Milne video, Allco, plans for activist fund, SP Ausnet, ANZ and Rich Listers
July 21, 2010
Dear Mayne Reporters,
First up in today's edition, here are some links to recent radio, video and Crikey items:
* 702 ABC Sydney discussion about global credit crunch, Virgin Blue and AWB bunfight.
* 774 ABC Melbourne discussion about global credit crunch.
* Hard-hitting video calling for Glenn Milne to be thrown off the ABC.
* ABC online coverage including our comments on AWB reform package
* Crikey item on AWB reform battle
* Crikey item on Toll dumping Virgin Blue
* Crikey item on the failure of Kerry Stokes to buy more WAN shares
* Crikey item on failure of Australian governments to update credit crisis revenue impact.
Some lively upcoming shareholder meetings
The next two days will be very lively and you'll be getting special editions after tomorrow's Village Roadshow and SP Ausnet gatherings, plus Friday's Austock and Oxiana meetings.
SP Ausnet will be an opportunity to ask questions about the tens of billions of dollars that Singapore Inc have dropped paying top dollar for assets around the world over the past 18 months. For instance, whilst it barely gets mentioned in Singapore's heavily state-controlled press, Temasek has dropped more than $10 billion on its recent investments in the likes of UBS, Standard Chartered, Barclays and Merrill Lynch.
Similarly, the 100% government-owned Singapore Power must be well under water on the $8.14 billion in cash it paid to buy Alinta's distribution assets in that over-priced joint takeover bid with the house of Babcock last year.
These assets were going to be on-passed to the listed SP Ausnet, which is still 51% owned by Singapore Power, but last year's December 11 EGM was cancelled the day before when this statement was released. An obvious question to ask tomorrow is precisely what the proxy position was given they closed 24 hours before the meeting was cancelled. Presumably one of the biggest related party deals in Australian yesterday would actually have been defeated and thank goodness for SP Ausnet because they really dodged the bullet.
The SP Ausnet CEO and CFO, two of the most lowly paid senior executives in Australia, were both talking up the $8.14 billion deal in this interview just three weeks before the vote. It will be interesting to hear if they now believe it would have been a bad move given the global credit crunch and tumbling Australian stockmarket.
The SP Ausnet AGM starts at 11am tomorrow, so why not tune in to the webcast from about 11.30am when the questions will start.
Bargain hunting and plans for an Australian activist fund
I've been snapping up a few bargains on the stock market in recent days and practising for what I'm hoping will be the creation of Australia's first truly activist fund sometime in 2009-10. This was first discussed in this extended interview with Cam Reilly on his lively G'Day World podcasting show last month.
The idea is to offer a fund that has a mission to create a much stronger culture of shareholder pressure through AGMs, direct contact with companies, media pressure and litigation where necessary. There's no Australian version at the moment but you do see the odd offshore activist hedge fund play this role. The local market needs something high profile and home grown to put a bit of fear and accountability around the place and that's what I'm hoping to do after this book is released next year, which will make the case for the fund.
At the moment there seems to be tonnes of value waiting to be unlocked in all these listed investment vehicles which are trading at huge discounts to NTA.
I put a relative into Macquarie Airports recently and they've already bounced from $2.03 to $2.60 in a couple of weeks on rumours that the Millionaire's Factory will take it private to unlock the claimed NTA of more than $5 a share.
The same goes with Macquarie Infrastructure Group as I picked up 1500 at $2.01 on July 10 and they're already up to $2.22.
The timing of my purchase of 2000 GPT shares at $1.60 on July 10 wasn't so good as the stock today hit a low of $1.355. Coincidentally, It looks like I'll be meeting the chairman and CEO tomorrow for an off the record briefing. They made the approach.
However, in terms of what an activist fund would do, it was the purchase of 1900 shares in Allco Equity Partners at $1.63 a pop yesterday which is the best example of where decent activism should be able to create some value.
AEP's half year results presentation released in February showed it had $1.46 per share in cash and net asset backing of $5.53, which drops to an NTA of $4.12 when you strip out goodwill.
AEP's biggest single investment has been in the listed global IT provider IBA Health which was valued at $3.01 per share in February, although the IBA stock has since dropped to 58c and silly old AEP last year paid $1.05 for its ordinary shares and 84.6c for the convertible notes as part of an overall investment of $345 million.
