Macquarie, ABC Learning, AMP
July 22, 2008
Here are Stephen Mayne's four stories from the Crikey edition on Tuesday, 16 May, 2006.
1. The Millionaire Factory: a staggering juggernaut
By Stephen Mayne
Macquarie Bank started out in the early 1970s as the Australian offshoot of British investment bank Hill Samuel. For its first 20-odd years it remained privately owned, until the stock finally debuted on the ASX in July 1996 with a modest market capitalisation of $1 billion.
Fast forward 10 years and today we are looking at a global juggernaut valued at $15 billion, but with a staggering $140 billion in funds under management – more than any other Australian-based investor.
The key difference between Macquarie and its more passive rival fund managers is that the Millionaire Factory likes to buy direct assets, such as tollroads, airports, power stations and media companies and then stick them in one of the 26 different satellite funds that it manages around the world.
The model relies on investors tolerating Macquarie's huge base and performance fees, something which is coming under increasing pressure as some investors face losses.
Macquarie Bank has now grown too big for the Australian market. The full list of its global empire is listed elsewhere in this edition, but it includes 33 major tollroads, 296 industrial properties, 321 supermarkets and other retail properties, 7 airports, 17 energy distributors and utilities, 40 office buildings and 85 commercial radio licences.
However, the story of today's record $916 annual million profit is international expansion, because 48% of earnings are now coming from offshore. Having cornered the Australian tollroad market, global infrastructure investment is now at the heart of the Macquarie growth story because 73% of its infrastructure and property assets are now offshore.
The most breathtaking deal of all might yet be a back-door takeover of Eurotunnel, the embattled operator of the $24 billion, 51km train tunnel linking France and England.
Eurotunnel isn't such a bad operating business with a gross margin of $700 million on revenue of $1.3 billion from the 2 million cars, 1.3 million trucks and 77,000 buses that travelled on its 25 trains under the English Channel in 2005.
However, there is the small matter of $15.5 billion in debt costing about $1.3 billion a year in interest, so if Macquarie is going to invest $500 million it will need to completely shaft shareholders and other creditors and leap up the queue.
Given its preparedness to go over the top buying everything from Taiwanese cable companies to American tollroads and European airports, don't be too surprised if Macquarie pulls this one off, although its failure to land either the London Stock Exchange or Patrick Corp has blotted its copy book in recent months.
All up the Macquarie story should be celebrated as it has created enormous wealth from Australia, which is increasingly coming from stitching up clients, customers and counter-parties around the world rather than the traditional model of out-negotiating dopey Australian state governments.
However, successfully managing such a sprawling global empire will become increasingly challenging, especially if the infrastructure asset bubble starts to deflate. Then again, managing director Allan Moss gloats that he stress tests the bank regularly to make sure it could survive a 40% slump in world equity markets. If that happened, we'd all be in trouble, let alone the outfit in Martin Place which has generated up to 1000 millionaires over the years.
2. Macquarie Bank smashes the executive pay records
By Stephen Mayne, proud owner of six Macquarie Bank shares
Stand by for another major public debate about executive pay as Macquarie Bank has smashed all the records with its latest salary deals for the year to 31 March, 2006.
Net profit was up 13% to a record $916 million but the salary packages have risen at a faster rate. Managing director Allan Moss lifted his overall package from last year's staggering $18.5 million to $21.2 million and investment banking boss Nicholas Moore wasn't far behind as he rose from $18.2 million $20.6 million.
Macquarie's co-head of corporate finance and veteran infrastructure deal maker, Michael Carapiet, has leapt up the league ladder into third spot with $15.88 million, but he must have been on sabbatical the previous year when he only collected $1 million.
Property boss Bill Moss went fractionally backwards to an even $15 million, while Andrew Downe, the treasury boss who magnanimously announced that gift to the Beaconsfield workers, had a bumper year rising from $10.3 million to $14.26 million.
Chairman and co-founder David Clarke, who commits half his time to Macquarie, finally cracked eight figures, lifting his pay packet from $9.7 million to $11.4 million and should feature along with several other Macquarie bankers in the 2006 BRW Rich List later this week.
