Huge write-downs, Orica AGM, Wesfarmers opportunity, Macquarie, Babcock, SPPs, Perpetual, Rich List and rumours of journo being charged
February 2, 2010
Dear Mayne Reporters,
We've got a pile of lively stuff in this week's edition so make sure you read to the end for the hot rumour about a financial journalist being charged over Rumourtrage.
Enjoy, Stephen Mayne
Big protest against Orica directors and pay
The Orica AGM at the Grand Hyatt in Melbourne this morning was a cursory affair that last only 66 minutes. I arrived an hour late after a bad morning where the car wouldn't start and then your idiot correspondent mistakenly went to the Sofitel.
This meant that on arrival at 11.30am, general business and the director elections had all been dealt with and we were just finally dealing with the remuneration report.
As was foreshadowed in earlier editions, Orica's largest shareholder Perpetual has been waging a war through the press against the company.
Why they pick on Orica yet leave Gunns alone was explored in this Crikey story but still hasn't been properly explained.
Here is an interesting email exchange with the two most powerful stock voters at Perpetual, Matt Williams and John Sevior, which played out at today's AGM:
January 7 email from The Mayne Report:
Hi gents, just wandering if you're resolved a position on voting your stock against any of the three Orica directors up for election at the Jan 30 AGM given various comments in the press over recent months.
Am proposing a Mayne Report story on this but would love some comment or at least a steer, rather than just an assumption that you'll be doing this.
Cheers, Stephen Mayne
This follow-up was sent to Perpetual's big two fund managers yesterday:
Hi Matt and John, didn't get a reply to the last email so will take a punt on your Orica vote tomorrow: I reckon you've voted against finance director Noel Meehan but for the two non-executive directors.
I'll be sending something out after the meeting so would appreciate a reply with any relevant background/rationale on the decision if possible.
Cheers, Stephen Mayne
The reply came back this morning with confirmation that they voted against all the directors.
Having missed the debate on the director elections at the Orica AGM, everything had to be loaded into the remuneration report discussion and it proved to be controversial, sparking quite a response from chairman Don Mercer who expressed surprise that Perpetual was telling me how they'd voted before telling the company.
I let fly on everything from the ridiculously cheap Incitec Pivot sell down at $21 a share in 2005 to the swift rejection of that mooted private equity offer at $32 a share in April 2007. Have a listen to these hard hitting exchanges.
Several directors came up for a chat afterwards including Macquarie Group's Peter Kirby and former Challenger CEO Mike Tilley who hasn't spoken to me since 1994 when he called the Herald Sun to say I was "dead meat" and would be sued for $10 million over a gossip item. It's good to see we can let bygones be bygones after 14 years.
The final votes have been released and the Orica remuneration report copped a hefty 32% protest or 63.7 million shares against, even though only about 3 shareholders at the meeting followed my recommendation to oppose it. We certainly didn't carry the floor today.
However, Orica has now made it onto the top 25 for remuneration report protests, as this list shows and the controversial practice of giving executives non-recourse loans is expected to be ditched in the future some time because it is excessively complex and investors don't like it.
By way of contrast, the directors copped against votes ranging between 21.1 million and 22.8 million, although this was less than the 27 million shares held in Perpetual's last substantial shareholder notice for Orica. Is this another case of lost against votes or did Perpetual not control voting rights on its entire stake? Maybe they sold down more recently.
There has certainly been a breakdown in relations between Orica and Perpetual because chairman Mercer came up after the meeting to say he had a congenial recent meeting with three representatives from Perpetual. I told Don he was talking to the wrong people and he clearly has a problem with John Sevior and Matt Williams who did themselves no favours today by not having anyone speak on their behalf at the meeting.
Finally, check out the edited audio and Mayne Report update after last year's Orica AGM.
Tabcorp and the corruption of placements
Tabcorp yesterday came out and raised $300 million in a selective placement to clients of UBS. As Stephen Bartholmeusz wrote on Business Spectator yesterday, they didn't really need the money.
So why dilute the existing shareholders by selling new shares at $5.80 when the stock had previously closed at $6.79. It's highly dilutive and how on earth does UBS and Tabcorp decide who gets these cheap shares?
Tabcorp's update this morning included the following line: "There was strong demand from domestic and international institutions and the placement was significantly oversubscribed."
The following email was sent today to Tabcorp spinner Bruce Tobin:
Big Bruce, can you please advise the list of shareholders who took up the placement and the fee paid to UBS. Am particularly interested in whether preference was given to existing shareholders and whether it was UBS or Tabcorp who made the decision on who got the cheap stock and who missed out.
Cheers, Stephen Mayne
Tiny shareholders like myself will be fine, because at least Tabcorp is following through with a $5000 share purchase plan at $5.80. But what about the mid-size institution which isn't a favoured client of UBS and doesn't get a look in?
There is no transparency around the selective placement process because the market is not told who has been allocated the shares. At least with a rights issue, all shareholders are treated equally.