In terms of deals that helped put the broader Allco empire into the emergency ward, IBA Health was one of them given that Allco Finance Group owns 35.5% of AEP.
AEP announced some board and management changes on May 5, but Allco's discredited co-founder David Coe remains non-executive chairman, even though he resigned as executive chairman of AFG in a nod to governance earlier this year.
Given that AFP is desperate for cash, it is pretty clear that AEP should be wound up, or at least more than $1 per share in cash should be returned to shareholders. This would allow AFP to immediately pay down $40 million in debt, in accordance with the debt repayment program it outlined yesterday.
They could even follow the lead of Toll Holdings with Virgin Blue and distribute the IBA Health stake to its own shareholders. Its two other major investments, Baycorp and Signature Security are not listed but both are profitable so AEP should be actively looking at ways to unlock value.
If the whole of AEP was put up for sale, surely some private equity firm would see value north of $3, in a similar way that the Millionaire's Factory has taken Macquarie Capital private offering a big premium to the prevailing market price and a slight discount to NTA.
The AEP and AFG AGMs are in Sydney later this year and will be a high priority to prosecute all these arguments and I'm confident of turning my $3000 investment into more than $5000 with some aggressive activism.
Just because anything called Allco stinks to high heaven, doesn't mean there isn't some real value to be had opportunistically buying into its beaten up cash box. The stock bounced to $1.79 today, so the profit is already $300 although this might have been after I mentioned it to more than 200,000 listeners on 774 ABC Melbourne last night.
Circling the wagons around Geoff Dixon
The fallout from the appalling corporate governance on display during last year's attempted private equity buyout of Qantas is about to enter an interesting phase as new chairman Leigh Clifford continues to rebuild the board to get the numbers that will enable him to show CEO Geoff Dixon the door.
Whilst Qantas is Australia's most prestigious board seat, today's new appointment is a Clifford associate called Paul Rayner who certainly isn't part of the directors' club and didn't make Who's Who in 2008.
Rayner and Clifford were both Australians working in London when Clifford was running Rio Tinto and Rayner was finance director of British America Tobacco, a job he landed in 2002 after a successful stint as chief operating officer of the Australasian division before it was mopped up in 2001.
It is unusual for someone who didn't make it to CEO of a public company to be catapulted onto a blue chip board, but Rayner already made the grade when he joined the board of Britain's biggest energy supplier, Centrica, where he chairs the audit committee. This has put him onto our list tracking the most successful Australians in offshore business.
Qantas has now lost three directors involved in the private equity process - chairman Margaret Jackson, James Packer and former BHP CEO Paul Anderson, who presumably wasn't happy working under his former Rio Tinto rival during this big takeover process.
Clifford joined the board after the APA bid failed when Jackson was heavily criticised for being too close to the highly conflicted management team which were going to have their existing incentives paid out in full and then enjoy a far more lucrative new incentive scheme with APA.
He has since added three new directors, including current Rio Tinto director Richard Goodmanson and former Allco director Barbara Ward, who has the sort of Labor Party links that could be useful given the change of government.
Qantas have been good enough to send through the transcript from last year's AGM when I gave Jackson and the old directors a big spray.
Finance director Peter Gregg is considered a likely successor to Dixon, but he was also part of the conflicted management team. Indeed, when I asked Gregg if it was true he'd gone fishing in Ireland with Mark Carnegie, the Qantas adviser who stood to pocket a large slab of the $96 million in success fees if the APA deal went through, he replied as follows at the 2007 AGM:
Peter Gregg: Like many people, I do things for relaxation. Some people play golf, some people go jogging, some people do a lot of other things. I like to fish and I regularly fish when I can get the opportunity. Yes, I did go fishing with Mark Carnegie a number of months after the deal collapsed, but I also do a lot of other things with Mark Carnegie like aiding him in some of the charities he is involved with for indigenous children and for children in overseas depressed countries, so I make no apologies of going fishing, but I do reject any insinuation that I did something that was illegal or under cover in this process. I don't think you have any right to make that suggestion.
It was just a question, Peter.
What is ANZ doing in India?
ANZ went ballistic at The Daily Telegraph in October 2006 when it splashed the paper claiming its Indian offshoring plans were far more comprehensive than the reality.
There was this defiant press release on October 10 pointing out that technology out-sourcing is very different from shifting call centres offshore.
