Rupert's accountability dodge, Macquarie's Italian hit, Babcock funds revamp, pokieact.org and rich lists
February 18, 2010
Dear Mayne Reporters,
Further to this morning's detailed account of the News Corp AGM on Friday night (including the five questions Rupert avoided), we've sliced up the audio from the webcast as follows:
Rupert does a backflip on allowing general questions
Mike Halliday question about Natalie Bancroft
Mike Halliday question to James Murdoch, sparking spray at UK government from Rupert
Mike Halliday twice asks the question which revealed Murdoch family stake is debt free
It is quite amazing that there hasn't yet been a media report anywhere which focuses on the way Rupert brazenly broke his twice-uttered promise at the start of the meeting to take general questions at the end.
Have a listen to the webcast yourself. This is an accurate transcript of what was said, with the time of meeting also noted:
(2:44)
Rupert Murdoch: I will offer some remarks about the performance of the company, following the formal part of the meeting. After my remarks there will be a question and answer period where you may ask questions that are not related to proposals being considered at this annual meeting.
(8:58)
Rupert Murdoch: There will be a general question and answer session following my presentation during which you can ask more general questions about the company.
And this is how the transcript reads at the end:
(52:48)
Rupert Murdoch: Thank you stockholders for joining us today, I'm enormously proud of our accomplishments in 2008, and I now invite you to ask any questions you have…
Unknown assistant: Mr Chairman
Rupert Murdoch: …for me or the team…
Unknown assistant: Rupert.
Rupert Murdoch: …behind me regard...huh?
Unknown assistant: I don't think we need to do this; we have already gone through everything.
Rupert Murdoch:…we've gone through that? I'm sorry. Ok…it's gone right around. Well I now declare the meeting closed. Thank you very much.
As we pointed out this morning, our man Mike Halliday was waiting to raise these five questions in the promised time. However, the meeting was promptly shut down as he stood waiting at the microphone and then the promised press conference was also hastily abandoned due to apparent "scheduling issues" which are yet to be explained to any of the bemused journalists in attendance.
If anyone can get an explanation for all this out of the Kremlin-like Murdoch spinners, please drop us a line to stephen@maynereport.com.
Macquarie Group suffers its worst known loss on investment
The Mayne Report has become quite supportive of Macquarie Group in recent times for the way it has managed risk through the global credit crisis. However, today the Millionaires' Factory has come a cropper with its biggest ever known loss on a major investment.
Sure, the occasional asset in its vast empire of listed and unlisted funds have fallen in value, but the bank itself never seems to get left holding the can. Until the Italian home loans business came along, that is.
The one page announcement this morning reveals that a gross loss of about $100 million has been suffered selling a $2 billion portfolio of Italian mortgages. The share market seems surprisingly relaxed with Macquarie shares rising 26c to $31.62 this afternoon on a day when the All Ords was up by more than 2%.
Whilst this sale will lighten the load on Macquarie's capital requirements supporting its global operations, the $100 million hit is straight out destruction of capital.
At one level, this loss is probably less than the fee Macquarie will pocket for advising Origin on its $10 billion-plus Queensland gas joint venture bonanza with ConocoPhilips, but I can't recall the bank ever taking a hit like this before.
The investment banking business is all about reputation and counter-party trust. Sure, moving these assets at more than 90c in the dollar might not look too bad in a global credit and housing bust, but what does it say about profitability around the $20 billion-plus Australian mortgage portfolio, which is in run-off mode after offshoring funding became prohibitively expensive.
Babcock & Brown comes to terms with revolting funds - sort of
The dysfunctional Babcock & Brown family seems to have finally made some progress reaching this agreement with its two biggest and worst performing funds, B&B Power and B&B Infrastructure, where hundreds of millions worth of fees have been paid for management that has destroyed more than $4 billion of value.
However, the tone of the parent company release is quite different from what the independent Power and Infrastructure directors distributed today.
Indeed, the separate negotiations appear to have produced differing outcomes with BBI specifically concluding that they were unable to reach agreement on some key issues.
Whilst a complete separation and internalisation of management is the obvious longer term solution, the raft of proposed changes will reduce conflicts, increase transparency and give independent directors more power to hire and fire individual managers.
However, we still don't have a commitment to fully disclose the management contracts and today's announcements are silent on precisely what it would take to fire the management, which is what should happen given the appalling value destruction.
BBP shares jumped 1.8c to 11.5c today and must get back to $1.50 before any future performance fees can be paid. Fat chance of that ever happening. BBI shares were steady at 22.5 and must get above $1 before performance fees flows. The parent company fared best today, rising 16.5c to $1.48, capitalising the company at more than $500 million. This surely would suggest that Babcock & Brown unsecured notes are worth a punt at $22 given that they rank ahead of ordinary equity and are being value at just 22c in the dollar.