It really is time someone did a decent study into the whole system of selective placements because it is ripe for rorting, cronyism, favouritism and kick backs and inherently unfair all at the same time.
Meanwhile, Tabcorp shares fell 28c or 4% to $6.51 at 12:30pm today, given the dilution, dividend cut and a broader modest fall in the market.
Whilst investors in the SPP don't get the 35c interim dividend, it might be worth a punt getting on the register this afternoon because the record date is next Wednesday, as you can see from today's announcement.
I'm naturally on the register and have just bought $500 worth of shares in Paula's name because it effectively gives us a second free option to buy $5000 worth of shares at $5.80 over the next four weeks. The Mayne Report is not into the financial advice, but we're getting better at playing the angles on share purchase plans and capital raisings as this next item demonstrates.
Retail punters offered $358m stag profit on $2.66 billion Wesfarmers retail offer
After Wesfarmers released details of what should finish up as the biggest capital raising in Australian history, I fired off the following email to the company's spindoctors and investor relations people:
Dear Mark, Tanya and Anna,
Could you please pass on in the strongest terms to the board that small Wesfarmers shareholders such as myself would like the opportunity to apply for more the pro-rata allocation at $13.50 to take up shares that are not acquired by other eligible retail shareholders.
If you are not giving small shareholders the opportunity to sell their rights, you should at least give other small shareholders the opportunity to take them up.
Macquarie Office is the model. Check out the details of their recent offer. We were able to take up the 20c one-for-one entitlement and then apply for more and this helped them achieve the $508 million raising. See the final announcement here.
If you really are short of capital then you should give your loyal retail shareholders an opportunity to write out a bigger cheque. It's perfectly legal and Macquarie has shown how it can help, so why not ask your existing shareholders for additional capital, especially seeing as you going outside your existing shareholder base to raise $900 million in a placement to third parties.
Regards, Stephen Mayne
Small Wesfarmers shareholder
PS. I'll be writing about this in the next edition of The Mayne Report. See the latest edition.
The following reply came back which raised out hopes enormously.
From: Anna McPhee
To: Stephen; Mark Triffitt
Cc: Tanya Rybarczyk; Paula Piccinini
Subject: RE: Wesfarmers treatment of small shareholders
Stephen,
Thanks for your email. The Retail entitlement offer will be offered under the same terms as the Institutional entitlement offer and shareholders such as yourself and your readers may subscribe for New Shares in excess of your Entitlement.
Allocation will be subject to availability and you may only be allocated part of the number of Additional New Shares you apply for, or not at all. Information explaining the Retail offer will be sent to shareholders in time for them to review and participate before close of 23 February.
Regards
Anna McPhee
General Manager, Corporate Affairs
Wesfarmers Limited
All this media commentary predicting a 20% take-up of the retail offer is completely inaccurate because the wealthier mums and dads will see the quick profit that is available from buying additional shares at $13.50 when the stock closed last night at $15.82.
Strangely, the ability to apply for additional shares has been significantly underplayed in the 37 page retail offer document as the first mention isn't until page 23.
Indeed, on page 9 Wesfarmers produced this: "The Retail Entitlement Offer is not underwritten. By way of example, based on the assumption of a 15 per cent take-up from retail shareholders, the Retail Entitlement Offer would raise approximately $0.4 billion."
Hang on a minute. If shareholders are being offer stock at $13.50, they would be mad not to take up their full entitlement AND apply for a stack more, given that the shares closed at $15.82 last night. Sure, you don't get the 50c interim dividend but based on the current easy profit of $1.82 a share or 13.5%, Wesfarmers should be banking on the entire $2.66 billion retail component being taken up.
Whilst I only own 7 Wesfarmers shares and will be offered 3 new shares in the offer, I'll turn to various financing and loss underwriting sources and send off a cheque for as much as possible if it remains well in the money.
The offer closes on February 23 so the strategy involves waiting until the last day before doing a BPAY transfer and then hoping the market doesn't crash before the shares are allotted on March 4.
If the retail punters do indeed apply for a much larger allocation than the 15% predicted by Wesfarmers, this will leave the institutions further underweight such that they would then have to buy in the after market.
The maximum 197 million shares that are being offered to us retail punters were last night showing a paper profit of $358 million. Small shareholders of Australia, let's get together and grab it, turning this Wesfarmers capital raising into the biggest in Australian history at $5.6 billion.
And whilst Wesfarmers paid about $200 million in underwriting fees for the institutional component, us retail investors will stump up the money for free, provided it remains in the money.
Babcock salary rorts and our accumulated losses
Karen Maley had an interesting article in The AFR last Thursday quoting bankers accusing Babcock & Brown executives of helping themselves to excessive bonuses in return for managing the voluntary liquidation which is taking place.
This is a bit rich given the huge rollover fees and increased margins the banks have been ripping out of distressed corporate clients, such as Centro, Allco, Wesfarmers and the like.