Media Watch weighed in, ANZ's legal threats were even reported in The Age , the call centre industry was up in arms, the scandal makes The Tele's Wikipedia entry and Crikey's coverage at the time showed the depth of anger led by former ANZ CEO John McFarlane who wanted to pull the bank's News Ltd advertising.
Fast forward two years and new ANZ CEO Mike Smith appears to have told this Indian newspaper in April about hugely comprehensive offshoring plans, although once again it is back office rather than call centre functions.
The paper quotes Smith as follows:
"I hope to move much of the straight-through processing and really start to build stuff like the Internet bank channel and electronic channels. So your back office disappears anyway. Process re-engineering of the back-end operations will mean using our Bangalore facilities much more. I think our systems at times are somewhat archaic. They have been basically adapted over time and are sometimes not as efficient as they could be," said Smith.
His comments did not bode well for the bank's Australian back-office staff, understood to be between 3000 and 4000.
Hmmm, and as if ANZ hasn't had enough grief of late with Opes Prime, Bill Express, Chimaera and the Gunns pulp mill. It is surprising the Finance Sector Union hasn't weighed in on this one yet.
Another six Rich Listers
BRW's a monopoly over the concept of an Australian Rich List is over and our own version now has more than 1100 names of Australian worth more than $10 million, including these latest additions:
Aitken family: executive directors of Southern Cross equities Angus and Charlie Aitken, will benefit from the recent sale to Bell for $150 million.
Granger family: executive director Richard and brother John Granger are large stake holders in Southern Cross Equities which has fattened their wallets with the recent $150 million sale to Bell.
McPherson brothers: Brendon and Leigh own a large holding of Donaldson Coal Holdings. Riding on the back of the soaring thermal coal price, Donaldson's value has increased from $250 million to $1 billion in recent times.
Potts family: executive chairman of Southern Cross Equities Brent Potts, and his brother Tim, are recent beneficieries of a $150 million sale to Bell. This move will create Australia's largest independent broking house.
Sam Savvas: the founder of WOW sight and sound electronic superstores. Moreover, he also moonlights as a property developer of which both operate under his company the SSI Group. Reported to be worth upward of $200 million.
Spero Conias: principal businessman with Conias Residential real estate agency but also owns property portfolio which also includes some nightclubs and retail stores.
That's all for now.
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.
First up in today's edition, here are some links to recent radio, video and Crikey items:
* 702 ABC Sydney discussion about global credit crunch, Virgin Blue and AWB bunfight.
* 774 ABC Melbourne discussion about global credit crunch.
* Hard-hitting video calling for Glenn Milne to be thrown off the ABC.
* ABC online coverage including our comments on AWB reform package
* Crikey item on AWB reform battle
* Crikey item on Toll dumping Virgin Blue
* Crikey item on the failure of Kerry Stokes to buy more WAN shares
* Crikey item on failure of Australian governments to update credit crisis revenue impact.
Some lively upcoming shareholder meetings
The next two days will be very lively and you'll be getting special editions after tomorrow's Village Roadshow and SP Ausnet gatherings, plus Friday's Austock and Oxiana meetings.
SP Ausnet will be an opportunity to ask questions about the tens of billions of dollars that Singapore Inc have dropped paying top dollar for assets around the world over the past 18 months. For instance, whilst it barely gets mentioned in Singapore's heavily state-controlled press, Temasek has dropped more than $10 billion on its recent investments in the likes of UBS, Standard Chartered, Barclays and Merrill Lynch.
Similarly, the 100% government-owned Singapore Power must be well under water on the $8.14 billion in cash it paid to buy Alinta's distribution assets in that over-priced joint takeover bid with the house of Babcock last year.
These assets were going to be on-passed to the listed SP Ausnet, which is still 51% owned by Singapore Power, but last year's December 11 EGM was cancelled the day before when this statement was released. An obvious question to ask tomorrow is precisely what the proxy position was given they closed 24 hours before the meeting was cancelled. Presumably one of the biggest related party deals in Australian yesterday would actually have been defeated and thank goodness for SP Ausnet because they really dodged the bullet.
The SP Ausnet CEO and CFO, two of the most lowly paid senior executives in Australia, were both talking up the $8.14 billion deal in this interview just three weeks before the vote. It will be interesting to hear if they now believe it would have been a bad move given the global credit crunch and tumbling Australian stockmarket.
