Final Mayne Report for 2007

February 2, 2010

Dear Mayne Report subscribers

this will be our last update for the year and we've got three new videos to take us through the festive season:

1. A fun look back at the year - watch video.

2. Why Brian Healey should quit all his boards - watch video.

3. Meet founder Dan Walsh - watch video

Today's edition rounds out the year for AGMs with a look at what happened at Incitec Pivot and Orica late last week, plus raises questions about the debt burden weighing on child care behemoth ABS Learning. Revelations of more director share sales this morning haven't helped sentiment.

There's also coverage on the credit crunch and Centro, after the Goodman Plus notes and PrimeAg Australia float both demonstrated the continuing problems by flopping on the market today.

Our AGM History section is coming along well and we'll soon have a complete chronological account of the past 10 years of AGM action, plus relevent links. This is all being done to help with a book focusing on shareholder activism that will be coming out in 2008-09 after we inked a firm contract with a major publishing house last week.

Have a great break and I look forward to bringing you more in 2008.

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.

Is trouble brewing for ABC Learning?

The pure shock associated with the debt troubles and share price collapse of Centro Properties Group last week has got plenty of people wondering if there are any other public companies facing debt challenges going forward.

One name that has come up a couple of times in dispatches is childcare behemoth ABC Learning, which today fell another 5c to a 30-month low of $5.15, capitalising it at $2.4 billion which is not that much when you consider debt is now pushing $2 billion.

The Singaporean Government can't be happy with its $403 million purchase of a 12% stake at $7.30 a share back in June. They've dropped a cool $117 million in six months.

Sentiment certainly wasn't helped by this notice today revealing executive director Martin Kemp raised $5 million selling 600,000 shares on December 18. This was the same day that ABC Learning announced it had secured a $1.43 billion debt facility with eight banks - just days after many of the same banks pulled the plug on Centro.

We all noted the multi-function role that the Commonwealth Bank took with Centro as a major investor and lender and it seems a similar situation is playing out at ABC Learning, where the Commonwealth Bank funds management division has a 7% equity interest, whilst the bank itself picked up a shortfall of more than 30% on the $600 million unsecured convertible note issue that was offered in June.

CBA was also a big player in the debt rollover revealed last week, stepping up for $280 million, bringing its total ABC Learning play to more than $1 billion. Presumably it attempted to get Centro over the line as well last week, but didn't manage to persuade its fellow lenders and has now dropped $400 million on its equity exposures.

There is also talk about some tension within the family of ABC Learning CEO Eddie Groves and suggestions this might have an impact on the way various assets and shareholdings are structured.

The Courier Mail produced this very interesting story in September, pointing out that large related party transactions with Eddie's brother-in-law, Frank Zullo, for construction work were no longer being disclosed and often weren't tendered. The Rudd Government really needs to tighten up related party disclosure laws. For instance, why on earth don't Orica and Newcrest disclose their dealings when Don Mercer is chairman of both companies?

Just like Centro, ABC Learning does not rate highly when it comes to governance. We were most unimpressed after attending an ABC Learning EGM in Brisbane in 2006 to approve a $600 million placement.

When you add all this up, I reckon ABC Learning is a stock to be avoided, especially with a Rudd Labor Government now in office federally. Former Children's Minister Larry Anthony won't be much good on the ABC Learning board any more, nor will chairman Sally-Ann Atkinson, another former conservative politician.

Brian Healey dodges a spray at Incitec Pivot

As we told you earlier this week, Brian Healey has been the chairman of Centro Properties Group since 1993. He really should take a lot of responsibility for last week's debacle, but so far has barely been mentioned in the press.

Brian is a very busy 73-year-old because he didn't show up at last Thursday's Incitec Pivot AGM, where he is the deputy chairman. Incitec Pivot refused to let visitors into the meeting, but my audio guy managed to capture this spray calling for Brian's swift resignation from the toilets beneath the AGM at the Melbourne Exhibition Centre.

Michael West covered the comments in The Australian on Friday, although Healey wasn't actually at the meeting as he reported.

The contrast between the performance of Centro and Incitec Pivot is stark indeed, with Centro shares falling from $10 to $1.10 over the past six months, whilst Incitec Pivot has soared from $35 to $116.

We've made a video on this point to stress that Incitec Pivot's great performance shouldn't save Healey because Centro failed so fundamentally in its debt disclosure and properly informing investors is something any chairman should ensure gets done.

We should all keep a close eye on the movements of the Centro board because the Melbourne business establishment, far more so than other cities, has a habit of tolerating directors who have failed miserably in other places. Surely the destruction of $5 billion in one week at Centro is grounds for swift retirements from a range of boards.

Brian should have led by example and quit Incitec Pivot at last Thursday's AGM. It was a missed opportunity.

He's clearly been a busy boy because Centro has today announced the appointment of Lazard Carnegie Wylie, KPMG and Freehills to advise it through the present maelstrom. John Wylie teamed up with KPMG and Freehills to secure $30 billion for Victoria from energy privatisation in the 1990s and Centro shareholders will be hoping they can repeat that performance flogging its $26.6 billion shopping centre portfolio.

