Macquarie, Amp, The Body Shop
July 22, 2008
Here are Stephen Mayne's three stories from the Crikey edition on Tuesday, 23 May, 2006.
21. More Macquarie Communications angst
By Stephen Mayne, happy Macquarie Bank and MCIG shareholder
Crikey's exclusive insight into the rort that is Macquarie Communications Infrastructure Group (MCIG) yesterday has generated some further revelations about the way Macquarie Bank is making these monopoly transmission tower assets "sweat".
And MCIG shares jumped 4% yesterday on the news that its majority owned UK broadcast transmission services outfit Arqiva is expected to sign a one billion pound deal to upgrade the BBC's digital transmission services over the next 25 years.
MCIG has accumulated more than a few enemies over the years and they're starting to talk. For starters, they poached an entire team from one of their suppliers to run the division that sells the transmission equipment and is trialling DVB-H (TV to mobiles). Then there were some run-ins with Broadcast Services Australia, which was formerly chaired by Richard Alston, over fully managed services contracts. Many people inside the ABC are also angry because they are paying way too much for digital TV transmission services.
Oh, and then you have all those poor people who use MCIG towers for microwave dishes, a service known as Facilities Leasing, because they have suffered site rental increase of up to 1000% since the Millionaire Factory took control in 2002. And who are these victims? None other than various taxpayer-supported bodies such as the fire services, state forests, coast guard, Telstra and the like.
All of these revelations confirm what a bad deal taxpayers got when the ABC and SBS transmission assets were sold to British company NTL for just $650 in 1999. It wasn't long before NTL got into strife at home and sold the business to Macquarie Bank for $850 million in May 2002. Telstra was the underbidder with an offer of $700 million which now looks rather silly given that the assets are thought to be worth about $1.5 billion after the $2 MCIG stapled securities closed at $5.64 yesterday.
Much of that valuation rise has come from slugging other taxpayer bodies such as Telstra and the ABC. Wouldn't it have made more sense for the government to jack up its charges across the board, lock the ABC into onerous long-term contracts and then sell the business to capture more of the monopoly rent?
That might also have been a more sensible approach with Sydney Airport, which Macquarie Bank has milked mercilessly since 2003 thanks to lax government regulation on prices.
The Federal Government might finally have worked out how to capture the upside with Telstra. The Sunday Age splashed this week with a story about T3 going ahead, which included the following line:
A Government source said an announcement was close. "We will not be giving away Telstra shares for $3.85," the source said. "That means doing what is necessary to give Telstra the regulatory certainty it needs and helping move that share price back up towards the $5.25 target we've always had in mind."Stand by for consumers to get ripped off yet again – this time by the government itself rather than the lucky buyer of the monopoly asset. Oh, and what about this whole question of ASX continuous disclosure? That outrageous statement is effectively the regulator and controlling shareholder saying Telstra's profits are about to rise strongly courtesy of regulatory intervention. They really are a law unto themselves sometimes. Back to Top
22. AMP and the great equity options valuation rort
By Stephen Mayne, small AMP shareholder
While many in the community are up in arms about skyrocketing pay packets for public company CEOs, dodgy accounting rules and our booming stockmarket have left us with a debate based on dreadfully inaccurate information.
AMP chairman Peter Mason effectively confirmed as much at last week's AGM when it came to discussing the accuracy of the remuneration report, which described the pay packet of CEO Andrew Mohl broadly as follows:
| Year | Cash salary | Cash bonus | Free shares | Freebie book value | Retention bonus | Total |
| 2004 | $1.35m | $2.16m | 420,655 | $1.14m | $1.5m | $6.18m |
| 2005 | $1.56m | $2.51m | 340,337 | $1.64m | zero | $5.75m |
Based on changes to the accounting standards introduced by Peter Costello, options and free shares are to be valued on the day they are issued. Occasionally, this has proved conservative when a company (ie News Corp) has not performed.
However, we now have a situation where the collective valuation of all options and free shares in top 200 annual reports over the past five years are under-valued by somewhere between $500 million and $1 billion.
The AMP situation is instructive. In 2004, Mohl was issued 340,337 performance rights on 6 September and a further 80,318 on 18 March, making a total of 420,655, which were valued in the annual report at $1.14 million – just $2.70 a share. In 2005, he was issued 372,129 performance rights on 1 September, but these were only valued at $1.64 million, the equivalent of $4.40 a share.