That said, the Babcock boys have long been one of the greediest crews around and they've destroyed enormous value. Martin Lawrence from Risk Metrics produced the following cracking column on Business Spectator yesterday and we particularly liked this line:
The textbook explanation for overly generous CEO employment conditions has it that a ‘global war for talent' requires paying top dollar to attract the best. On this basis, Babcock & Brown had the second best management team in Australia and US investment banks had the best handful of senior executives of all time.
Many of the listed Babcock funds have now been unravelled but it was very interesting to get this notice of meeting from Babcock & Brown Capital today advising they are pushing ahead with a vote on February 27 to approve a $100 million capital return. However, the vote on the proposed $50 million deal to internalise management has been deferred until the end of March.
Two EGMs in five weeks is strange way to go, but if the banks pull the plug on the parent company in the interim, surely the Babcock & Brown Capital independent directors should try and walk away from the management contract without compensation.
From an investment perspective, the Babcock experience across its 11 different listed vehicles has generated total losses of about $1400 which have unfolded as follows:
Babcock & Brown: bought 55 at $9.66 in May 2005 and 32 at $16.59 in Oct 2005. Sold 32 at $19.82 in May 2006 and 40 at $28.75 in April 2007. Bought 600 at $5.00 on August 14, 2008. Sold 300 at $4.02 on August 18, 2008. Sold 299 at $2.34 on September 26, 2008. Retain one worthless share but have broken even overall.
Babcock & Brown Environmental: bought 560 at 90c on May 25, 2007 and sold 560 at 50c per share into Babcock & Brown mop up bid in February 2008. Loss: $244.
Babcock & Brown Infrastructure: bought 340 at $1.49 on May 25, 2006. Sold 240 at $1.89 on April 17, 2007. Bought 4065 in February 2008 share purchase plan at $1.23. Sold 4000 at $1.315 on Feb 20, 2008. Retain 196. Overall profit almost $200.
Babcock and Brown Power: bought 188 at $2.68 on December 22, 2006. Sold 150 at $3.51 on June 27, 2007. Bought 4065 at $1.23 in $5000 share purchase plan in January 2008. Sold 4000 at $1.31 on Feb 20, 2008. Sold residual 100 at 5.5c on December 15, 2008. Overall profit about $100.
Babcock & Brown unsecured notes: bought 6 at $97 on Jan 2, 2008. Sold 5 at $36 on June 16, 2008. Retain one which is worthless so overall loss about $400.
Babcock & Brown Residential Land Partners Group: bought 600 at 84c on July 27, 2007. Now less than 10c so down about $450.
Babcock & Brown Wind: bought 315 at $1.60 on May 25, 2006. Sold 227 at $1.93 on June 5, 2007. Retain 117 so enjoying small profit.
Babcock & Brown Communities: bought 370 Primelife shares at $1.40 on November 7, 2005. Now worth less than 40c after Lend Lease partial takeover so down about $300.
Babcock & Brown Japan Property Trust: bought 600 at 84.5c and now below 40c so have lost about $300.
Everest Babcock & Brown: bought 105 at $4.95 on April 3, 2006. Received 331 free shares as part of EBI entitlement offer. Sold 336 at $3.53 for $1166. Retain 100 worth sod all. Overall profit $650.
Everest Babcock & Brown Alternative Investment Trust: received free shares when was demerged from EBB, then subscribed to 1497 entitlement at $4.07 a share for $6092 in April 2007. Sold 1497 at $3.56 each for $5309 on May 9, 2007. Bought 641 at $1.97 on October 24, 2008 and have since swapped into an unlisted vehicle but should recover 100% of this latest play within 12 months. Overall loss expected to be about $700.
Not a pretty picture, but at least there were some profitable trades, unlike the Allco experience which generated losses of about $3000.
Babcock & Brown Power class action
Meanwhile, Michael West had all the detail on a class action against Babcock & Brown Power in this recent article on the Fairfax websites.
I've signed up to join in the fight and check out this special website for the class action.
Time for Boral chair Ken Moss to go
Building products giant Boral has once again come out with a shock profit downgrade which serves to confirm once again that chairman Ken Moss should retire when his term expires in November.
Boral shares dived 15.7% on the day, meaning it has made our list tracking the biggest one day share tanks in history.
Meanwhile, have a listen to the debate from last year's Boral AGM where we asked Ken Moss to retire at the end of his term considering it has been 10 years and his shoddy record on other boards such as NAB and GPT.
Sadly, he answered "no", but his big shareholders will hopefully step in and make it happen.
Perpetual's John Sevior has long been a big critic of Moss and even voted against his re-election to the NAB board back in 2002, although that was just after NAB's funds management operation MLC had cut Perpetual from its list of fund managers.
Time to focus on Moss again, Mr Sevior, rather than your favourite whipping boys at Orica.
