Wednesday, 1 March, 2006Coles v's Woolies, Packer at RPA and Macquarie's $18m man

6. Trevor Flugge and the ousted directors club

By Stephen Mayne, already $80 down after owning 250 AWB shares for just five days .

After 18 years on the AWB board, it seems that John Howard's $1 million man, Trevor Flugge, could remember nothing and hear nothing, which vindicates the decision of West Australian wheat growers to unceremoniously dump him from the board at the 2002 AGM.

As someone who has failed in 22 tilts at public company boards, I can tell you that Flugge is in a unique position in actually being dumped as chairman of a public company when endorsed by his board.

The unwieldy representative board structure which allocates seven AWB board positions to growers in different states has thrown up several tight elections since the first AGM in 2002, including the defeat of four incumbents. In fact, the 2005 AGM was the first time an incumbent wasn't defeated.

Flugge certainly lost badly as he could only muster 3,256 votes while challenger Chris Moffet, another WA grower, received 9,101 as this ASX announcement reveals.

Outside of the four AWB incumbents, I'm only aware of four directors of top 200 companies who have actually been removed by shareholders, as this list explains:

Defeated incumbent directors

John Ducker: Aristocrat, 2004, 2.42% but was disendorsed by board
Trevor Flugge: ousted as AWB chairman in 2002 with just 26.3% of the vote in a two-horse race with challenger Chris Moffet
Laurie Marshall: received primary vote of just 22.2% so ousted from AWB as WA representative in 2004 by Steve Chamarette (52.9%) but finished ahead of two failed politicians, Hendy Cowan (18.32%) and Winston Crane (6.17%), in the ballot.
Brenda Shanahan: ousted in 2003 as AWB director in SA by Brendan Fitzgerald who got 51.22% of the vote
Ian Cush: defeated in 2003 as AWB director in NSW by Xavier Martin who got 55% of the vote
Solly Lew: Coles Myer, 2002, 44.83% after being disendorsed by board
Peter Kerr: resigned day before the Tattersall's 2004 AGM facing certain defeat over board's outrageous $100m cash grab
Peter Cassidy: Hills Motorway Group, 2004, resigned day before AGM facing certain defeat

Outrageously, Flugge was immediately rehired by new AWB chairman Brendan Stewart on a $100,000 a year consultancy which ran up until he started pocketing $1 million of Australian aid money shoring up wheat contracts in Iraq in 2003.

Flugge's performance this week surely means he won't be enjoying his sinecure on the Wesfarmers board for much longer. How must Wesfarmers feel about paying him almost $100,000 while he was off on his gun-toting Iraq mission courtesy of the taxpayer?

It would be interesting to know if Flugge's AWB consultancy continued until August 2003 when AWB went over the top in paying $718 million to buy the Landmark agribusiness from Wesfarmers.

Flugge was previously a link man in what turned out to be AWB's big diversification, but shareholders who participated in the $200 million capital raising at $3.70 a share can't have been happy when the stock slumped another 11c to a new 30-month low of $3.77 yesterday.

Assuming John Anderson owned 20,000 AWB shares, the $100,000 he pocketed from the sale at $5 a share last October is $24,600 more than the value that the new owner is presently enjoying. Ouch.


16. Terry McCrann – on fire and denying oxygen

By Stephen Mayne, estranged Terry McCrann admirer (except when he crawls to Rupert)

News Ltd business commentator Terry McCrann is on a roll at the moment, producing some excellent columns over the past week. McCrann was out on his own and absolutely right about Telstra pay phones and we also loved his demolition of Peter Costello's ridiculous GST claims on Thursday.

There was Cossie bleating about being scarred by giving the states an untied growth tax in the GST, but McCrann crunched the numbers and shot down his argument as follows:

In its first year, 2000-01, the GST raised $24 billion. This year it is estimated to raise $38 billion. But look at the feds' two growth taxes. In the same five years that the states got to share all of an extra $14 billion, Costello got an extra $40 billion from personal and company tax.

And that's after the tax cuts in the last two Budgets. Further, while his Budget projects the GST will grow to $44.6 billion a year by 2008-09, his big-two taxes by then will be plucking a thumping $186 billion from us.

Speaking of McCrann, we appear to have an explanation for his tactic of quoting "trashy dot com" without naming us, thanks to an email exchange with a Crikey subscriber, who wrote:

Dear Mr McCrann

I read your incisive work daily, but now and then get confused by strange allusions. The latest is to "trashy dot com". To what, or whom, does that refer? Who on earth are they? Why don't you name it/them? Are they going to sue you if you do? Us readers think you must be hiding something.

McCrann replied as follows:

It's a joke with a long pedigree. It's actually Crikey.com. Not the site but their daily email. Which I don't name as I do not wish to give them the oxygen.