The only way Babcock will trouser more huge fees from these vehicles will be as the captive adviser to the funds on specific deals. This is still locked in, although the independent directors can now seek independent advice in certain circumstances.
Rather than all this complex negotiation, it would make more sense for someone to launch a hostile takeover bid that put a price on the management contract but this gets very difficult when they are not public.
Finally, it doesn't say much for a procees that sees this announcement made just two weeks before the respective BBP and BBI AGMs. Both meetings really should be delayed until late November so that shareholders can vote on all the changes to the constitutions and management agreements as quickly as possible.
Len Gill, the BBP independent chairman, has made an approach about catching up before the November 7 AGM which we'll probably do over the phone later this week.
Talking up the share market
Check out this frowning, toothy and overly upbeat appearance on Friday's ABC Midday News.
Sadly, there isn't a lot of capacity left in the margin loan to keep buying, but it was good to see the Australian market up 2% today. The All Ords below 4000 surely represents what will be seen as extraordinary long term value.
Pokieact.org - tracking the good, the bad and the ugly
Check out this post by Paul Bendat on pokieact.org website. The former lawyer, media executive and proprietor has been trying to put together a list of the pokie venues in each state or territory, the number of pokies at each venue and the people who are responsible for them.
This is basic information for the citizens of the country that loses more per capita gambling than any other. But it is impossible to gather owing to the unwillingness of each government to release even this tiddler to the public. Why are they so shy?
In Paul's latest blog, he uses the music and video of The Good The Bad and The Ugly to make the point.
In case you're wondering here's a typical detail. South Australia makes you play a guessing game. If you can guess the venue owner you get a list. If you guess wrong, you're told nothing. Furthermore, Paul could find nothing about others who may control the venue where they may not be the venue licensee. For example, the board of Wesfarmers, who really control any venue run by their SA license holder (Liquorland Queensland Pty Ltd) are nowhere to be found when you search a pokie venue such as the Hamstead Hotel in Collinswood.
Tracking the fallen Rich Listers
As we watch the greatest destruction of wealth since the second world war, the time has come to start tracking the people who have fallen off both the BRW and Mayne Report Rich Lists.
This new list tracks former BRW rich listers who are no longer represented because of a fall in their wealth and here are the first 10 entries:
Philip Adams: the MFS co-founder was represented for 2 years with a peak of $370 million in 2007
Phillip Adams: the ABC braodcaster was represented for 1 year with a peak of $10 million in 1984
Bob Ansett: the former Budget rent-a-car boss and son of Ansett founder Reg Ansett was represented for 3 years with a peak of $44 million in 1988
Ross Atkins: controversial mining entrpreneur who represented for 3 years with a peak of $140 million in 1994 and even bought Alan Bond's mansion at one point.
John Avram: the Interwest founder and colourful Shepparton entrepreneur was represented for 3 years with a peak of $85 million in 1987
David Bardas: the former Sportsgirl owner was represented for 9 years with a peak of $100 million in 1989 but took a big hit with that big Sportsgirl Centre building on Collins Street.
Sir Roderick Carnegie: the former CRA chief executive was represented for 3 years with a peak of $55 million in 1987 but then almost went belly up in the early 1990s.
Brian Coppin: the hard-bitten Perth entrepreneur was represented for 4 years with a peak of $40 million in 1986
Ken Done: the well-known artist was represented for 2 years with a peak of $30 million in 1992, before CBA became his adviser and allegedly blew much of his fortune.
John Elliott: the former Elders and Foster's boss was represented for 3 years with a peak of $70 million in 1989 before coming a cropper courtesy of too much debt and grog.
Another 5 Rich Listers worth more than $10 million
Meanwhile, our Mayne Report Rich List of 1200-plus Australians worth more than $10 million continues to grow and here are the latest five additions:
Robert Peterson: he is the largest private shareholder of unsecured notes in the Myer Group with a shareholding of 32,700 worth more than $2.5 million and owns property in Park Orchards in Victoria.
Wayne Stewart: dealer principal at Melbourne City Toyota, which was recently purchased by AP Eagers for $13 million. He stays on with the successful business which turns over more than $150 million.
Johnathon Oppy: trained as a metallurgist, he became managing director of Oppy Heat Treatment. He has been responsible for successfully implementing innovations in the industry and growth of the business.
Nick Theodossi: he built the family-owned business into Melbourne's Largest Prestige Car Company. Influenced by their father's passion for prestige cars from an early age, Nick has involved his son's Dion, Kayne, Nicholas Jr and his daughter Ebony. For over 30 years Nick has built his reputation of buying and selling exceptional pre-owned European Luxury Vehicles Australia wide.
Brendon and Leigh McPherson: brothers who own private company Ellemby which holds a 23% stake in NSW coal producer, Donaldson Coal. A proposed float of Donaldson coal would in turn value the McPherson's company's stake at around $230 million.