Woolies infiltrates Australia Day as Queensland moves on kids in venues
The pokies campaign is gathering pace as I've joined the Victorian Local Governance Association's working group on gaming and we had a fascinating two hour meeting on Wednesday morning. There was also a speech to about 30 Victorian mayors last Saturday on a training weekend where Woolworths got both barrels for their dominant position in the hugely damaging pokies industry.
It came as quite a surprise to then turn up for Manningham's Australia Day citizen of the year presentations and discover that Woolworths were sponsoring the day and the local Safeway store manager got to give a speech promoting the forthcoming rebranding of the Victorian supermarkets to Woolworths and all these great things it does in the community.
Fellow councillor David Ellis objected to this commercialism on Australia Day in the council chamber on Tuesday night and I followed up asking whether the officers involved were aware that Woolworths operated 350 of the 617 pokies in the City of Manningham, which causes enormous damage to our community.
The officer replied that she was not aware of this and we later discovered that the Woolies sponsorship was foisted on councils by the state government, which is hoping Woolies will write a cheque for more than $1 billion to buy up new pokies licences in 2010.
Meanwhile, check out this recent article in The Courier Mail about attacks on pokies venues which have rolled out children's play areas.
This is totally relevent for three of the Woolworths pokies venues in Manningham - The Doncaster Inn, The Shoppingtown Hotel and the Cherry Hill Tavern - which are designed to lure children with everthing from Wiggles shows to games and play areas.
Macquarie commissioned by ghost group to fund a white elephant
As twice reported by Fairfax, read here and here, the NSW government is re-assessing a proposed $1 billion-plus tunnel to link Sydney's Warringah Freeway to a new, elevated Spit Bridge.
Supposed community group, Sensible Transport Action Group, fronted by Mayne Report rich lister Peter Papas, has commissioned the toll road arm of the Macquarie Bank, to promote discussions with the Road Traffic Authority of NSW, but the government is cooling on the idea because of cost blowout concerns.
After researching further, information about the Sensible Transport Action Group or, is limited. Just who is this community action group and does it involve anyone else apart from Peter Papas?
Our research suggests that Peter Papas is no more an investment banker than the Sensible Transport Action Group is an actual community group.
This is our rich list entry about Peter Papas:
Peter Papas: he rode the technology boom of the 1990s establishing and selling two software companies and was also the founder of N-Space which he sold to a subsidiary of MYOB.
Macquarie Office and other capital raising plays
We gave Macquarie Office a big spray in the last edition and ended up having quite a hair raising adventure pumping $20,000 into their emergency $500 million one-for-one rights issue at just 20c a pop.
We backed the offer when the stock pushed up to 27c, but then Macquarie changed the rules on the day it was meant to close and, lo and behold, the stock crashed.
Shares usually weaken straight after a capital raising as short term investors sprint for the exits, but when Macquarie Office hit a low of 18c on Wednesday, we were staring at a $2000 loss. Alas, it recovered to finish at 21c yesterday, which means Macquarie Group isn't looking too bad after pumping in another $100 million and lifting its stake from 9% to 16%. We're largely out of it, breaking even in the end, and will now move on to the increasing amount of forthcoming share purchase plan offers which are all detailed here.
The growing $2 billion-plus discount to NTA club
We've updated our list looking at companies trading at the biggest discounts to claimed net assets in their annual reports and can now report there are 16 which are over $2 billion, as follows:
News Corp: $14 billion
Wesfarmers: $9.1 billion
GPT: $4.69 billion
Centro Properties Group: $4 billion
Macquarie Countrywide: $3.08 billion
Fairfax Media: $3 billion
Centro Retail: $2.74 billion
Goodman International: $2.7 billion
Babcock & Brown Infrastructure: $2.69 billion.
Macquarie Office: $2.6 billion
Mirvac: $2.48 billion
Babcock & Brown: $2.37 billion
Macquarie Infrastructure Group: $2.2 billion
Macquarie Airports: $2.2 billion
Valad Property Group: $2.2 billion
Gunns: $2 billion
Whilst the write-downs are starting to trickle out from the likes of Westfield and Lend Lease, they don't go nearly far enough. That big debate between auditors and companies trading at huge discounts to NTA is getting about as hot as the Melbourne weather right now. All will be revealed in February.
Rich List bigger and better than ever
Following the worldwide destruction of capital, the Mayne Report rich list has undergone a major review. Current share holdings and the peak and trough values of those holdings is a new addition, giving a clear insight into the astronomical losses that have occurred.
We have italicised some names which indicates that their current worth has fallen below our cut-off point of $10 million. Check out who has lost the most, and in some cases, who has bucked the trend and increased their wealth, on Australia's most comprehensive rich list.
Latest chat with Libby Gore on ABC radio
Finally, have a listen to the regular Wednesday afternoon chat with Libby Gore on 774 ABC Melbourne discussing falling inflation and all things financial.
Will a journalist be charged?
A normally reliable source has been in touch to say that charges against a financial journalist are imminent. Rumourtrage is the allegation and some are even claiming there have been payments from a hedge fund. Oh dear. Let's hope it is not true as this would be shocking for the reputation of the profession.
