Coe was eyeing plenty of benefits seeing that he'd supplied aircraft to Qantas for more than 25 years and there was more than $1 billion in fees to be made on the transaction across the various parties involved.
Go here for the announcement by Allco Finance Group of its $300 million APA investment on December 6, 2006. David Coe claimed at the time this would deliver an 8.4% economic stake in Qantas that would serve as a "seed investment for a wholesale fund".
Just two weeks later, AFG announced the successful competition of a $500 million entitlement offer which is what has completely stuffed the founders and key staff, given they controlled a majority of the stock at the time.
Shareholders could either take up their entitlement at $8 a pop or sell the entitlement into the book build and instead pocket $4.60. Only 15% were smart enough to sell the entitlement and I'll bet the pressure was on for all the Allco insiders to take up the new stock at $8.
The big margin loans when Allco plunged below $2 this week, including this one revealed by NAB, were clearly to enable staff to bulk up the company for the Qantas tilt.
The post-raising executive shareholdings are laid out as follows in the 2007 AFG annual report:
Allco Principal Investments: 175 million shares
David Coe, executive chairman: 21.25 million shares
David Veal, head of aviation: 11.35 million
Nick Bain, head of infrastructure: 11.75 million
Chris West, co-head of corporate finance: 10.43 million
Rob Moran, co-head of corporate finance: 3.43 million
John Love, head of shipping: 2.75 million
Mark Worrall, head of rail: 4.17 million
Justin Lewis, head of strategy: 1.04 million
When Allco shares cracked $13 on expectations they would bag Qantas on the cheap, these boys were all seriously rich. When the stock got crunched this week, some of them were probably looking at negative equity.
Spending some of that Qantas cash buying out Coe and his Allco board mate Gordon Fell from their Rubicon property management group has also proved to be a disaster, given that Rubicon is over-exposed to over-geared property in tumbling markets such as the US and Europe.
Those Allco executives with big exposures to the stock but no connection to the $300 million Rubicon deal have every right to be furious.
Given that Melbourne's Liberman family got a sweet-heart deal from Coe to be taken out of Allco Equity Partners, you'd have to wonder how many other people have their hand out for some more cash from Coe.
And how ironic that it was Allco founder John Kinghorn who came to the rescue this week, snapping up those 25 million shares margin called shares.
As a RAMS shareholder, I'd really appreciate John also making a bid for that company at somewhere near the $2.50 float price. Alas, RAMS closed tonight at 25.5c.
Oh to be Sir Rod Eddington right now
Sir Rod Eddington, the former CEO of Cathay Pacific, Ansett and British Airways, is one of Australia's most respected business leaders. Indeed, he makes my 50 most successful Australians in business list and was even recently speculated to be a future Governor General.
However, take a moment to consider Sir Rod's current workload:
However, take a moment to consider Sir Rod's current workload:
- Chairman of JP Morgan Australia as it tries to recover $2 billion from Centro
- Senior independent director of governance-challenged News Corp
- Director of Rio Tinto as it fends off BHP-Billiton's takeover advances
- Director of Allco Finance Group as its key executives battle to stay solvent
- Chairman of Kevin Rudd's Business Advisory Panel
- Preparing a report for John Brumby by the end of March as to whether Melbourne needs a huge tunnel linking the Eastern Freeway with the Tullamarine Freeway
- Chairman of Melbourne Major Events
- Director John Swire & Sons
- Chairman of National Foods during the takeover battle between San Miguel and Fonterra
- Chairman of Lend Lease when its bid for GPT was rebuffed and it was dumped as manager
- Director of Foster's during successful but expensive takeover bid for Southcorp
- Director of BHP-Billiton during bidding war with Xstrata for WMC Resources
The Australian connection to Wall Street's woes
Whilst updating our list of Australia's 50 most successful business expats last night, it dawned on me that we've also got quite a connection to Wall Street's sub-prime crisis.
Citigroup has written off more than any other bank and look who's on the board - none other than Darwin-born Andrew Liveris, the 53-year-old CEO of Dow Chemical who Don Argus tried to recruit as the new CEO of BHP-Billiton.
