Macquarie, Vizard, Central Equity, Van Nguyen slayers, McCrann wrong again
July 22, 2008
Here are Stephen Mayne's five stories from the Crikey edition on Monday, 8 May, 2006.
1. Macquarie Bank plays the Beaconsfield nice guy
By Stephen Mayne
After suffering significant negative publicity and fighting aggressively in the NSW Supreme Court, Macquarie Bank meekly walked away from its lucrative $47 million Allstate Exploration windfall on Friday, whilst creating an enormous incentive for the miners to get the operation re-opened.
The Mercury has the details of Macquarie's offer to gift the potential $47 million windfall to miners, although some observers believe it's a cynical PR step and others are pointing out it is likely to be worthless. As Crikey pointed out last Wednesday:
If the mine never reopens, Macquarie Bank and Allstate administrator Michael Ryan will have some extremely sensitive decisions to make about compensation, creditors, worker entitlements, redundancy pay and what happens to those cash reserves, given that the Millionaires Factory is at the front of the queue and is already well in profit, especially when you consider the hedge book.By gifting the inter-company loan entitlement to the workers, Macquarie is giving them a large incentive to get the mine operating again. Macquarie would certainly benefit from this through its lucrative operation of the mine's hedge book.
However, there are still serious questions over who funds the workers and creditors if the mine never re-opens. Macquarie has promised to let the worker entitlements be paid ahead of it, but what about current creditors and creditors from 2001 when the company first went into administration? They have only received 83c in the dollar and include the parents of one of the trapped miners.
Allstate shareholders were told last November that Macquarie had pocketed $3.3 million of the $54 million inter-company loan, but Friday's announcement suggested there was only $47 million to go, so it looks like another $4 million has been handed over so far this year.
If Allstate doesn't have enough cash reserves to fully satisfy all its creditors, the bank will come under pressure to write out a cheque over and above the $100,000 donation they have made to the Australian Workers Union's Beaconsfield Miners Family Support Fund.
However, Friday's offer is a positive step for all concerned and a sign that the hard men at Macquarie are sensitive to bad publicity and brand damage.
6. Who decided to resurrect funnyman Steve Vizard?
By Stephen Mayne
Disgraced inside trader Steve Vizard may have been banned from managing a company for the next ten years, but someone decided that last year's scandals weren't enough to ban him from appearing on the Logies as part of a celebration of 50 years of Australian television.
Vizard and his close mate Michael Veitch dusted off their old gay flight attendants skit when it was hardly one of the most memorable comic performances we've seen over the years.
As a conspiracy theorist from way back, does anyone else see the hand of Vizard's great mate, former co-investor in Sportsview.com and Toorak neighbour, Eddie McGuire?
Eddie now has the power to influence the Logies lineup in his new gig as CEO of the host network, Channel Nine. Did he politely suggest Vizard be given almost five minutes of primetime Sunday night viewing which will certainly contribute to his rehabilitation amongst the great unwashed?
There's an interesting precedent here. The week before Vizard fronted the Federal Court to cop his punishment last year, one of the questions Eddie asked on Who Wants to be a Millionaire was "Who of the following is a former winner of Father of the Year?" Four Steves were offered up, but Eddie's mate Vizard was the correct answer, even though it happened way back in 2002.
Why on earth would Eddie want to portray a disgraced business figure in a good light to more than one million Australians as he was about to fined $390,000 and banned for ten years? Mateship seems the only plausible explanation.
23. Central Equity controversially goes private
By Stephen Mayne, small Central Equity shareholder
After 18 years as a public company, shareholders in the Melbourne-based high rise flats developer Central Equity voted to take the company private this morning, but not before some feisty debate at the extraordinary general meeting.
The controversial aspect of the deal was the long-term management contracts enjoyed by the three founders and executive directors, chairman Eddie Kutner and the two former school teachers, John Bourke and Dennis Wilson.
Each receives a flat $2 million salary, regardless of performance, and Central Equity is contracted to pay this until 2012 under the terms of an agreement first entered into in 1992, when Eddie stepped down from three public company boards, wound back his accountancy practice and went full time with the developer.
The three founders control 55.6% of the company and only introduced outside directors a couple of years ago. They have now offered $2.15 a share to the minority shareholders and this fell within the $1.91-$2.41 valuation range by independent expert Lonergan Edwards.
Sure, it's well up on the 20c float price and long-term shareholders have done well, but the independent expert valued the legally binding long term contracts at negative $37 million if the company was wound up. What sort of company has such ludicrously generous long-term management contracts with no performance criteria that are then used against minorities in valuing a large related party transaction? Without these contracts, the founders would probably have had to offer more to fall within the independent experts' range.
A small private equity firm railed against the proposal and sent along Roland Burt to ask a few questions today. Chairman Eddie ducked and weaved and then managed to come up with some highly questionable claims, including that if the company had adopted more conventional salary packages, minority shareholders would have been diluted by up to 15% over the years.
