BHP 2001 EGM transcript

MR STEPHEN MAYNE: I know that your nickname at the National Australia Bank was “Don't Argue” but I think that there is a fairly strong case for argument here, and there's also a fairly strong case for some more debate. You've hinted at winding up debate after only ninety minutes, and I'd just like to stress to you that this is the most important shareholder meeting in the last twenty years in Australia in terms of a major company putting a massive decision which has a lot of contention to it. And, whilst I'd encourage you to be maybe a combative Chairman and maybe cut people off if they ramble, but, please don't try and stifle debate when there is so much at stake.

I want to speak against the merger proposal, primarily on financial grounds. There are good corporate governance issues, which we've heard well articulated. But, the bottom line here is a strict financial question. J B Were is estimating that there's a $5.5 billion transfer from BHP shareholders to Billiton shareholders. Maybe there's an argument that BHP has an incompetent track record in terms of management, and Billiton has a great track record in terms of management.

Jack Tilburn has already mentioned that we've written off $10 billion over the years. If you add the opportunity cost of selling out of our 40% stake in Woodside at $2.62 back in 1990, we're now talking of doing a deal to get back in at $14.50 or something. I mean, there's a few billion dollars of lost value again. Selling out of Fosters at $2.60 - they're now $5.20. The list goes on and on. And, now there's another five and-a-half billion dollars of value which you're blowing away. I mean, the total figure gets close to $20 billion over the last ten years.

Now, some people say that Brian Gilbertson is just a South African version of Robert Holmes-a-court. He's a very, very expert asset trader, and he's just done the deal of his lifetime. I guess the question we have to face now, given that most of the institutions and most of the experts are saying that this is not a good financial deal - is assessing what happens if we vote ‘no.' They're the two questions today.

Now, I would submit that the share price, providing that the Board doesn't do a petulant dummy spit and all resign, and if Don and if Don's got a three-year term here, Don should continue as Chairman if this deal gets rolled. Paul Anderson signed a contract for five years. Paul Anderson should serve out that contract in the interests of his shareholders. If his shareholders say, “We don't like this deal” there's no dummy spitting, there's no running away. I think that needs to be made very, very clear, because that's the gun that is being held to everyone's head.

All the institutions that I've spoken to around town are saying, “We don't want to vote for this deal. We don't like it. It's a bad deal, but the implication is that the share price will fall in the short-term, and there will be instability.” And, you've used very emotional language today, Mr Chairman, “rotting on the vine,” “won't be able to attract good management.” I mean, as if the world is going to end.

BHP has been around for a long time. The world will not end if we vote against this deal today, but there will be some problems if there's a mass exodus from the Board, and if the Chairman and the Chief Executive resign.

So, I think you should today remove this gun, which is being held to everyone's head, and say, and commit, that you will do whatever the shareholders want you to do, because we're the people who are the bosses here. We've appointed you, and if we don't like this deal, you should continue to serve out your time.

THE CHAIRMAN: Well, I think I've already answered that one, Stephen. I've explained that to the shareholders at large.

MR MAYNE: But, you've said you will consider your position.

THE CHAIRMAN: Well, I ...

MR MAYNE: That's implying you'll quit.

THE CHAIRMAN: I'd love to stay on, but I'm sure if the shareholders haven't got confidence in us, then you've got to consider your options.

MR MAYNE: I say that we would have full confidence in you continuing to Chair an independent BHP, full stop.

THE CHAIRMAN: Yes, I hear that, Stephen.

MR MAYNE: Billiton exported $6 billion in the last eight months, buying assets, particularly the Worsely Bauxite Plant in WA and Rio Algom. They have a slightly over-geared balance sheet. They are stretched. They need our cash flow.

If this deal fell over, if we voted against this deal, we would still hold some trump cards to go back in there and re-negotiate a better deal. Anglo American has sold out their sectors and stake in Billiton. They no longer sit there as the block of your shareholders. They clearly made a very big statement. The share price rose 20%. Anglo sold out. That was a big statement that they feared the BHP shareholders would not back this deal - which we should, because it's not in the interests of BHP - and they feared the Billiton share price would then fall like a stone. It's not the BHP share price that will fall if this deal gets voted down today, it's the Billiton share price that will fall, and we will be in a good position to go in there and re-negotiate just like Telstra did with PCCW when they negotiated a dud deal. Their shareholders said go back and improve it. They went back and improved it, and you should do exactly the same thing.