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.
We've got a pile of lively stuff in this week's edition so make sure you read to the end for the hot rumour about a financial journalist being charged over Rumourtrage.
Enjoy, Stephen Mayne
Big protest against Orica directors and pay
The Orica AGM at the Grand Hyatt in Melbourne this morning was a cursory affair that last only 66 minutes. I arrived an hour late after a bad morning where the car wouldn't start and then your idiot correspondent mistakenly went to the Sofitel.
This meant that on arrival at 11.30am, general business and the director elections had all been dealt with and we were just finally dealing with the remuneration report.
As was foreshadowed in earlier editions, Orica's largest shareholder Perpetual has been waging a war through the press against the company.
Why they pick on Orica yet leave Gunns alone was explored in this Crikey story but still hasn't been properly explained.
Here is an interesting email exchange with the two most powerful stock voters at Perpetual, Matt Williams and John Sevior, which played out at today's AGM:
January 7 email from The Mayne Report:
Hi gents, just wandering if you're resolved a position on voting your stock against any of the three Orica directors up for election at the Jan 30 AGM given various comments in the press over recent months.
Am proposing a Mayne Report story on this but would love some comment or at least a steer, rather than just an assumption that you'll be doing this.
Cheers, Stephen Mayne
This follow-up was sent to Perpetual's big two fund managers yesterday:
Hi Matt and John, didn't get a reply to the last email so will take a punt on your Orica vote tomorrow: I reckon you've voted against finance director Noel Meehan but for the two non-executive directors.
I'll be sending something out after the meeting so would appreciate a reply with any relevant background/rationale on the decision if possible.
Cheers, Stephen Mayne
The reply came back this morning with confirmation that they voted against all the directors.
Having missed the debate on the director elections at the Orica AGM, everything had to be loaded into the remuneration report discussion and it proved to be controversial, sparking quite a response from chairman Don Mercer who expressed surprise that Perpetual was telling me how they'd voted before telling the company.
I let fly on everything from the ridiculously cheap Incitec Pivot sell down at $21 a share in 2005 to the swift rejection of that mooted private equity offer at $32 a share in April 2007. Have a listen to these hard hitting exchanges.
Several directors came up for a chat afterwards including Macquarie Group's Peter Kirby and former Challenger CEO Mike Tilley who hasn't spoken to me since 1994 when he called the Herald Sun to say I was "dead meat" and would be sued for $10 million over a gossip item. It's good to see we can let bygones be bygones after 14 years.
The final votes have been released and the Orica remuneration report copped a hefty 32% protest or 63.7 million shares against, even though only about 3 shareholders at the meeting followed my recommendation to oppose it. We certainly didn't carry the floor today.
However, Orica has now made it onto the top 25 for remuneration report protests, as this list shows and the controversial practice of giving executives non-recourse loans is expected to be ditched in the future some time because it is excessively complex and investors don't like it.
By way of contrast, the directors copped against votes ranging between 21.1 million and 22.8 million, although this was less than the 27 million shares held in Perpetual's last substantial shareholder notice for Orica. Is this another case of lost against votes or did Perpetual not control voting rights on its entire stake? Maybe they sold down more recently.
There has certainly been a breakdown in relations between Orica and Perpetual because chairman Mercer came up after the meeting to say he had a congenial recent meeting with three representatives from Perpetual. I told Don he was talking to the wrong people and he clearly has a problem with John Sevior and Matt Williams who did themselves no favours today by not having anyone speak on their behalf at the meeting.
Finally, check out the edited audio and Mayne Report update after last year's Orica AGM.
Tabcorp and the corruption of placements
Tabcorp yesterday came out and raised $300 million in a selective placement to clients of UBS. As Stephen Bartholmeusz wrote on Business Spectator yesterday, they didn't really need the money.
So why dilute the existing shareholders by selling new shares at $5.80 when the stock had previously closed at $6.79. It's highly dilutive and how on earth does UBS and Tabcorp decide who gets these cheap shares?
Tabcorp's update this morning included the following line: "There was strong demand from domestic and international institutions and the placement was significantly oversubscribed."
The following email was sent today to Tabcorp spinner Bruce Tobin:
Big Bruce, can you please advise the list of shareholders who took up the placement and the fee paid to UBS. Am particularly interested in whether preference was given to existing shareholders and whether it was UBS or Tabcorp who made the decision on who got the cheap stock and who missed out.
Cheers, Stephen Mayne
Tiny shareholders like myself will be fine, because at least Tabcorp is following through with a $5000 share purchase plan at $5.80. But what about the mid-size institution which isn't a favoured client of UBS and doesn't get a look in?
There is no transparency around the selective placement process because the market is not told who has been allocated the shares. At least with a rights issue, all shareholders are treated equally.
It really is time someone did a decent study into the whole system of selective placements because it is ripe for rorting, cronyism, favouritism and kick backs and inherently unfair all at the same time.
