This $8m is absurd
Terry McCrann
February 14, 2010
Hands up anyone who'd like to be given $8 million to make an investment
that should grow in value and will produce $330,000 of income each
year -
that's over $6000 a week, clear, after tax. Sure, the $8 million is actually a loan - and that income will go to
pay it
down. But the loan comes interest-free. And in the unlikely event of the investment going bad - about as
likely as
the Pope ceasing to be a Catholic - any balance does not have to be
repaid.
The more likely outcome is that over the next 10 years or so the
income -
which will increase from year to year - will pay out the loan, and
the
lucky punter will be left with an investment worth anywhere between
$20
million and $30 million.
Absolutely clear. And also by then, generating perhaps $600,000 or more in tax-free
income
every year. Sound like a good deal?
All profit and absolutely no risk?
Well,
that's
exactly what has been given to Ross
Wilson as part of his
package to head
the about-to-be-floated Victorian TAB. And it comes on top of a basic salary
of $670,000 a year - close to double what the NSW Government was
offering
to find someone to run the Sydney Olympics - plus all the usual
perks of
executive office including luxury car. Oh, there is a small catch. The former brewery chief has to put in
$30,000
of his own money upfront.
Some catch: $30,000 to get perhaps $20 m-plus in 10 years.
There are only three words to describe it: absurd, outrageous, and
unacceptable. It has all the worst features of the excesses of the
1980s,
and the board of directors of the new Tabcorp Holdings should
renegotiate -
down - this package with Mr Wilson.
The details are disclosed in the fine print of the Tabcorp
prospectus. Mr
Wilson will be issued with 3 million Tabcorp shares. He has to -
theoretically - pay the same price as everyone else, which the
Government
will determine somewhere between $2.25 and $2.70 a share.
However, all but 1c a share of that price will be funded by an
interest-free loan from Tabcorp to Mr Wilson - with dividends on the
shares
going to repay the loan except for an amount equal to Mr Wilson's
tax
liability on the dividends.
Tabcorp has predicted it will pay a dividend of 14.5c per share in
1994-95;
that adds up to $435,000 on Mr Wilson's shares. The dividends will
be
franked, which means they are mostly tax-free.
However Mr Wilson will face a tax liability of about $105,000 on
those
dividends - that means he will get about $330,000 in net dividends
which go
to paying off the loan. As the dividends rise, so will this amount,
and the
faster he will pay it off.
If he leaves Tabcorp, he has two years to pay out any outstanding
balance;
and if he fails to do so, the company can sell the shares to recoup
its
money. But if that falls short of the outstanding loan balance, Mr
Wilson
is excused the difference.
Now this package reproduces the notorious 1c-paid shares used by
Christopher Skase at Qintex and John Elliott at Elders IXL to get
rich very
quickly.
Like Skase and Elliott, Mr Wilson parts with only 1c a share - but
he reaps
an extra benefit of getting hefty dividends on the shares, unlike
the
earlier duo who could get dividends only if they paid up the shares
in
full. Now some sort of equity incentive would be quite appropriate for Mr
Wilson,
but the fairer and more acceptable way of doing so would be to issue
him
with options to subscribe for Tabcorp shares in future.
With those options crucially only exercisable into shares at prices
above
the price at which Tabcorp is being floated to the public. This
would mean
he would reap a profit only if he succeeded in lifting the
performance of Tabcorp with a resultant higher share price benefiting all
shareholders.
This is what, for instance, Westpac has done with its new managing
director
Bob Joss.
The other feature of the Wilson shares is that they work like a
special
superannuation package which gets around the Federal Government's
recent
tightening of the rules to discourage multi-million dollar lump sum
payouts. Mr Wilson ends up with effectively a $20 million-plus retirement
lump sum
on which the only tax liability is capital gains tax - and only when
he
sells the shares which are generating by then perhaps $600,000-plus
of
tax-free income. Meanwhile, Tabcorp picks up the tax tab via Fringe Benefits Tax each
year
on his interest-free loan.
Apart from this, Mr Wilson also gets to buy 500,000 other Tabcorp
shares
under the company's employee share plan - basically structured the
same way
but without Mr Wilson even having to part with 1c a share. Other Tabcorp employees can do so as well - but they get only 500
shares if
they're casuals or part-timers, 1000 shares if in full-time jobs.
The Wilson package would be outrageously excessive in any company.
But even
more so in the case of Tabcorp which quite simply should be easier
to run
and improve than a major industrial company like BHP and Westpac. Sure, a good executive like Mr Wilson can improve its operating
efficiencies and focus its strategic direction. But it has a monopoly on wagering in Victoria and shares a duopoly
with
Tattersalls on poker machines - plus the casino.
Mr Wilson would be a very poor executive if he couldn't boost Tabcorp's
performance selling gambling to Victorian punters - while getting
very rich
in the process.
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