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.
Further to this morning's detailed account of the News Corp AGM on Friday night (including the five questions Rupert avoided), we've sliced up the audio from the webcast as follows:
Rupert does a backflip on allowing general questions
Mike Halliday question about Natalie Bancroft
Mike Halliday question to James Murdoch, sparking spray at UK government from Rupert
Mike Halliday twice asks the question which revealed Murdoch family stake is debt free
It is quite amazing that there hasn't yet been a media report anywhere which focuses on the way Rupert brazenly broke his twice-uttered promise at the start of the meeting to take general questions at the end.
Have a listen to the webcast yourself. This is an accurate transcript of what was said, with the time of meeting also noted:
(2:44)
Rupert Murdoch: I will offer some remarks about the performance of the company, following the formal part of the meeting. After my remarks there will be a question and answer period where you may ask questions that are not related to proposals being considered at this annual meeting.
(8:58)
Rupert Murdoch: There will be a general question and answer session following my presentation during which you can ask more general questions about the company.
And this is how the transcript reads at the end:
(52:48)
Rupert Murdoch: Thank you stockholders for joining us today, I'm enormously proud of our accomplishments in 2008, and I now invite you to ask any questions you have…
Unknown assistant: Mr Chairman
Rupert Murdoch: …for me or the team…
Unknown assistant: Rupert.
Rupert Murdoch: …behind me regard...huh?
Unknown assistant: I don't think we need to do this; we have already gone through everything.
Rupert Murdoch:…we've gone through that? I'm sorry. Ok…it's gone right around. Well I now declare the meeting closed. Thank you very much.
As we pointed out this morning, our man Mike Halliday was waiting to raise these five questions in the promised time. However, the meeting was promptly shut down as he stood waiting at the microphone and then the promised press conference was also hastily abandoned due to apparent "scheduling issues" which are yet to be explained to any of the bemused journalists in attendance.
If anyone can get an explanation for all this out of the Kremlin-like Murdoch spinners, please drop us a line to stephen@maynereport.com.
Macquarie Group suffers its worst known loss on investment
The Mayne Report has become quite supportive of Macquarie Group in recent times for the way it has managed risk through the global credit crisis. However, today the Millionaires' Factory has come a cropper with its biggest ever known loss on a major investment.
Sure, the occasional asset in its vast empire of listed and unlisted funds have fallen in value, but the bank itself never seems to get left holding the can. Until the Italian home loans business came along, that is.
The one page announcement this morning reveals that a gross loss of about $100 million has been suffered selling a $2 billion portfolio of Italian mortgages. The share market seems surprisingly relaxed with Macquarie shares rising 26c to $31.62 this afternoon on a day when the All Ords was up by more than 2%.
Whilst this sale will lighten the load on Macquarie's capital requirements supporting its global operations, the $100 million hit is straight out destruction of capital.
At one level, this loss is probably less than the fee Macquarie will pocket for advising Origin on its $10 billion-plus Queensland gas joint venture bonanza with ConocoPhilips, but I can't recall the bank ever taking a hit like this before.
The investment banking business is all about reputation and counter-party trust. Sure, moving these assets at more than 90c in the dollar might not look too bad in a global credit and housing bust, but what does it say about profitability around the $20 billion-plus Australian mortgage portfolio, which is in run-off mode after offshoring funding became prohibitively expensive.
Babcock & Brown comes to terms with revolting funds - sort of
The dysfunctional Babcock & Brown family seems to have finally made some progress reaching this agreement with its two biggest and worst performing funds, B&B Power and B&B Infrastructure, where hundreds of millions worth of fees have been paid for management that has destroyed more than $4 billion of value.
However, the tone of the parent company release is quite different from what the independent Power and Infrastructure directors distributed today.
Indeed, the separate negotiations appear to have produced differing outcomes with BBI specifically concluding that they were unable to reach agreement on some key issues.
Whilst a complete separation and internalisation of management is the obvious longer term solution, the raft of proposed changes will reduce conflicts, increase transparency and give independent directors more power to hire and fire individual managers.
However, we still don't have a commitment to fully disclose the management contracts and today's announcements are silent on precisely what it would take to fire the management, which is what should happen given the appalling value destruction.
BBP shares jumped 1.8c to 11.5c today and must get back to $1.50 before any future performance fees can be paid. Fat chance of that ever happening. BBI shares were steady at 22.5 and must get above $1 before performance fees flows. The parent company fared best today, rising 16.5c to $1.48, capitalising the company at more than $500 million. This surely would suggest that Babcock & Brown unsecured notes are worth a punt at $22 given that they rank ahead of ordinary equity and are being value at just 22c in the dollar.