The SP Ausnet AGM starts at 11am tomorrow, so why not tune in to the webcast from about 11.30am when the questions will start.
Bargain hunting and plans for an Australian activist fund
I've been snapping up a few bargains on the stock market in recent days and practising for what I'm hoping will be the creation of Australia's first truly activist fund sometime in 2009-10. This was first discussed in this extended interview with Cam Reilly on his lively G'Day World podcasting show last month.
The idea is to offer a fund that has a mission to create a much stronger culture of shareholder pressure through AGMs, direct contact with companies, media pressure and litigation where necessary. There's no Australian version at the moment but you do see the odd offshore activist hedge fund play this role. The local market needs something high profile and home grown to put a bit of fear and accountability around the place and that's what I'm hoping to do after this book is released next year, which will make the case for the fund.
At the moment there seems to be tonnes of value waiting to be unlocked in all these listed investment vehicles which are trading at huge discounts to NTA.
I put a relative into Macquarie Airports recently and they've already bounced from $2.03 to $2.60 in a couple of weeks on rumours that the Millionaire's Factory will take it private to unlock the claimed NTA of more than $5 a share.
The same goes with Macquarie Infrastructure Group as I picked up 1500 at $2.01 on July 10 and they're already up to $2.22.
The timing of my purchase of 2000 GPT shares at $1.60 on July 10 wasn't so good as the stock today hit a low of $1.355. Coincidentally, It looks like I'll be meeting the chairman and CEO tomorrow for an off the record briefing. They made the approach.
However, in terms of what an activist fund would do, it was the purchase of 1900 shares in Allco Equity Partners at $1.63 a pop yesterday which is the best example of where decent activism should be able to create some value.
AEP's half year results presentation released in February showed it had $1.46 per share in cash and net asset backing of $5.53, which drops to an NTA of $4.12 when you strip out goodwill.
AEP's biggest single investment has been in the listed global IT provider IBA Health which was valued at $3.01 per share in February, although the IBA stock has since dropped to 58c and silly old AEP last year paid $1.05 for its ordinary shares and 84.6c for the convertible notes as part of an overall investment of $345 million.
In terms of deals that helped put the broader Allco empire into the emergency ward, IBA Health was one of them given that Allco Finance Group owns 35.5% of AEP.
AEP announced some board and management changes on May 5, but Allco's discredited co-founder David Coe remains non-executive chairman, even though he resigned as executive chairman of AFG in a nod to governance earlier this year.
Given that AFP is desperate for cash, it is pretty clear that AEP should be wound up, or at least more than $1 per share in cash should be returned to shareholders. This would allow AFP to immediately pay down $40 million in debt, in accordance with the debt repayment program it outlined yesterday.
They could even follow the lead of Toll Holdings with Virgin Blue and distribute the IBA Health stake to its own shareholders. Its two other major investments, Baycorp and Signature Security are not listed but both are profitable so AEP should be actively looking at ways to unlock value.
If the whole of AEP was put up for sale, surely some private equity firm would see value north of $3, in a similar way that the Millionaire's Factory has taken Macquarie Capital private offering a big premium to the prevailing market price and a slight discount to NTA.
The AEP and AFG AGMs are in Sydney later this year and will be a high priority to prosecute all these arguments and I'm confident of turning my $3000 investment into more than $5000 with some aggressive activism.
Just because anything called Allco stinks to high heaven, doesn't mean there isn't some real value to be had opportunistically buying into its beaten up cash box. The stock bounced to $1.79 today, so the profit is already $300 although this might have been after I mentioned it to more than 200,000 listeners on 774 ABC Melbourne last night.
Circling the wagons around Geoff Dixon
The fallout from the appalling corporate governance on display during last year's attempted private equity buyout of Qantas is about to enter an interesting phase as new chairman Leigh Clifford continues to rebuild the board to get the numbers that will enable him to show CEO Geoff Dixon the door.
Whilst Qantas is Australia's most prestigious board seat, today's new appointment is a Clifford associate called Paul Rayner who certainly isn't part of the directors' club and didn't make Who's Who in 2008.
Rayner and Clifford were both Australians working in London when Clifford was running Rio Tinto and Rayner was finance director of British America Tobacco, a job he landed in 2002 after a successful stint as chief operating officer of the Australasian division before it was mopped up in 2001.
