February 2, 2010
Dear Mayne Reporters,
There's hasn't been an Australian public company AGM quite like today's Toll Holdings gathering at Melbourne's Park Hyatt.
And we've got the full multi-media box and dice, complete with amusing video and hard-hitting audio.
How the $55m rort worked
The story in a nutshell is that Toll paid out $55 million in cash to 390 executives to buy out a series of options and equity incentives, some of which had been approved by shareholders but not yet issued, as part of last year's demerger of Asciano.
In coming to that figure they relied on a calculation by a lady from KPMG, Toll's auditor, which assumed the share price would surge on the back of earnings per share growing by 24% for the next three years. This assumption meant that 88% of all options were deemed to have vested because the share price would be pushing $40 by 2010.
Truth be known, the combined value of Asciano and Toll had plunged to below $8 by the time we brought this scandal out into the open at today's AGM.
In the case of Paul Little's 484,000 options, these were valued at $18.30 each - that's profit over and above the market-based issue price at the time. Remember, these options were never actually issued and therefore would have had a strike price of around $20, plus tough performance hurdle requiring earnings per share growth of up to 15%.
That $18.30 calculation is why Little got an $8.57 million cash payout which was, like all the other payouts showered on the executives, a condition precedent of the Asciano demerger. In reality, these 484,000 options are utterly worthless and Toll has actually just declared a $1.3 billion loss from the demerger of Virgin Blue.
Ambushing board with Risk Metrics report
Proxy advisory firm Risk Metrics had detailed engagement with Toll and the KPMG consultant and a copy of its report recommending institutions vote against the remuneration report today fell off the back of a truck last night from one of the big insitutional investors who is outraged by what has happened.
The board obviously didn't know I had a copy of the report, so I set up the situation by first asking Paul Little to explain the $80 million in demerger costs. Have a listen to the way he pleads ignorance.
When it came to the remuneration report debate, I opened up by reminding Little about the $55 million cash bonanza, which comprised about two-thirds of the demerger costs, and then asked chairman Ray Horsbrough to reveal the assumptions behind it.
Horsbrough ducked and weaved, so it was time to actually bring out the report and start quoting from it.
Have a listen to that full 9-minute exchange. It was remarkable how inept Horsbrough was as I eventually explained that shareholders will probably end up suing to try and recover for this amazing negligence.
The sentiment in the room quickly swung against the board and we managed to get a clear defeat of the remuneration report on the show of hands, forcing a poll which ended up with 46% voting against after only Paul Little's 38 million shares saved it from defeat.
Trying to roll the chairman
The chairman was up for election next and Paul Little chaired the debate, once again confirming what a dominant character he is on the Toll board.
I put the case for a vote against Ray Horsbrough, the inarticulate former Smorgon Steel CEO and Essendon President who punted Kevin Sheedy last year. However, Little shut me down prematurely before another shareholder got up to complain and I was able to finish the pitch. Have a listen to that full exchange.
The show of hands looked about 50-50 but Little declared it had been carried and ignored my call for a poll, which we were having anyway on the remuneration report.
Toll clearly needs some new directors who can focus on holding the executives to account and clawing back some of this outrageous $55 million giveaway. Remember, Asciano CEO Mark Rowsthorn, who pocketed more than $5 million of the $55 million, has volunteered to give back $750,000 of next year's bonus.
Given that Little is worth about $400 million and claimed to have no debt on his $200 million stake in Toll, surely the bloke should now do a James Packer and work for free for a few years in an act of contrition after one of the great executive heists of all time.
The problem today was that Little did not take a backward step and his chairman would not concede the board had done anything wrong.
The Barry Cusack connection
It was appropriate to also tell Toll shareholders about their director Barry Cusack, because he was the Oz Minerals chairman who outrageously approved an $8.4 million payout to former CEO Owen Hegarty just days after shareholders had voted down a proposed $10.7 million payout.
Just like Toll's blue-sky casino assumptions, the Hegarty payout was assuming the Oz Minerals share price would exceed $6 by 2012. Today it closed at $1.035.
Hegarty was the lunch time speaker at the big Finance & Treasurers Association at The Sofitel today, so I made special mention of his rort, Barry Cusack and the Toll bunfight during my presentation immediately after lunch.
Mayne Report video and Lateline Business tonight
Lateline Business did this story on the Toll drama and we took our own video footage as follows:
Amazing Paul Little belligerence with journalists after AGM
Smiles and a hand-shake with Little after combat
Summary of the audio action
And here's the best of the audio combat in chronological order. Listen to 3 and then 4 to really hear a chairman under pressure.
1. Has Paul Little got any debt on his shares and what about all these private property plays?
2. What's going on with Brambles and what was that $80m bill on the Asciano demerger?
3. Skewering chairman Ray Horsburgh over the $55 million executive bonanza
4. Opposing Ray Horsburgh's re-election
5. Toll AGM component of speech to Finance & Treasurer's Association
Media treatment of the scandal
The Australian's John Durie knocked out a quick comment shortly after the meeting although he got it wrong in suggesting that chairman Horsburgh revealed anything about the payouts. I was the one doing the revealing and Horsburgh was doing the stone-walling. Have a listen to audio number 3 above.
Fairfax's Michael West also went in hard with this column.
The Herald Sun's Geoff Easdown pulled together the pay revolts at Toll and Valad.
The Age's Mark Hawthorne led his daily column with Toll as well.
That's all for now.
Feel free to click below for the web version of this and send the link around because this scandal really does need maximum public exposure.
Do ya best, Stephen Mayne
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