Markets tumble, Rupert book deal, Centro, Rich List, Xenophon, AFR tips and our buying spree

February 2, 2010

Dear Mayne Report subscribers only,

as I send this at 1.30am, the Dow Jones is down another 100 points on the back of a tumbling Intel share price from a weak result and more financial sector and recession worries, including mortgage insurer Ambac getting hammered after cutting its dividend and raising $US1 billion.

Market woes usually throw up more corporate governance issues for shareholder activists so the likely 9th straight drop in the Australian market today will start to bring things into sharp relief.

The likes of MFS, ABC Learning, Allco and Centro are some of the most governance-challenged stocks and they also carry excessive debt.

In today's edition, you'll be surprised to hear I've signed a book deal with News Corporation - the company that has received more attention than any other at AGMs over the past decade. It's actually with Harper Collins and the ownership was irrelevent in the discussions but taking Rupert's coin will still raise a few eye-brows - possibly even from the old fella himself when he finds out about it.

Tomorrow morning I'm heading to Melbourne Airport to have breakfast with incoming independent Senator from South Australia, Nick Xenophon, who wants to make a splash on the question of shareholder rights. Our one joint effort at the 2003 Adelaide Bank AGM proved very effective.

Xenophon will be a revelation for the Senate on everything from pokies to water to rorting - and I've no doubt he'll end up being a great friend of the small shareholder and campaigners for better corporate governance.

I've done this submission for the forthcoming Parliamentary inquiry into shareholder engagement which will be the starting point of our discussion tomorrow.

Elsewhere in the edition, we disclose the 72 stocks that I've bought so far this year, reveal The AFR's stock tipping is not looking so good and once again lament what might have been at Centro if I'd run the Westfield governance campaign against Andrew Scott's mob.

There's also a controversial piece advocating that our Future Fund get involved in these Wall Street bailouts and some Rich List names from the worlds of politics and Macquarie Bank.

Please read the full edition and feel free to send through some feedback.

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.

A book deal with Rupert

Mayne Report paying subscribers should be and are the first to know that the publisher I've just signed a book deal with is none other than Harper Collins, a division of Rupert Murdoch's News Corporation. Rupert doesn't know about it yet, but I've been promised no censorship so we'll see how things unfold.

The advance is $20,000 with the first $10,000 instalment coming this week, which will double the subscription revenue we've generated in the first three months of the Mayne Report.

Last week I lifted the value of my News Corp shareholding to $10,000 by buying an additional 300 shares at $21.99. There's a nice symmetry about accepting money from Rupert and then putting it back into his shares.

There will be no running away from any previous commentary about corporate governance at News Corp, or the various battles we've had at 10 of the past 11 shareholder gatherings.

However, I'm obviously not going to produce a viscerally anti-Rupert book, just one that faithfully records the encounters with Rupert and various other business and political luminaries over the years.

The working title is Memoir of a Ratbag - 10 years of stirring, troublemaking and activism, but I won't be agreeing to the word "ratbag".

If you've got any better suggestions please send them through.

The book is the main reason for putting together this complete chronological account of the AGMs we've fronted, plus the media reports they've generated since it all began back in October 1998.

We've also just started the process of writing to all the companies seeking transcripts, audio and video of the AGMs and so far we've got one transcript promised from the 2001 Brambles EGM.

The manuscript is due in the first half of the year but it probably won't be released until early 2009. The aim is to really put the case once and for all about the importance of transparency and accountability and the benefits that flow a culture of shareholder pressure.

Centro and the social benefits of good shareholder activism

Alan Kohler's excellent article in Monday's Eureka Report quoted Professor Willem Buiter of the London School of Economics as follows:

“For a number of years now, the private returns in the financial sector have exceeded the social returns by an ever-growing margin. Too much scarce analytical and entrepreneurial talent has been attracted into activities that, while privately profitable and lucrative, were socially zero-sum at best. In the short run, this cutting down to size of 'Wall Street' and 'the City' will inevitably have some negative side effects for Main Street also. In the medium and long term, however, a more balanced sectoral allocation of the best and the brightest will be beneficial.”

This is a question that I often ponder - how to provide for your family whilst doing something that is fun and provides a public benefit.

On this score, the Centro situation is really giving me pause for thought, when you consider this platform that was submitted to Westfield Holdings when I ran for the board in 2000:

"Mr Mayne is a unitholder in Westfield Trust and believes it needs an independent board from Westfield Holdings. There are presently more than $4 billion worth of development contracts between the two entities yet the Trust does not have any independent directors and shares in Holdings have risen more than 20-fold over the past decade whereas Trust units have barely doubled."