McCrann might not want to give us oxygen but his paper is happy to borrow our ideas. Crikey crunched the numbers and yesterday pointed out that NAB had reclaimed its title as Australia's biggest bank this week, a story that led today's Herald Sun business section. Back to Top


17. Packer at RPA – generous and abusive

By Stephen Mayne

Even when receiving treatment at Sydney's Royal Prince Alfred Hospital, it seems Kerry Packer could be both amazingly generous and outrageously abusive, if some of the anecdotes arriving at the Crikey bunker are any guide.

Firstly, an RPA staff member who tended Packer writes:

I can tell you that he did not enjoy the circus that sometimes accompanied his stays and that he was very generous but in a discreet way. Over the time that he was one of my patients we got talking and he, without being asked, made a generous donation to an organisation associated with one of my children. I only knew because just before discharge he told me that it would all be okay as he had sorted it. I can't tell you what a difference that it made. I am sure that no one knows that he made the donation which has positively affected so many children's lives.

Then we have this from another Sydney health expert:

Don't worry, you weren't all that wrong with the Sisters of Mercy and Charity. The Sisters of Mercy (St Vincents) had to bail out the Sisters of Mercy (The Mater Hospital at Crows Nest) a few years ago and they are both now run as "St Vincents and Mater Health".

Whilst Mr Packer may have complained about how much it "cost him" at St Vincents, I think it was tongue in cheek. Ros Packer has continued to be involved in fundraising for St Vincents and has had operations there herself in the past years.

St Vincents is world renowned for its kidney cancer and laproscopic kidney surgery and is recognised as the leading place for this in the country. It does not do a lot of kidney transplants, leaving that to the specialist transplant team at RPA which is easily one of the best in country in that area.

And finally this arrived from someone at St Vincent's:

Once, while in St Vincent's on one of his many stays – KP was becoming increasingly irritated by a phone at a nearby nurses' station, which was literally ringing off the hook. Unable to tolerate it any longer, ‘The Big Man' dragged himself from his bed, shuffled down the corridor and gruffly answered it. Just as he did so, a Sister appeared – KP barked at the caller to hold and handed over the receiver. Before she took the call however, the Sister politely but firmly said: "Mr Packer you really must not answer the phones".

Astounded by this ingratitude – KP fixed her momentarily with his legendary glare and shouted: "If I can run the f**cking country I can answer the bloody phone" – then stormed back to his room.

Keep the quality Packer tales coming to smayne@crikey.com.au.


22. Coles v Woolies: Compare and contrast

By Stephen Mayne

Woolworths CEO Roger Corbett will retire in September worth about $100 million after a staggeringly successful seven-year stint running the company that is still not quite yet Australia's biggest retailer in sales, but is easily the title holder when it comes to almost every other measure.

Melbourne-based NAB may have just marginally reclaimed the biggest bank title from Sydney-based CBA, but it's a ding dong struggle between two similarly proportioned financial giants.

The same can't be said in the retail sector because Sydney-based Woolworths is today a whopping $9.28 billion more valuable than Coles Myer, despite the Melbourne-based company managing to ring up $60 million more in sales for the December half.

There was a time when Coles was twice as valuable as Woolworths but that situation has now almost completely reversed as today, Woolworths is 1.77 times as valuable as Coles, largely because it has sales and profit momentum and is priced to perfection by the market.

The acquisition of the Hedley Hotel Group this week might yet enable Coles Myer to cling to its sales supremacy for the 2005-06, but then it will definitely surrender that title as well once the Myer department store chain is sold.

Can anyone else recall such a sales-to-value disparity for competitors in the same industry as this table demonstrates?

Company	first half sales	full year profit forecast	market capitalisation
Woolworths	$19.06 billion	$950 million	$21.33 billion
Coles Myer	$19.12 billion	$780 million	$12.05 billion

23. Why won't pollies or regulators move on the bank cartel?

By Stephen Mayne, bank cartel obsessive

The Federal Government licences and regulates the telecommunications and banking sector in similar ways. Treasurer Peter Costello, in particular, through his control of competition policy and The Banking Act, has enormous power to make and break companies in these sectors, but seems to be taking divergent approaches.

By preserving the Four Pillars policy on bank ownership, successive Governments have decided that the sort of market power and industry domination enjoyed by Telstra is not desirable for bank consumers.

However, thanks in part to a cosy cartel on fee gouging, the Big Four banks have all hit new record highs this week and their collective market capitalisation topped $207 billion yesterday – more than four times the relatively puny Telstra market cap which slumped below $48 billion after yesterday's 6c decline to $3.85 a share.

The market is clearly spooked by the political beating that Telstra is constantly copping from all sides of politics and fears that it will only get worse once the government sells its residual 51.8% stake. If the Government is happy to destroy value whilst still owning a controlling stake, what will they do when there is no vested interest?

There was a time when Telstra was seemingly unstoppable and the Big Four banks were perceived to have limited growth opportunities. As the global telco boom rolled on in late 1999, Telstra shares went through the $9 mark and the company briefly enjoyed a market capitalisation of more than $100 billion. At the same time, the Big Four banks were together capitalised at about $115 billion.