Meanwhile, Tabcorp shares fell 28c or 4% to $6.51 at 12:30pm today, given the dilution, dividend cut and a broader modest fall in the market.
Whilst investors in the SPP don't get the 35c interim dividend, it might be worth a punt getting on the register this afternoon because the record date is next Wednesday, as you can see from today's announcement.
I'm naturally on the register and have just bought $500 worth of shares in Paula's name because it effectively gives us a second free option to buy $5000 worth of shares at $5.80 over the next four weeks. The Mayne Report is not into the financial advice, but we're getting better at playing the angles on share purchase plans and capital raisings as this next item demonstrates.
Retail punters offered $358m stag profit on $2.66 billion Wesfarmers retail offer
After Wesfarmers released details of what should finish up as the biggest capital raising in Australian history, I fired off the following email to the company's spindoctors and investor relations people:
Dear Mark, Tanya and Anna,
Could you please pass on in the strongest terms to the board that small Wesfarmers shareholders such as myself would like the opportunity to apply for more the pro-rata allocation at $13.50 to take up shares that are not acquired by other eligible retail shareholders.
If you are not giving small shareholders the opportunity to sell their rights, you should at least give other small shareholders the opportunity to take them up.
Macquarie Office is the model. Check out the details of their recent offer. We were able to take up the 20c one-for-one entitlement and then apply for more and this helped them achieve the $508 million raising. See the final announcement here.
If you really are short of capital then you should give your loyal retail shareholders an opportunity to write out a bigger cheque. It's perfectly legal and Macquarie has shown how it can help, so why not ask your existing shareholders for additional capital, especially seeing as you going outside your existing shareholder base to raise $900 million in a placement to third parties.
Regards, Stephen Mayne
Small Wesfarmers shareholder
PS. I'll be writing about this in the next edition of The Mayne Report. See the latest edition.
The following reply came back which raised out hopes enormously.
From: Anna McPhee
To: Stephen; Mark Triffitt
Cc: Tanya Rybarczyk; Paula Piccinini
Subject: RE: Wesfarmers treatment of small shareholders
Stephen,
Thanks for your email. The Retail entitlement offer will be offered under the same terms as the Institutional entitlement offer and shareholders such as yourself and your readers may subscribe for New Shares in excess of your Entitlement.
Allocation will be subject to availability and you may only be allocated part of the number of Additional New Shares you apply for, or not at all. Information explaining the Retail offer will be sent to shareholders in time for them to review and participate before close of 23 February.
Regards
Anna McPhee
General Manager, Corporate Affairs
Wesfarmers Limited
All this media commentary predicting a 20% take-up of the retail offer is completely inaccurate because the wealthier mums and dads will see the quick profit that is available from buying additional shares at $13.50 when the stock closed last night at $15.82.
Strangely, the ability to apply for additional shares has been significantly underplayed in the 37 page retail offer document as the first mention isn't until page 23.
Indeed, on page 9 Wesfarmers produced this: "The Retail Entitlement Offer is not underwritten. By way of example, based on the assumption of a 15 per cent take-up from retail shareholders, the Retail Entitlement Offer would raise approximately $0.4 billion."
Hang on a minute. If shareholders are being offer stock at $13.50, they would be mad not to take up their full entitlement AND apply for a stack more, given that the shares closed at $15.82 last night. Sure, you don't get the 50c interim dividend but based on the current easy profit of $1.82 a share or 13.5%, Wesfarmers should be banking on the entire $2.66 billion retail component being taken up.
Whilst I only own 7 Wesfarmers shares and will be offered 3 new shares in the offer, I'll turn to various financing and loss underwriting sources and send off a cheque for as much as possible if it remains well in the money.
The offer closes on February 23 so the strategy involves waiting until the last day before doing a BPAY transfer and then hoping the market doesn't crash before the shares are allotted on March 4.
If the retail punters do indeed apply for a much larger allocation than the 15% predicted by Wesfarmers, this will leave the institutions further underweight such that they would then have to buy in the after market.
The maximum 197 million shares that are being offered to us retail punters were last night showing a paper profit of $358 million. Small shareholders of Australia, let's get together and grab it, turning this Wesfarmers capital raising into the biggest in Australian history at $5.6 billion.
And whilst Wesfarmers paid about $200 million in underwriting fees for the institutional component, us retail investors will stump up the money for free, provided it remains in the money.
Babcock salary rorts and our accumulated losses
Karen Maley had an interesting article in The AFR last Thursday quoting bankers accusing Babcock & Brown executives of helping themselves to excessive bonuses in return for managing the voluntary liquidation which is taking place.
This is a bit rich given the huge rollover fees and increased margins the banks have been ripping out of distressed corporate clients, such as Centro, Allco, Wesfarmers and the like.