It is unusual for someone who didn't make it to CEO of a public company to be catapulted onto a blue chip board, but Rayner already made the grade when he joined the board of Britain's biggest energy supplier, Centrica, where he chairs the audit committee. This has put him onto our list tracking the most successful Australians in offshore business.
Qantas has now lost three directors involved in the private equity process - chairman Margaret Jackson, James Packer and former BHP CEO Paul Anderson, who presumably wasn't happy working under his former Rio Tinto rival during this big takeover process.
Clifford joined the board after the APA bid failed when Jackson was heavily criticised for being too close to the highly conflicted management team which were going to have their existing incentives paid out in full and then enjoy a far more lucrative new incentive scheme with APA.
He has since added three new directors, including current Rio Tinto director Richard Goodmanson and former Allco director Barbara Ward, who has the sort of Labor Party links that could be useful given the change of government.
Qantas have been good enough to send through the transcript from last year's AGM when I gave Jackson and the old directors a big spray.
Finance director Peter Gregg is considered a likely successor to Dixon, but he was also part of the conflicted management team. Indeed, when I asked Gregg if it was true he'd gone fishing in Ireland with Mark Carnegie, the Qantas adviser who stood to pocket a large slab of the $96 million in success fees if the APA deal went through, he replied as follows at the 2007 AGM:
Peter Gregg: Like many people, I do things for relaxation. Some people play golf, some people go jogging, some people do a lot of other things. I like to fish and I regularly fish when I can get the opportunity. Yes, I did go fishing with Mark Carnegie a number of months after the deal collapsed, but I also do a lot of other things with Mark Carnegie like aiding him in some of the charities he is involved with for indigenous children and for children in overseas depressed countries, so I make no apologies of going fishing, but I do reject any insinuation that I did something that was illegal or under cover in this process. I don't think you have any right to make that suggestion.
It was just a question, Peter.
What is ANZ doing in India?
ANZ went ballistic at The Daily Telegraph in October 2006 when it splashed the paper claiming its Indian offshoring plans were far more comprehensive than the reality.
There was this defiant press release on October 10 pointing out that technology out-sourcing is very different from shifting call centres offshore.
Media Watch weighed in, ANZ's legal threats were even reported in The Age , the call centre industry was up in arms, the scandal makes The Tele's Wikipedia entry and Crikey's coverage at the time showed the depth of anger led by former ANZ CEO John McFarlane who wanted to pull the bank's News Ltd advertising.
Fast forward two years and new ANZ CEO Mike Smith appears to have told this Indian newspaper in April about hugely comprehensive offshoring plans, although once again it is back office rather than call centre functions.
The paper quotes Smith as follows:
"I hope to move much of the straight-through processing and really start to build stuff like the Internet bank channel and electronic channels. So your back office disappears anyway. Process re-engineering of the back-end operations will mean using our Bangalore facilities much more. I think our systems at times are somewhat archaic. They have been basically adapted over time and are sometimes not as efficient as they could be," said Smith.
His comments did not bode well for the bank's Australian back-office staff, understood to be between 3000 and 4000.
Hmmm, and as if ANZ hasn't had enough grief of late with Opes Prime, Bill Express, Chimaera and the Gunns pulp mill. It is surprising the Finance Sector Union hasn't weighed in on this one yet.
Another six Rich Listers
BRW's a monopoly over the concept of an Australian Rich List is over and our own version now has more than 1100 names of Australian worth more than $10 million, including these latest additions:
Aitken family: executive directors of Southern Cross equities Angus and Charlie Aitken, will benefit from the recent sale to Bell for $150 million.
Granger family: executive director Richard and brother John Granger are large stake holders in Southern Cross Equities which has fattened their wallets with the recent $150 million sale to Bell.
McPherson brothers: Brendon and Leigh own a large holding of Donaldson Coal Holdings. Riding on the back of the soaring thermal coal price, Donaldson's value has increased from $250 million to $1 billion in recent times.
Potts family: executive chairman of Southern Cross Equities Brent Potts, and his brother Tim, are recent beneficieries of a $150 million sale to Bell. This move will create Australia's largest independent broking house.
Sam Savvas: the founder of WOW sight and sound electronic superstores. Moreover, he also moonlights as a property developer of which both operate under his company the SSI Group. Reported to be worth upward of $200 million.
Spero Conias: principal businessman with Conias Residential real estate agency but also owns property portfolio which also includes some nightclubs and retail stores.
That's all for now.
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.