Fast forward six years and NAB and CBA are both $10 billion-plus more valuable than Telstra, ANZ is just $700 million shy of Telstra's $47.7 billion market capitalisation and Westpac is within $5 billion.

So why are all the politicians jumping up and down about a company which is suffering declining profits and margins, yet completely ignoring what the economics clearly demonstrate is an outrageous cartel gouging the bejeezers out of Australian banking consumers?

Maybe it's the $15 million-plus that licenced banks have donated to political parties since the nadir of 1992 when Westpac and ANZ almost went broke and the Big Four were only worth about $20 billion.

The government is certainly in on the giggle because with pre-tax profits projected to hit almost $20 billion this year, the ATO will scoop up about $6 billion in company tax receipts from the Big Four and cop none of the blame.

The big question is whether there is any fee increase or gouge that would be big enough to trigger action from that complicit triumvirate of bank cartel condoners – Peter Costello, Graeme Samuel and Ian Macfarlane. Given that Samuel is on the Crikey Revised Wealth (CRW) list, it would be nice to know if his family has any exposure to bank stocks, although we're not for a moment suggesting this has caused his failure to act.

We know the Queensland Labor Party has made many millions out of its shareholding in the Commonwealth Bank, but if anyone can explain the political and regulatory tolerance of all this bank gouging, please email smayne@crikey.com.au because it is just baffling.


26. An impressive performance from Macquarie's $18m man

By Stephen Mayne, tiny shareholder in various Macquarie vehicles

Macquarie Bank's Nicholas Moore was paid $18 million last year and pulls in more investment banking dollars than anyone else in Australia. Based on his strong performance during a corporate governance debate in Melbourne on Friday, he's worth every penny for the Millionaire Factory.

For 90 minutes at Melbourne University, Moore slugged it out with two of the most prominent sceptics of financial engineering of infrastructure, Peter Doherty from Capital Partners and Anton Tagliaferro from Investor's Mutual.

There was some scepticism of Moore's claim that only 2 of the 92 infrastructure assets Macquarie has bought since 1998 are in trouble, or that a fund like Macquarie Communications Infrastructure Group had knocked back 58 out of the 60 investment opportunities presented to it by Moore's 400-strong Macquarie deal making team around the world.

In terms of the appropriate structure, Moore said it could range from Macquarie Bank doing every deal as a financial conglomerate with no fee leakage or, at the other extreme, all 92 infrastructure assets being in their own fund.

Instead, Macquarie has settled on the halfway house of 24 different infrastructure funds around the world with $31 billion of equity supporting $60 billion in assets. He stressed that the bank has $1.7 billion invested to demonstrate its commitment, although much more than that has been extracted in various fees along the way.

Tagliaferro put up a powerful Goldman Sachs chart which suggested the tollroad giant Macquarie Infrastructure Group (MIG) had paid $729 million or 64.5% of its cash flow over the past five years, although this ignores the fact that most of the value has come from asset revaluations.

When Moore was asked what the various funds would have returned without the performance fees, he claimed it would only be about 1-1.5 percentage points higher than the impressive 19.5% compound returns that have actually been delivered over the years. Hmmm, those two claims don't appear to add up. And what about the lucrative base fees?

The Age's Stephen Bartholomuesz attended the debate and devoted his measured column to the exchanges on Saturday, while The Australian's Michael West should have been there, given that his feature on the topic also appeared on Saturday. Alan Kohler was a lot more cynical and quite compelling in The Smage this morning, opening his column as follows:

It is surely only a matter of time before Macquarie Bank's management of its stable of infrastructure funds begins to fall like dominoes. It is so obvious that unit holders in the 24 funds should sack the Macquarie bankers that it must even dawn on the fund managers who are under their spell or still grateful enough of the early returns to ignore the benefits of removing them. And if the existing investors don't do it, the funds will be raided by burglars who do understand what's in the safe.

Crikey understands that fund manager Maple-Brown Abbott is leading the charge to tackle the exorbitant fees that MIG has paid to its parent, but neither they nor Kohler should underestimate the force of some of the arguments mounted by Moore last Friday, who went into the debate well prepared and with his eyes wide open.

It would be a major exercise building up the global tollroad talent to operate MIG internally and then there are the poison pills, such as the French Government being able to buy back the Autoroute Paris Rhin-Rhones that MIG, Eiffage and another Macquarie fund recently acquired for $11.3 billion.

Perhaps a more sensible course in the short term would be to negotiate a significant reduction in both the base and performance fees, because Macquarie Bank conceived of MIG and has created a lot of value over the years – performance which has been handsomely rewarded.

Without access to those 400 Macquarie Bankers delivering deals around the world, Bermuda-based MIG would have limited growth options, although maybe it's time to take a deep breath, slow down and manage the sprawling empire for cash after a bewildering array of deals since Macquarie first completely stitched up Jeff Kennett on Transurban 10 years ago.

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