I'd also to reflect back on the institutions here. We've heard a lot from the unions today. We haven't heard a peep from the institutions. I was at an Australian Shareholders' Association function in Sydney yesterday where Senator Steven Conroy spoke - who is the Shadow Financial Services Minister - and he was damning of this deal, and he was damning of the behaviour of the institutions for the way they'd just buckled to this gun to a head tactic that's been used against them.

Peter Morgan from Perpetual was at this meeting yesterday. He's the only institution, Perpetual Funds Management, that have publicly come out and said that they're going to stick to their guns and oppose this deal. There was a very, very, very strong sentiment at this meeting yesterday, including Perpetual, including Labor's relevant Minister and including a lot of small shareholders, that they don't like this deal. And, there's a lot of disenchantment with the institutions that have buckled and said they're going to vote in favour of it. And, I think it's a very poor reflection on the club in Australia - the corporate club. For instance, how do the fund managers at Colonial feel when their Chairman, the Chairman of the Commonwealth Bank, is John Ralph. John Ralph sits up here today as a director of BHP. Do you really think that the fund managers at Colonial are going to embarrass their own Chairman by voting down this deal?

THE CHAIRMAN: Stephen, you know that John Ralph can't get involved with the affairs of that entity. Now, come on, let's be real, Stephen.

MR MAYNE: I'm not saying...

THE CHAIRMAN: Will you get to the point, please.

MR MAYNE: John Ralph hasn't rung up the fund managers and said, “Vote Yes,” it's the implication.

THE CHAIRMAN: Oh, come on, Stephen. Stephen, I give you a lot more credit than making allegations like that. Come on, you know better than that.

MR MAYNE: I'd just to... all right, I hear your point. I'd just like to wind up by saying that given what the Rio Tinto share price has done in the past six or eight weeks and what the Western Mining share price has done in the past six or eight weeks - they've both risen more than 15%, they've both dramatically outperformed the BHP share price - the implication there is that mining stocks with access to the great low Australian dollar, which is what BHP has got, will continue to rise, and if the BHP shareholders knock back this deal, there is every chance that the stock will go through $25 and keep rising, rather than all the emotive things that you're suggesting about ‘rotting on the vine' and not being able to attract good executives to run the company.

The Chief Executive has three years to go on his contract. There's no question of short-term succession crisis. If he serves out his contract, BHP will be very strong, very independent, and the share price could be much higher than it will be if this merger goes ahead.

THE CHAIRMAN: Thanks, Stephen. Well, I don't think I've got too many things to answer there, Stephen. I've answered the issue on the executives and my position. The $5 billion, I'm surprised you'd throw that up to me, because you used to be a pretty good analyst at these things, but if you take things at spot rates, then, clearly, you're going to come up with those numbers, and I think you do understand that very well. If you want to take things at average rates then you'll get a different answer. And, as a Board, and as a good analyst, they all start to average things out, because if you start taking things in the short-term, as we heard before, then, clearly you won't come up with those sort of answers that are prudent from a Board point of view.

MR STEPHEN MAYNE: Chairman, just two quick points. On the question of BHP Directors being required to own a thousand shares, if an outsider wanted to run for the Board, is that something they would have to satisfy before nominating, because a lot of companies build in these provisions to keep outsiders out from being eligible to run?

THE CHAIRMAN: No, that's not the intention, Stephen. The intention is for the Board to show commitment to the strategy of the company that they're involved with.

MR MAYNE: Okay. And, just secondly, the Directors' fees we're going to approve later on, you're specifically setting out in the new Constitution that they're not to include superannuation payments. Senator Stephen Conroy made the comment yesterday that, to start with, he couldn't work out why non-executive directors got superannuation payments, because they're not employees. And, secondly, why they're not included in Directors' fees. So, with Lend Lease this year, we had all these directors who walked out, these non-executive directors, who walked out with an $800,000 retirement benefit.

Now, if you want the shareholders to approve huge superannuation packages, it should be included in the directors' fees. I mean, I don't now if we're going to be giving you a $3 million super payout at the end, because, according to this new Constitution, you're explicitly excluding super from directors' fees. Why is that?

THE CHAIRMAN: Well, if you have a long-term... the way the directors are engaged at the moment, if they're on the Board for a long term, then, clearly, they get a lump sum payment at the end. So, I can't explain it any...look, there'd be nothing better than to lift the directors' fees and do away with the lump sum payment - and that is where that is happening in other parts of the world. But, at this stage, it hasn't happened here.