That said, the Babcock boys have long been one of the greediest crews around and they've destroyed enormous value. Martin Lawrence from Risk Metrics produced the following cracking column on Business Spectator yesterday and we particularly liked this line:
The textbook explanation for overly generous CEO employment conditions has it that a ‘global war for talent' requires paying top dollar to attract the best. On this basis, Babcock & Brown had the second best management team in Australia and US investment banks had the best handful of senior executives of all time.
Many of the listed Babcock funds have now been unravelled but it was very interesting to get this notice of meeting from Babcock & Brown Capital today advising they are pushing ahead with a vote on February 27 to approve a $100 million capital return. However, the vote on the proposed $50 million deal to internalise management has been deferred until the end of March.
Two EGMs in five weeks is strange way to go, but if the banks pull the plug on the parent company in the interim, surely the Babcock & Brown Capital independent directors should try and walk away from the management contract without compensation.
From an investment perspective, the Babcock experience across its 11 different listed vehicles has generated total losses of about $1400 which have unfolded as follows:
Babcock & Brown: bought 55 at $9.66 in May 2005 and 32 at $16.59 in Oct 2005. Sold 32 at $19.82 in May 2006 and 40 at $28.75 in April 2007. Bought 600 at $5.00 on August 14, 2008. Sold 300 at $4.02 on August 18, 2008. Sold 299 at $2.34 on September 26, 2008. Retain one worthless share but have broken even overall.
Babcock & Brown Environmental: bought 560 at 90c on May 25, 2007 and sold 560 at 50c per share into Babcock & Brown mop up bid in February 2008. Loss: $244.
Babcock & Brown Infrastructure: bought 340 at $1.49 on May 25, 2006. Sold 240 at $1.89 on April 17, 2007. Bought 4065 in February 2008 share purchase plan at $1.23. Sold 4000 at $1.315 on Feb 20, 2008. Retain 196. Overall profit almost $200.
Babcock and Brown Power: bought 188 at $2.68 on December 22, 2006. Sold 150 at $3.51 on June 27, 2007. Bought 4065 at $1.23 in $5000 share purchase plan in January 2008. Sold 4000 at $1.31 on Feb 20, 2008. Sold residual 100 at 5.5c on December 15, 2008. Overall profit about $100.
Babcock & Brown unsecured notes: bought 6 at $97 on Jan 2, 2008. Sold 5 at $36 on June 16, 2008. Retain one which is worthless so overall loss about $400.
Babcock & Brown Residential Land Partners Group: bought 600 at 84c on July 27, 2007. Now less than 10c so down about $450.
Babcock & Brown Wind: bought 315 at $1.60 on May 25, 2006. Sold 227 at $1.93 on June 5, 2007. Retain 117 so enjoying small profit.
Babcock & Brown Communities: bought 370 Primelife shares at $1.40 on November 7, 2005. Now worth less than 40c after Lend Lease partial takeover so down about $300.
Babcock & Brown Japan Property Trust: bought 600 at 84.5c and now below 40c so have lost about $300.
Everest Babcock & Brown: bought 105 at $4.95 on April 3, 2006. Received 331 free shares as part of EBI entitlement offer. Sold 336 at $3.53 for $1166. Retain 100 worth sod all. Overall profit $650.
Everest Babcock & Brown Alternative Investment Trust: received free shares when was demerged from EBB, then subscribed to 1497 entitlement at $4.07 a share for $6092 in April 2007. Sold 1497 at $3.56 each for $5309 on May 9, 2007. Bought 641 at $1.97 on October 24, 2008 and have since swapped into an unlisted vehicle but should recover 100% of this latest play within 12 months. Overall loss expected to be about $700.
Not a pretty picture, but at least there were some profitable trades, unlike the Allco experience which generated losses of about $3000.
Babcock & Brown Power class action
Meanwhile, Michael West had all the detail on a class action against Babcock & Brown Power in this recent article on the Fairfax websites.
I've signed up to join in the fight and check out this special website for the class action.
Time for Boral chair Ken Moss to go
Building products giant Boral has once again come out with a shock profit downgrade which serves to confirm once again that chairman Ken Moss should retire when his term expires in November.
Boral shares dived 15.7% on the day, meaning it has made our list tracking the biggest one day share tanks in history.
Meanwhile, have a listen to the debate from last year's Boral AGM where we asked Ken Moss to retire at the end of his term considering it has been 10 years and his shoddy record on other boards such as NAB and GPT.
Sadly, he answered "no", but his big shareholders will hopefully step in and make it happen.
Perpetual's John Sevior has long been a big critic of Moss and even voted against his re-election to the NAB board back in 2002, although that was just after NAB's funds management operation MLC had cut Perpetual from its list of fund managers.
Time to focus on Moss again, Mr Sevior, rather than your favourite whipping boys at Orica.
Woolies infiltrates Australia Day as Queensland moves on kids in venues
The pokies campaign is gathering pace as I've joined the Victorian Local Governance Association's working group on gaming and we had a fascinating two hour meeting on Wednesday morning. There was also a speech to about 30 Victorian mayors last Saturday on a training weekend where Woolworths got both barrels for their dominant position in the hugely damaging pokies industry.