Macquarie is now second highest in the investment banking world in terms of the percentage of net income which goes to employees. At 52%, this comprised a total employee cost of $2.3 billion, which averaged $280,000 across the bank's 8,200 staff worldwide.
The top seven executives lifted their overall pay packets from $89.15 million to $110.76 million, meaning the average leapt from $12.73 million to a staggering $15.82 million. There is no other ongoing Australian executive on that much, save for the odd farewell payout such as David Murray's $27 million at CBA, yet the Millionaires Factory can average this huge figure across its top seven. Amazing!
Here is a table listing Australia's 20 highest paid bankers and there aren't many executives from other industries that would make the list:
David Murray: departed CBA CEO, $27m
Allan Moss: CEO Macquarie Bank, $21.2m
Nicholas Moore: Macquarie investment banking boss, $20.6m
Michael Carapiet: Macquarie infrastructure chief, $15.88m
Bill Moss: Macquarie property boss, $15m
Andrew Downe: Macquarie treasury boss, $14.26m
Ottmar Weiss:Macquarie commodities boss, $12.4m
Phillip Green: CEO Babcock & Brown: $12.18m
David Clarke: Macquarie chairman, $11.4m
Michael Maxwell: Babcock property chief, $10.06m
Peter Hofbauer: Babcock infrastructure boss, $9.44m
David Morgan: Westpac CEO, $9.1m
John McFarlane: ANZ CEO, $7.2m
Martin Rey: Babcock Europe boss, $7.03m
Richard Sheppard: Macquarie deputy MD, $6.2m
John Stewart: CEO NAB, $5.9m
Ahmed Fahour: CEO NAB Australia, $5.9m
Steven Zissus: Babcock US boss: $5.73m
David Ross: Babcock COO, $5.64m
24. Who gets to vote at ABC Learning's EGM?
By Stephen Mayne, owner of 80 ABC Learning shares
We've been waiting for the right moment to reveal a previously unreported flaw in Australia's corporate voting system, and childcare king Eddie Groves has presented the perfect opportunity.
The ABC Learning notice of meeting came through yesterday for an EGM in Brisbane on 7 June to approve seven resolutions including two that relate to $600 million worth of share placements with professionals to fund further takeovers in Australia and the US.
The first placement of 44.1 million shares at $7.30 apiece to institutions on 9 May comprised 12.47% of the company's shares and this has to be approved by shareholders in order for a second placement of 38.1 million shares, 10.74% of the expanded capital base, to proceed on 14 June.
The Corporations Law only allows up to 15% of a company's capital to be placed with new shareholders in any 12 month period without shareholder approval.
Recipients of those shares will be ineligible to vote on the resolution but this can be difficult to track. Shares get turned over every day so how on earth will the auditor and share registry outfit Link Market Services (the old ASX-Perpetual) know which shares can't be voted?
The other complexity comes when a fund manager accepts shares in a placement on behalf of a range of superannuation clients, who usually control the voting. How does the likes of AMP instruct its superannuation clients as to which of the ABC Learning shares are for them and what proportion of them are from the placement and can't be voted?
It will also be interesting to see whether Eddie or his wife can vote their 37 million shares given that Eddie is now a shareholder in Austock, the small broking outfit which has handled the company's capital raisings over the years and collected a tidy fee from the latest $600 million raising. This sort of conflict of interest really shouldn't be tolerated.
Interestingly, there's no mention of any share purchase plan for us smaller shareholders to allow us to pick up more stock at $7.30, although now that the stock has fallen from a record high of $8.50 in March to $7.42 this afternoon, the opportunity cost from being diluted by the big boys isn't so great.
Eddie has also taken the opportunity to seek approval for a range of equity incentive schemes at the EGM, so there's enough action to justify spending $400 on flights, trains and car parking to have a decent sparring session with the lad who will have moved up the BRW Rich List when the 2006 version comes out later this week.
As president of the local parent-run kinder, how could I miss an opportunity to lock horns with the man who built the world's biggest child care company and has his chief benefactor, former Federal children's minister Larry Anthony, sitting on the board with him?