Check out the August 2005 Citi press release announcing the appointment. With 17 Citi directors it would be unfair to single out Liveris, especially as he was flat out running Dow from its headquarters at Midland in Michigan when the Citi bankers in New York were lending billions to millions of uncreditworthy Americans.
And what odds Citi constructs its board in a similar fashion to the old NAB way - sinecures for the CEOs of major clients.
The next biggest Wall Street loser from the credit crunch has been Merrill Lynch, the world's biggest broking house. And guess who was the longest serving director of that business as all those crazy sub-prime exposures were incurred? None other than former Lend Lease chair and Aussie diplomat Jill Kerr-Conway, who joined the board in 1978 and only bailed last year as the mess was emerging. Thankfully for Jill, she'd left by the time this humiliating capital injection was revealed two weeks ago.
The other interesting Australian associated with Merrill Lynch's troubles is Melbourne boy and McKinsey alumni James Gorman who made his name heading the firm's global private client group and then in June 2005 was appointed head of acquisitions, strategy and research,
Hmmm, surely someone with that title would be partly responsible for the "strategy" of going massively long sub-prime loans. Not so, Gorman bailed from Merrills to join Morgan Stanley in February 2006 as head of its retail division.
A judge subsequently gave Gorman a rap over the knuckles for poaching too many Merrills sales staff, but rather than seeing his career falter as Morgan Stanley also wrote off billions, Gorman was recently elevated to vice-president, sparking this report that he was in the frame to succeed the wobbly John Mack as CEO.
As Terry McCrann wrote last week:
Some of the biggest and supposedly most sophisticated financial institutions in the world - names such as Citigroup and Merrill Lynch - have shown themselves to have been run by utter incompetents. And greedy incompetents to boot. They've lost billions of dollars lending hundreds of thousands of dollars to people who wouldn't pass a credit check to borrow enough for a meal at McDonald's.
Well said, Terry. And little ole Australia had a hand in it - good for us.
Do ya best, Stephen Mayne
Citigroup has written off more than any other bank and look who's on the board - none other than Darwin-born Andrew Liveris, the 53-year-old CEO of Dow Chemical who Don Argus tried to recruit as the new CEO of BHP-Billiton.
Check out the August 2005 Citi press release announcing the appointment. With 17 Citi directors it would be unfair to single out Liveris, especially as he was flat out running Dow from its headquarters at Midland in Michigan when the Citi bankers in New York were lending billions to millions of uncreditworthy Americans.
And what odds Citi constructs its board in a similar fashion to the old NAB way - sinecures for the CEOs of major clients.
The next biggest Wall Street loser from the credit crunch has been Merrill Lynch, the world's biggest broking house. And guess who was the longest serving director of that business as all those crazy sub-prime exposures were incurred? None other than former Lend Lease chair and Aussie diplomat Jill Kerr-Conway, who joined the board in 1978 and only bailed last year as the mess was emerging. Thankfully for Jill, she'd left by the time this humiliating capital injection was revealed two weeks ago.
The other interesting Australian associated with Merrill Lynch's troubles is Melbourne boy and McKinsey alumni James Gorman who made his name heading the firm's global private client group and then in June 2005 was appointed head of acquisitions, strategy and research,
Hmmm, surely someone with that title would be partly responsible for the "strategy" of going massively long sub-prime loans. Not so, Gorman bailed from Merrills to join Morgan Stanley in February 2006 as head of its retail division.
A judge subsequently gave Gorman a rap over the knuckles for poaching too many Merrills sales staff, but rather than seeing his career falter as Morgan Stanley also wrote off billions, Gorman was recently elevated to vice-president, sparking this report that he was in the frame to succeed the wobbly John Mack as CEO.
As Terry McCrann wrote last week:
Some of the biggest and supposedly most sophisticated financial institutions in the world - names such as Citigroup and Merrill Lynch - have shown themselves to have been run by utter incompetents. And greedy incompetents to boot. They've lost billions of dollars lending hundreds of thousands of dollars to people who wouldn't pass a credit check to borrow enough for a meal at McDonald's.
Well said, Terry. And little ole Australia had a hand in it - good for us.
Do ya best, Stephen Mayne