I've got no issues with Eddie and have seen him socially, rented one of his apartments in South Melbourne back in 2003 and will be meeting him tomorrow afternoon to argue the point on the detail. But at this point in the EGM a few basic corporate governance points had to be explained:
- Central Equity has always suffered a corporate governance discount from paying its executive directors too much and having no independent directors;
- Minority shareholders would have voted down any highly dilutionary equity incentive schemes;
- Shareholders never got to approve the management contracts, but would have done if they were non-executive directors;
- By owning 55.6% of the company, the three founders already had a massive equity incentive scheme and didn't need this guaranteed $2 million a year; and
- Without these onerous contracts, minority shareholders would have received more.
24. Should we let the Van Nguyen slayers control our ports?
By Stephen Mayne
There's no bigger foreign investor in Australia than the Singapore Government and the island nation's ruling junta, Lee Kuan Yew and his family, are about to make their most audacious play yet by joining Macquarie Bank, Lindsay Fox, Chris Corrigan and Peter Scanlon in launching a rival takeover bid for Patrick Corporation.
United Arab Emirates-based Dubai World may have been too politically hot for US politicians of all colours, but there's been barely a whimper in Australia about its takeover of P&O, a move which gave it a half share in our cosy stevedoring duopoly.
Therefore, at one level nobody should bat an eyelid about a foreign state, which happily executed an Australian citizen last year, buying 50% of our biggest stevedore. However, when you consider everything else that Singapore Inc has bought in Australia – Optus, $5 billion of Victorian power assets, Australand, our biggest private hospital group Affinity Health, the old ANA Hotel in Sydney and the Park Hyatt in Melbourne just to name a few – this latest deal will lift the total assets they control to about $20 billion.
The Howard Government enjoys a cosy relationship with Singapore, even after Van Nguyen's execution last year, although Singapore Airlines did suffer a setback when the government prevented them from competing with Qantas on the lucrative Pacific Route.
Singapore Inc was the under-bidder for P&O so they've clearly got plenty of fire power but could this be the sort of deal which stirs up some patriotism? After all, Toll's Patrick takeover was going to create an Australian powerhouse big enough to expand into Asia, but the Macquarie alternative will see highly strategic Australian assets fall into the hands of a foreign government with a questionable record when it comes to democracy.
SingTel is well known for eavesdropping on its citizens, so what would stop the Singapore Government from snooping on our trade to gain a strategic advantage for themselves? Back to Top
25. How McCrann got the Rio protest wrong
By Stephen Mayne
The extraordinary rolling of Rio Tinto last week by Australian institutions – on the question of banning US shareholder class actions – sparked some interesting commentary, none more so than News Ltd's Terry McCrann who couldn't comprehend the rationale when he asked, "Why would you want to sue in the US, not your home town? And why would you want to reserve the right to litigation that would probably hurt you as a shareholder?"
Forum shopping is not something which should be encouraged in the first place. If Rio Tinto can adopt a constitution which says it can only be sued in Victoria, England or Wales, what's to stop the next HIH from incorporating in North Korea and declaring it can only be sued there?
Besides, this is not about shareholders suing shareholders. The Enron and WorldCom class actions and settlements demonstrate that the big payouts usually come from third party advisers, such as Citigroup and JP Morgan. And in the US, you don't have to be a party to a class action to share in any payout. Therefore, why would Rio Tinto's Australian shareholders want to shut the door on this if the unthinkable happened and the Rio board perpetrated a fraud on its shareholders and some aggressive plaintiff lawyer bankrolled a class action and had a big victory.
In exploring why the new constitution was withdrawn, McCrann blundered in writing:
Was it driven by global into lobby group ISS – which changed its mind between the Rio PLC meeting in London three weeks ago and the local Rio Ltd meeting in Melbourne yesterday? ISS recommended the exact same resolution in London, ISS recommended against it in Melbourne.Wrong. The AFR correctly pointed out that ISS was entirely consistent across both meetings, it was just that its UK clients, primarily the National Association of Pension Funds, didn't follow its voting advice. ISS publicly signalled its concern when the following appeared in The AFR on 11 April, before Rio's London AGM:
Dean Paatsch, of international corporate governance advisers ISS Proxy Australia, said yesterday Rio Tinto's proposed amendment was not something it would generally support. "We generally don't view limiting jurisdictions as being shareholder friendly," Mr Paatsch said.Having said that, why would they tell Rio's UK shareholders to endorse such a move?
ISS is emerging as quite a kingmaker in corporate Australia and has been influential in the various struggles against News Corp and Rupert Murdoch's deceptive poison pill acrobatics. This makes it somewhat ironic that the Herald Sun's film critic is a chap called Leigh Paatsch, brother of ISS chief Dean Paatsch.
Finally, Rio Tinto chairman Paul Skinner should have a good look at himself. He treated small shareholders with contempt last week and, if you can believe McCrann, refused to engage with his institutional shareholders, who turned around and rolled him.
Surely it's time to finally have an Australian chairman of Rio and shift the global headquarters from London back to Melbourne. The company is now worth almost $100 billion (including debt) and half its assets are in Australia. Given the UK shares trade at a discount, what is the point of staying in a market that doesn't rate the shares very highly?
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