The only way Babcock will trouser more huge fees from these vehicles will be as the captive adviser to the funds on specific deals. This is still locked in, although the independent directors can now seek independent advice in certain circumstances.
Rather than all this complex negotiation, it would make more sense for someone to launch a hostile takeover bid that put a price on the management contract but this gets very difficult when they are not public.
Finally, it doesn't say much for a procees that sees this announcement made just two weeks before the respective BBP and BBI AGMs. Both meetings really should be delayed until late November so that shareholders can vote on all the changes to the constitutions and management agreements as quickly as possible.
Len Gill, the BBP independent chairman, has made an approach about catching up before the November 7 AGM which we'll probably do over the phone later this week.
Talking up the share market
Check out this frowning, toothy and overly upbeat appearance on Friday's ABC Midday News.
Sadly, there isn't a lot of capacity left in the margin loan to keep buying, but it was good to see the Australian market up 2% today. The All Ords below 4000 surely represents what will be seen as extraordinary long term value.
Pokieact.org - tracking the good, the bad and the ugly
Check out this post by Paul Bendat on pokieact.org website. The former lawyer, media executive and proprietor has been trying to put together a list of the pokie venues in each state or territory, the number of pokies at each venue and the people who are responsible for them.
This is basic information for the citizens of the country that loses more per capita gambling than any other. But it is impossible to gather owing to the unwillingness of each government to release even this tiddler to the public. Why are they so shy?
In Paul's latest blog, he uses the music and video of The Good The Bad and The Ugly to make the point.
In case you're wondering here's a typical detail. South Australia makes you play a guessing game. If you can guess the venue owner you get a list. If you guess wrong, you're told nothing. Furthermore, Paul could find nothing about others who may control the venue where they may not be the venue licensee. For example, the board of Wesfarmers, who really control any venue run by their SA license holder (Liquorland Queensland Pty Ltd) are nowhere to be found when you search a pokie venue such as the Hamstead Hotel in Collinswood.
Tracking the fallen Rich Listers
As we watch the greatest destruction of wealth since the second world war, the time has come to start tracking the people who have fallen off both the BRW and Mayne Report Rich Lists.
This new list tracks former BRW rich listers who are no longer represented because of a fall in their wealth and here are the first 10 entries:
Philip Adams: the MFS co-founder was represented for 2 years with a peak of $370 million in 2007
Phillip Adams: the ABC braodcaster was represented for 1 year with a peak of $10 million in 1984
Bob Ansett: the former Budget rent-a-car boss and son of Ansett founder Reg Ansett was represented for 3 years with a peak of $44 million in 1988
Ross Atkins: controversial mining entrpreneur who represented for 3 years with a peak of $140 million in 1994 and even bought Alan Bond's mansion at one point.
John Avram: the Interwest founder and colourful Shepparton entrepreneur was represented for 3 years with a peak of $85 million in 1987
David Bardas: the former Sportsgirl owner was represented for 9 years with a peak of $100 million in 1989 but took a big hit with that big Sportsgirl Centre building on Collins Street.
Sir Roderick Carnegie: the former CRA chief executive was represented for 3 years with a peak of $55 million in 1987 but then almost went belly up in the early 1990s.
Brian Coppin: the hard-bitten Perth entrepreneur was represented for 4 years with a peak of $40 million in 1986
Ken Done: the well-known artist was represented for 2 years with a peak of $30 million in 1992, before CBA became his adviser and allegedly blew much of his fortune.
John Elliott: the former Elders and Foster's boss was represented for 3 years with a peak of $70 million in 1989 before coming a cropper courtesy of too much debt and grog.
Another 5 Rich Listers worth more than $10 million
Meanwhile, our Mayne Report Rich List of 1200-plus Australians worth more than $10 million continues to grow and here are the latest five additions:
Robert Peterson: he is the largest private shareholder of unsecured notes in the Myer Group with a shareholding of 32,700 worth more than $2.5 million and owns property in Park Orchards in Victoria.
Wayne Stewart: dealer principal at Melbourne City Toyota, which was recently purchased by AP Eagers for $13 million. He stays on with the successful business which turns over more than $150 million.
Johnathon Oppy: trained as a metallurgist, he became managing director of Oppy Heat Treatment. He has been responsible for successfully implementing innovations in the industry and growth of the business.
Nick Theodossi: he built the family-owned business into Melbourne's Largest Prestige Car Company. Influenced by their father's passion for prestige cars from an early age, Nick has involved his son's Dion, Kayne, Nicholas Jr and his daughter Ebony. For over 30 years Nick has built his reputation of buying and selling exceptional pre-owned European Luxury Vehicles Australia wide.
Brendon and Leigh McPherson: brothers who own private company Ellemby which holds a 23% stake in NSW coal producer, Donaldson Coal. A proposed float of Donaldson coal would in turn value the McPherson's company's stake at around $230 million.
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.