25. Will Meredith Hellicar face an AMP protest?
By Stephen Mayne, small AMP shareholder as of yesterday
There's something quite perverse about the chairman of asbestos killer James Hardie being on the board of Australia's biggest life insurer, so it will be fascinating to see what sort of reception Meredith Hellicar gets at the AMP AGM in Sydney on Thursday when she faces re-election.
Hellicar was recruited to the AMP board by her old James Hardie mate Peter Willcox in March 2003 as AMP teetered on the brink while its UK operations dropped more than $5 billion. As a cleanskin she was strongly supported by AMP shareholders at the AGM two months later with 339.7 million proxies in favour and only 4.37 million against.
However, the appalling governance and attempted deception by James Hardie over its asbestos liabilities will stay with the company's long-serving director and current chairman for decades, so expect a few industry funds to perhaps make a modest protest, despite AMP's stellar recovery over the past two years.
Hellicar last faced election at the 2003 James Hardie AGM but this was before the asbestos scandal blew up so it was no surprise she received 258 million proxies in favour and only 0.1 million against. She only assumed the Hardie chair in 2004 and immediately ran into the firestorm around its attempt to escape asbestos liabilities by scurrying off to Holland and creating an severely under-funded subsidiary to meet any payouts.
Ironically, former chairman Alan McGregor and the lawyer turned Hardie director who helped create the scheme, Peter Cameron, have both subsequently died of cancer while their successors have agreed to stump up an estimated $1.4 billion over the next 40 years to compensate those poisoned by James Hardie products.
Hardie finally took the profit hit on this liability yesterday when it reported a full year loss of $670 million, ranking it 19th on Crikey's list of Australia's biggest loss-makers over the years.
I'll be at the AMP AGM in Sydney speaking against Hellicar's re-election based on her attempted asbestos chicanery and inquiring as to whether many victims of James Hardie's products received life insurance payouts from AMP. However, you can't fault her commercial performance because Hardie yesterday reported a 63% jump in operating profit to a record $274 million, although the stock still fell 5%.
Hardie is even receiving plaudits in some quarters for not renewing the completely inappropriate consultancy deals for former CEO Peter Macdonald and finance director Peter Shafron, something which ought to have been a no-brainer given the stink surrounding their behaviour.
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Sports Desk
26. Wendell rains on state of origin… at last
Jeff Wall writes:
Ever since he switched codes five years ago, Wendell Sailor has been trying to grab the headlines from rugby league, and undermine the code that tolerated him for too long.
Yesterday he finally triumphed – but it is a victory (thanks to a failed drug test) that he won't be celebrating.
Wendell's "triumph" won't save him from oblivion if the second sample is positive – and, fortunately, rugby league's obligations under world anti-doping protocols will block any notion of coming back to rugby league.
State of Origin will soon get the headlines back, with game one at Telstra Stadium on Wednesday week.
The NSW Blues team was entirely predictable, whereas it was the Maroons that made all the changes: usually it's the other way around. The Maroons will field an unprecedented seven newcomers to State of Origin – the Blues just one, Luke O'Donnell, but he has test match experience.
Those who take but a passing interest in rugby league will be surprised to know there is no Andrew Johns, no Shane Webcke, and no Ben Kennedy – all have retired from representative football.
The fact the Blues are still able to produce a team in which 16 players have State of Origin experience is evidence of the depth that has enabled the Blues to dominate State of Origin in recent years.
The Maroons have opted for a younger, much less experienced lineup, including 19-year-old Greg Inglis who even Blues supporters rate as the best young player in the game today.
Despite the absence of some of league's best players, this Origin series shapes up as a more interesting contest than in recent years. It's just not possible to be confident about the outcome of a contest between a very experienced team and a comparatively inexperienced one.
The Maroons selectors had no choice but to go for new blood. The Blues selectors were able to stick with the nucleus of the team that has delivered series victories in recent years. We will know which approach is on the mark in eight days time. Back to Top
27. Webb back but Wie gets the headlines
Nick Place at the Crikey sports desk writes:
It turns out Karrie Webb can still play. After surprising everybody including, you suspect, herself by taking this year's first women's golfing major, the romantically named Kraft Nabisco, she has now become the LPGA's first two-time winner of the year.