MR STEPHEN MAYNE: Chairman, I'd like to concur with the previous speaker that if they're not going to be here to answer questions and those sorts of things, then they shouldn't be getting elected. I'd actually far prefer that they all got appointed in a couple of weeks when the merger is approved. We don't even know yet that the merger is approved, and we're voting them on to the Board. I mean, what if the merger goes down, and we've still appointed them to the Board, etc, etc?

So, I think that... could you also explain are they all getting three-year terms, because if you have them just... ?

THE CHAIRMAN: The same rotation period, yes.

MR MAYNE: Right, okay. It would have been preferable if they had have been appointed and we could have then elected all of them at the AGM at the end of the year, rather than some of them getting a three-year role, three-year term, without ever having been put before the shareholders.

Just on Mr Gilbertson, could you please give us the full details of his contract.? Someone's mentioned that there's a four-year term, and as a precedent here - I'd cite that in America by law you have to actually make details of a Chief Executive's contract available, and Jack Welsh, for instance, of GE, his contact says he can be sacked at any time for any reason, and it's just a one page contract. So, can you just give us the bare bones of what his contract is?

And, also, I notice that two Directors that haven't been invited to join the Board are David Munro and Miklos Salamon, the two Executive Directors from Billiton. I presume the thinking there was to not have a top-heavy management presence on the Board, but I guess - - - I would argue that you should have extended that philosophy that if it's good enough to boot some management people off the Board, then you should also have booted some non-executive directors off the Board, because we have a cumbersome Board of eighteen and it's too many. Clearly, each side should have just said, “Let's save the shareholders a few hundred thousand a year and two of us bow out straight away.” If the management can bow out, then, surely the non-executives can.

I'd also, in the case of choosing which management will be on the Board, without anything personal against Ron McNeilly, he's been on the Board since 1991 as an Executive Director. We've had the $10 billion written off, he does represent the ‘old guard' and my personal preference would have been to have, say Chip Goodyear, who's a new guard, on the Board, as the second management representative, rather than Ron - nothing personal - but who doesn't have the track record over the last ten years.

THE CHAIRMAN: Thanks, Stephen. I hear what you say. As you know, the practices in the UK are a little different to the practices here where Boards over there have more Executive Directors on their Board than non-Executive Directors in some cases. Now it's moving away from that. They've only just moved away also from the separation of duties for the Chairman and the CEO. So, there's changes happening all around the world.

Our corporate governance out here is such that we will review the capabilities, the numbers, and how we go about this as we start to evolve with this. It is part of the condition of the approval that we do put both Boards together initially.

Okay. I know put the motion to the vote.

MR STEPHEN MAYNE: Mr Chairman, I would like to comment on the fact you have committed that the directors' fees in the future don't rise. I think a few of us have strong memories of what happened in the CRA RTZ merger, where all the Australian directors had got very handy pay rises with regard to what their British counterparts were going to, so the Chairman, who had been given something like $250,000 a year to $500,000 a year, making him the highest paid, non-executive Chairman in Australia. That's Mr John Nury, who got $2 million out of that deal at the end of the day.

So, I'm pleased to see that you're not following that path, and given that this is the last resolution, some of us are still deciding how we want to vote in the poll. We've been four and-a-half hours, and we still have not heard a peep out of these brave institutions that actually will carry the vote today. So, I'd ask that you display the proxy votes that have been lodged with the company before we actually enter our votes into the polling boxes. But, after the debate is concluded, so there can be no suggestion of intimation, from seeing such an overwhelming vote.

So, I think by law you are actually required to do that, and given that we haven't seen any sign of any proxies in four and-a-half hours, I'd just like to get your assurance that you will put up on the screen, all the proxies for and against, and also clarify what, if anything, you will be doing with any open proxies that have been left with you, the Chairman.

THE CHAIRMAN: Well, Stephen, as you know, I'd prefer not to put the proxies up when you've got a group of people here. I don't like to see people influenced by how others vote. But, if you are insisting on it, I'll test out what the rest of the meeting require. Clearly, we will disclose the proxies, after we've taken the proxy votes, so how do you all feel? Do you want me to disclose the proxies at this stage? Could I see a show of hands, please.


Go here for a full chronological list of edited AGM transcripts available from the past decade of shareholder activism.

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