The performance hurdles in both years are that half the shares vest if AMP out-performs 50% of a basket of comparator industrial companies over three years and they all vest if AMP is in the top quartile.
Given that AMP shares have surged from about $5.80 to $9.16 over the period since September 2004 – after also returning $1 a share in dividends and capital – Mason and Mohl both appeared to agree at the AGM that Mohl is on track to receive 100% of the free shares issued in 2004. And given the enormity of the windfall for AMP from Peter Costello's new superannuation arrangements, only a mug CEO could fail to lift profits clipping the ticket on an ever-increasing superannuation pool over the years ahead.
Therefore, the valuation used in the 2005 remuneration report is misleading because, assuming 100% vesting, the 420,655 free shares issued in 2004 are worth $3.85 million at current prices and the 2005 issue are worth $3.41 million. That means Mohl's total package in 2004 was actually worth $8.89 million, not $6.18 million, so a more accurate picture of Mohl's pay packet in the remuneration report would look like this:
| Year | Cash salary | Cash bonus | Free shares | Freebie real value | Retention bonus | Total |
| 2004 | $1.35m | $2.16m | 420,655 | $3.85m | $1.5m | $8.89m |
| 2005 | $1.56m | $2.51m | 340,337 | $3.12m | zero | $7.23m |
I totally agree with Peter Mason's comment that these valuations fluctuate over time. However, surely it would be preferable to value them each year. Given AMP's huge superannuation blue sky, it would not surprise if Mohl retires in 2010 with more than 8 million free shares worth about $100 million, yet the annual reports over the years would only have claimed they were worth about $10 million.
What's the point producing figures which bear no resemblance to reality, particularly on a highly charged issue like executive pay? Is it really too much simply to ask for some accurate facts? I told the AGM that AMP is Australia's leading institutional campaigner for good governance and should be leading the charge for reform in this area, rather than setting a bad example for everyone. Sadly, no firm commitments were forthcoming, but Peter Costello could fix all of this with a quick stroke of his legislative pen.
23. Why everyone is bagging Anita Roddick
By Stephen Mayne, former small Body Shop shareholder
It is hard to think of a more iconic brand for ethical investors or consumers than The Body Shop, which was founded by Anita and Gordon Roddick almost 30 years ago and has grown to 2000 stores in 53 countries selling products that have no animal testing and are sourced under "fair pay" arrangements when developing countries are involved.
Therefore, the outrage was hardly a surprise in March when it was announced L'Oreal, the world's biggest cosmetics company, was buying The Body Shop for $1.5 billion in an agreed takeover.
The Roddicks will collect $325 million from an outfit that might have not have been directly involved in animal testing since 1989, but still sources products that have been tested on animals, although this will be banned under European law from 2008.
As you can see from this passionate explanation on her blog, Roddick is selling the deal on the grounds that L'Oreal will adopt her company's system throughout its global empire.
However, there is one small problem here. L'Oreal is 24.6% owned by Swiss multi-national Nestle, which happens to be the most boycotted company in the world thanks to its appalling record pushing powdered baby milk in third world countries and ripping off coffee growers across the globe, just to name a couple of its indiscretions.
Dame Anita appears to be getting the message as she's now expressing reservations about Nestle's ethics based on a report in The Independent two weeks ago which included the following:
She also suggested campaigners, determined to stage a consumer boycott, should target the Swiss multinational's leading brands such as Perrier, Kit-Kat and Nescafe, rather than the company she founded.The Body Shop reported a 5% rise in pre-tax profits to $100 million in the year to 25 February and L'Oreal has just released some figures claiming revenue is up 5% since the sale was announced in March, suggesting there has been no consumer boycott.
However, Mark Constantine, the founder of Lush Cosmetics, which used to be The Body Shop's largest supplier and pioneered those early campaigns against animal testing, is really starting to crank up the pressure. He was quoted as follows this month:
"Anita was such a lovely person," he says. "I loved working with her." Has he spoken to her since? "I don't want to speak to her."Posters will soon appear in Lush shops proclaiming: Absolutely No Ingredients Tested on Animals. The bolded capital letters spell Anita.
It doesn't matter how you look at this: the Nestle connection is a complete sell-out of everything Roddick has preached over the years. It would be like selling Crikey to Rupert Murdoch or Kerry Packer. Let's hope she sticks to her word and gives away her fortune before she dies.
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