The Aussie 31-year-old blitzed them over the weekend in Virginia. She eventually won by seven shots, at 14 under par, continuing the rich form that has also seen her record two second-place finishes and a 10th since winning her seventh major.
“I think the last four weeks proved to probably a lot of people and proved to myself, as well, that Kraft wasn't a fluke,” Webb is quoted as saying on SportsIllustrated.com today. “I didn't come out of nowhere, pop up, win that and disappear again.”
Last year's winless season must seem like a distant memory now Karrie is back on top of the women's money list and savouring her 32nd career trophy.
But while Webb was reminding the tour of her capabilities, wunderkind Michelle Wie was creating headlines simply by filling in her calendar.
The 16-year-old is still not even a card-carrying member of the LPGA yet it was announced yesterday that she has her second exemption in three years into the US Women's Open, meaning she can avoid the 36-hole qualifying round. This while the kid was contesting the first stage of qualifying for the US Men's Open in Hawaii, between classes to finish junior high.
Wie has the potential to truly bridge how people see the men's and women's tours. At 16, her 2006 schedule includes 14 tournaments, including three confirmed starts on the men's PGA tour and her first start on the men's European tour. She recently made the cut for the first time in a men's event, in Korea, and hasn't missed a cut on the women's tour since she was 13-year-old. Back to Top
28. F1: Don't declare peace yet
Andrew Maitland writes:
The headlines screamed "Peace!", but the car makers' so-called deal with F1 supremo Bernie Ecclestone, unveiled on Sunday at Spain's Circuit de Catalunya, is far from complete.
It is interesting to note the slightly mixed messages out of the two press releases. The Renault announcement made it clear that the concrete is now drying. A deal, no doubt, is done. Following suit, the Grand Prix Manufacturers' Association's (GPMA) document to the press indicated that Toyota, Mercedes, Honda and BMW are also now committed.
But, for the last quartet, there is no "Concorde" in sight. What they signed in Spain is a memorandum of understanding, which, crucially, excludes the signature of a fairly important 75-year-old supremo named Bernie.
Indeed, their "agreement" should be viewed more as an end to divisions between the GPMA members, rather than with the F1 establishment.
It should also be seen as a reaction to Renault's not-so-subtle intention to create headlines like “GPMA member quits ‘breakaway' alliance”.
“(The GPMA teams) look forward to the commercial rights holder accepting the terms agreed today,” the GPMA statement said.
Confirmation of Bernie's assent, and that of CVC Capital Partners (who own Formula One's commercial rights), was expected on Sunday evening, but it is unclear whether this took place.
CVC's Donald McKenzie was believed to have been on his way to Barcelona on Sunday afternoon.
Furthermore, it is not known to what extent a compromise was settled over the issue of money; GPMA was vehemently pushing for 60% of F1's income, but Ecclestone was offering only 50%.
Another missing piece is the sporting, technical and the rather thorny governance issues. The GPMA's continuing debate with the FIA is still a long way from being settled.
McLaren-Mercedes' Ron Dennis said: “This document is only the first step towards a new Concorde Agreement and ... (new) sporting and technical regulations.
“There is still a way to go. This is not the final version of the Concorde Agreement, but it is a good starting point.” Despite what the F1 spin gurus are telling us. Back to Top
And The Rest
29. Comments, corrections, clarifications, and c*ck-ups
The Australian's marketing writer Simon Canning writes:
Re: AdNews editor Advertisement
Dave Clutterbuck's charity boxing challenge (yesterday, item 6). Actually guys, I challenged Clutterbuck. Not exactly Green versus Mundine, but If we can raise a quid for a good cause, why not?
Jonathan Maher writes:
Peter Fitzsimons and Paul Sheehan are on the money regarding the "hero" status of the Beaconsfield boys (yesterday, item 2). Anyone remember The Simpsons when Timmy O'Toole was trapped in the old well? I think this sums up the situation as only The Simpsons can:
Homer: That Timmy O'Toole is a real hero.Greg McMullen writes:
Lisa: How do you mean, Dad?