It came as quite a surprise to then turn up for Manningham's Australia Day citizen of the year presentations and discover that Woolworths were sponsoring the day and the local Safeway store manager got to give a speech promoting the forthcoming rebranding of the Victorian supermarkets to Woolworths and all these great things it does in the community.
Fellow councillor David Ellis objected to this commercialism on Australia Day in the council chamber on Tuesday night and I followed up asking whether the officers involved were aware that Woolworths operated 350 of the 617 pokies in the City of Manningham, which causes enormous damage to our community.
The officer replied that she was not aware of this and we later discovered that the Woolies sponsorship was foisted on councils by the state government, which is hoping Woolies will write a cheque for more than $1 billion to buy up new pokies licences in 2010.
Meanwhile, check out this recent article in The Courier Mail about attacks on pokies venues which have rolled out children's play areas.
This is totally relevent for three of the Woolworths pokies venues in Manningham - The Doncaster Inn, The Shoppingtown Hotel and the Cherry Hill Tavern - which are designed to lure children with everthing from Wiggles shows to games and play areas.
Macquarie commissioned by ghost group to fund a white elephant
As twice reported by Fairfax, read here and here, the NSW government is re-assessing a proposed $1 billion-plus tunnel to link Sydney's Warringah Freeway to a new, elevated Spit Bridge.
Supposed community group, Sensible Transport Action Group, fronted by Mayne Report rich lister Peter Papas, has commissioned the toll road arm of the Macquarie Bank, to promote discussions with the Road Traffic Authority of NSW, but the government is cooling on the idea because of cost blowout concerns.
After researching further, information about the Sensible Transport Action Group or, is limited. Just who is this community action group and does it involve anyone else apart from Peter Papas?
Our research suggests that Peter Papas is no more an investment banker than the Sensible Transport Action Group is an actual community group.
This is our rich list entry about Peter Papas:
Peter Papas: he rode the technology boom of the 1990s establishing and selling two software companies and was also the founder of N-Space which he sold to a subsidiary of MYOB.
Macquarie Office and other capital raising plays
We gave Macquarie Office a big spray in the last edition and ended up having quite a hair raising adventure pumping $20,000 into their emergency $500 million one-for-one rights issue at just 20c a pop.
We backed the offer when the stock pushed up to 27c, but then Macquarie changed the rules on the day it was meant to close and, lo and behold, the stock crashed.
Shares usually weaken straight after a capital raising as short term investors sprint for the exits, but when Macquarie Office hit a low of 18c on Wednesday, we were staring at a $2000 loss. Alas, it recovered to finish at 21c yesterday, which means Macquarie Group isn't looking too bad after pumping in another $100 million and lifting its stake from 9% to 16%. We're largely out of it, breaking even in the end, and will now move on to the increasing amount of forthcoming share purchase plan offers which are all detailed here.
The growing $2 billion-plus discount to NTA club
We've updated our list looking at companies trading at the biggest discounts to claimed net assets in their annual reports and can now report there are 16 which are over $2 billion, as follows:
News Corp: $14 billion
Wesfarmers: $9.1 billion
GPT: $4.69 billion
Centro Properties Group: $4 billion
Macquarie Countrywide: $3.08 billion
Fairfax Media: $3 billion
Centro Retail: $2.74 billion
Goodman International: $2.7 billion
Babcock & Brown Infrastructure: $2.69 billion.
Macquarie Office: $2.6 billion
Mirvac: $2.48 billion
Babcock & Brown: $2.37 billion
Macquarie Infrastructure Group: $2.2 billion
Macquarie Airports: $2.2 billion
Valad Property Group: $2.2 billion
Gunns: $2 billion
Whilst the write-downs are starting to trickle out from the likes of Westfield and Lend Lease, they don't go nearly far enough. That big debate between auditors and companies trading at huge discounts to NTA is getting about as hot as the Melbourne weather right now. All will be revealed in February.
Rich List bigger and better than ever
Following the worldwide destruction of capital, the Mayne Report rich list has undergone a major review. Current share holdings and the peak and trough values of those holdings is a new addition, giving a clear insight into the astronomical losses that have occurred.
We have italicised some names which indicates that their current worth has fallen below our cut-off point of $10 million. Check out who has lost the most, and in some cases, who has bucked the trend and increased their wealth, on Australia's most comprehensive rich list.
Latest chat with Libby Gore on ABC radio
Finally, have a listen to the regular Wednesday afternoon chat with Libby Gore on 774 ABC Melbourne discussing falling inflation and all things financial.
Will a journalist be charged?
A normally reliable source has been in touch to say that charges against a financial journalist are imminent. Rumourtrage is the allegation and some are even claiming there have been payments from a hedge fund. Oh dear. Let's hope it is not true as this would be shocking for the reputation of the profession.
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.