The changes in shareholding notices are starting to flow through and it is interesting to see that Barclays has already dropped from 9.32% of Centro Properties Group to 6.83%, CBA has reduced from 11% to 10%, but UBS Nominees has gone the other way on behalf of some mystery party by lifting its holding from 5.1% to $8.63%, which is presumably some hedge fund or corporate client doing a spot of bottom fishing.

There have been no notices from the more secure Centro Retail Trust which recovered 7c to $1.07 today - not too far shy of the $1.42 before the debt rollover problems were first revealed last Monday.

Spicing up the Orica AGM

The Orica AGM at Federation Square's BMW Edge last Friday was lively affair with a good corporate story to be told, but still plenty of sexy areas to explore for debate. However, the decision to hold its AGM on the last Friday because Christmas has earned Orica a place on our inconvenient AGMs list.

Sacked Orica contractor, John Clancy from Albury, made the rest of us shareholders look exceedingly polite by attending his 10th straight Orica AGM and again unloading with a stream of bile accusing the directors of being "liars, cheats and thieves" and the most incompetent board in the country. Seeing as the whole board and management has turned over since Clancy's punch-up with some boss on a WA mine site triggered his departure in the mid-1990s, it does seem strange that he keeps on fronting.

The Australian Shareholders Association opened up with an odd question about selective briefings to journalists after which I lobbed one about the $3.5 billion of value left on the table from Orica's sell-down of its 70% stake in Incitec Pivot at just $21 a share in May last year. Chairman Don Mercer congratulated Incitic Pivot for pulling off the brilliant $165 million Southern Cross acquisition from BHP-Billiton and riding the phospate boom, but didn't go anywhere near an apology or mea culpa as you can hear in this audio file.

On the question of the indicative $32 a share private equity takeover offer mid-year, Mercer kept stressing how it was highly conditional and subject to due diligence. He alluded to other companies chasing such transactions which subsequently fell over, opening the door for a chance to point the finger at Orica director Gary Hounsell, who doubles as one of the Qantas directors who embraced APA and a Nufarm director who endorsed the Chinese Government's indicative bid along with two private equity firms which never materialised.

Hounsell received this special spray when it came to his re-election and a handul of shareholders joined in the protest over what happened at Qantas. It's the same principle as applies to Centro chairman Brian Healey - you can't do something bad at one company and not expect it to be mentioned when you face election elsewhere as these black marks go against your overall record as a professional director.

There were a few other interesting moments. When former Shell executive Peter Duncan was up re-election, I asked about the three-man "Shell faction" now that current Shell chairman Russell Kaplan has joined another old Sheller in chairman Don Mercer on the Orica board. Mercer gave a good answer about Shell being a good hunting ground for Orica given both companies run large processing plants.

Mercer declined to take the bait when I asked how Cathy Walter and Peter Duncan were getting along inside the remuneration committee given that they were on opposite sides of the NAB board war three years ago and were seated at opposite ends of the table on Friday. He also declined to reveal the size of dealings with Newcrest, despite the fact he chairs both companies.

The remuneration report copped a larger than expected protest vote of 18.3 million shares or 12.24%, which was probably related to the retention payments offered to the senior management earlier in the year, along with the rising loans outstanding on the executive incentive scheme. Mercer conceded that Orica has the same "Centro-style exemption" that sees the loans forgiven if the company goes broke.

Have a listen to the remuneration report exchanges which finished with a big round of applause when I gave the company a pat on the back for good performance at the end of the meeting. After all, CSL and Orica are the only two successful Melbourne-based companies left which can truly claim to have global sales and are not run by an imported CEO.

Orica is now capitalised at $10 billion, but the $32 shares would be closer to $45 if they hadn't surrendered all that Incitec-Pivot upside. Still, if you remember Orica at $5 a few years back, you shouldn't complain too much.

The full edited Orica audio exchanges are available here.

New floats and debt issues flop today

The confidence crisis in credit markets continues apace, with debt becoming increasingly hard to secure and certainly more expensive. Industrial property giant Goodman Group raised $328 million this month through its Goodman Plus unsecured notes which offer the 90-day bank bill rate plus 1.9 percentage points.

The letter of offer pointed out this was the equivalent of 9.08%, but the $100 notes came on at a 5% discount of $95 this morning, meaning investors have dropped $16 million and the notes are now yielding closer to 10%. That's expensive money if you're like Centro and want to roll over some debt.

Roger Corbett might be regarded as a legend for investors given the performance of Woolworths in recent years, but today he's been associated with the PrimeAg Australia float which has been a lemon. Investors who collectively paid $300 million at $2 a pop, have dropped $42 million with the shares settling at $1.72 this afternoon.

Thankfully, I filled out the form to take up $20,000 worth of Goodman notes but then baulked at the last minute and instead picked six of them up on market this morning at $95.10. PrimeAg Australia also proved tasty for a $500 investment at $1.74.

The Mayne Report portfolio is now pushing 500 stocks but I've managed to keep the total exposure down below $160,000, despite putting $500 into another 30 stocks over the past week. The average holding is now a rather pathetic $320 but the field is well and truly covered.

In terms of Christmas cards or message from companies, only three have ponied up with anything: Kerr Neilson's Platinum as you can see in this video, plus Michael Kiernan's Monarch Gold and those white shoe types from MFS.

And a very merry Christmas to all Mayne Report readers too.

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.