Homer: He fell down a well and … can't get out.
Lisa: How does that make him a hero?
Homer: Well, it's more than you did!
In his piece "Is Peter Costello As Bright As Australia's Future?" (yesterday, item 9) , Christian Kerr floats the idea that Costello, because of his "timid"/"full-of-hand-outs" budget, may have missed his chance both to redefine the nation in his own image and, with it, the chance to become PM. What such an observation overlooks is... reality. Who are Costello's rivals? Downer? (1994-95 anyone?) Nelson? (Jake Kovco anyone?) Abbott? (Even he concedes Costello will be the next leader). Costello has outlasted them all. Even the polls, after years of suggesting otherwise, give him more than an even chance of beating Beazley. Even if Howard decides to stay put and contest in 2007, Costello is not going anywhere. The only way Costello's Prime Ministerial planets won't align is if Beazley beats Howard. With a sizeable electoral buffer, and no discernible "it's time" mood, this is unlikely. Costello will be the next PM, and Christian will be allowed back into the Budget lock-up!
Brad Ruting writes:
Christian Kerr hit the nail square on the head. For all his faults, Paul Keating had vision and the determination to get results which, ultimately, gave us a phenomenal period of stable economic growth and benefited everyone. It is truly disappointing that Costello has ignored the existence of problems with the tax structure, education, healthcare, infrastructure, etc which he had the opportunity to use to kick off real structural reform – not to mention give himself a platform to be our next Prime Minister. The chronic lack of real, effective vision of politicians on both sides of parliament (in most Australian parliaments) is galling. Bring back Paul Keating I say. At least he had character and determination (other than to destroy workers' rights).
Kris Terbutt writes:
I am not a member of "Hands Off Our ABC" but I'm sick of people having a go at the Australian Broadcasting Commission. It was built by taxpayer money for the taxpayers, and most of us understand that it requires adequate funding. The ABC has educated and informed generations of Australians; it should not be subjected to the amount of budget and monetary scrutiny that it receives. It is an icon that we cannot do without. It does not need commercialising and it should not compete in those markets. This issue has always been a non-issue dredged up by the commercial networks (Packer etc), and should not enter the political arena for any moronic political point-scoring reason. We need a nationally funded broadcaster that never tires of keeping journalistic standards of integrity, as well as offering original programming and creative talent. Otherwise, who's going to check up on the "chequebook" journalism? Crikey? Alone?
Bruce Smith writes:
Dave Horsfall suggests that the rising gold price will lead to skyrocketing consumer electronics prices (yesterday, comments). While he is correct that gold is used extensively in electronics, the amount used per item is minute. The price of gold is already up 70% in $US and 67% in $A over the past year yet the price of PCs and TVs continue to deflate. Electronics manufacturers are no doubt spending more on gold in total, but gold constitutes only a small part of their total expenses. Scale economies, competition and currency movements will be more important factors in consumer electronics prices than that of gold.
Nev Parker writes:
To the hand wringers who jumped to Ross Whitby's defence (yesterday, comments), read into it whatever suits you, but it has been my experience that the biggest 'whingers' in our society are never as hard up as they make out. For all its problems this is still the best country in the world. We are the country voted one of the best to do business in, we are one of the few countries where public graft and its acceptance play no part, we were recently determined to be the happiest people in the world, except for a few who write letters to Crikey.
Send your comments, corrections, clarifications and c*ck-ups to boss@crikey.com.au. Preference will be given to comments that are short and succinct: maximum length is 200 words . Please include your full name – we won't publish comments anonymously unless there is a very good reason. Back to Top
Want to contact Crikey people?
Stephen Mayne, Crikey founder and business commentator: smayne@crikey.com.au
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Misha Ketchell, Editor: misha@crikey.com.au
Eric Beecher, Publisher: ebeecher@crikey.com.au
Diana Gribble, Publisher: dgribble@crikey.com.au
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