Whilst he probably would have done it anyway, Frank Lowy merged all his Westfield vehicles three years later, thereby removing some of the poor governance structures that I raved on about for years at Westfield. The biggest hit I landed was this article in The Australian after the 2000 AGM.

Centro had exactly the same dodgy structure - separate trusts and management companies with identical boards. Yet, this little shareholder activist never made it to a Centro AGM, never wrote about it on Crikey and never even mentioned in during dozens of corporate governance speeches or chats on ABC radio.

If I'd put the same energies into naming and shaming Centro as Frank Lowy copped at the 1998, 1999 and 2000 Westfield Holdings AGMs, it's possible the current damage wouldn't be so severe.

Why isn't Australia joining the Wall Street bailouts?

The global credit crisis has reached its worst point with the Brown Government now openly contemplating nationalising Northern Rock to protect its $120 billion loan exposure and maintain confidence in the British banking system.

However, British housing prices and the pound are both in rapid decline because that's the biggest bailout cheque ever written by a government anywhere and the Poms are already battling with 520 billion pounds in public sector debt – equivalent to about 37% of its GDP, up from 29% seven years ago.

Whilst RAMS saw the destruction of $800 million in largely Australian equity, at least there wasn't any need for a government bailout. Besides, our Reserve Bank doesn't have $120 billion to lend because of the reckless way the Howard Government ripped out $25 billion in dividends out over the past 11 years to boost its claimed budget surpluses.

Just like Bank of America appears committed to stepping up and buying the Countrywide loan book, Westpac was able to swoop up the key RAMS business for $140 million.

The Bush administration would have really struggled to take on Countrywide because it already has to service the world's biggest debt - about $US7 trillion – so adding $US 1.5 trillion of Countrywide loans would have, err, stretched the balance sheet somewhat.

Maybe all these sovereign fund bailouts are really about saving the US dollar and bonds – because the likes of China have no bigger exposure than US treasuries, something they are now trying to diversify away from.

And can you belief the Yanks are talking about a fiscal stimulus to save the economy from recession? The chickens are really starting to come to roost and punish the Americans for running budget deficits averaging 2.2% of GDP since 1962. Citigroup has announced 4000 job cuts out of 300,000 and the US Government should be doing likewise – starting with its bloated military.

Peter Costello claims his worst moment as Treasurer was going into the office on Christmas Day 1997 to lend the South Koreans $1 billion after they ran out of foreign reserves.

Fast forward 11 years and the South Koreans have a $US250 billion sovereign fund which has just contributed to a bailout of Merrill Lynch.

And where is little old Australia at the moment after a five year resources boom?

Well, our Federal Government is worth nothing, our federal pension fund is barely half funded, our foreign reserves are pathetically low relative to comparable countries, foreign debt has tripled in a decade to almost $600 billion and we're still running a $60 billion a year current account deficit despite the best terms of trade since the 1950s.

If the Howard Government was half as good an economic manager as it claims, we'd be far more cashed up participating in the current rescues.

Indeed, I still think the Future Fund should be in there as was argued in this discussion on the Sky Business Channel last Saturday.

* An updated version of this story will be submitted to Crikey for today's edition.

Wayne Goss joins the Mayne Report rich lilst

The Mayne Report Rich List continues to grow and we've got three political figures weighing in above the $20 million cut-off today.

Wayne Goss was a terrific Premier of Queensland who has gone on to achieve great things in business. The Australian recently latched onto the value of his 1.15 million shares in Brisbane-based mining services company Ausenco, which he has chaired since 2002, well before the decision to float in 2006 at $1 a share.

Ausenco was trading at $15.05 when The Australian's story appeared on December 29, but it still closed yesterday at $13, valuing the Goss stake at $15 million.

The PM's wife, Therese Rein, is also joining our Rich List given the growth and success of her Ingeus group and Paul Keating's former Industry Minister Alan Griffith also makes the grade given the $30 million sale of his IT business to a US firm, courtesy of a technology he picked up rather opportunistically off the CSIRO.

The other category we're expanding is Macquarie Bankers, thanks to a former executive at the millionaire's factory who has made contact.

We've already got some obvious names such as David Clarke, Allan Moss, Laurie Cox, Mark Johnson and Nicholas Moore, but here are a few more.

Kim Burke: head of equity markets.

Michael Carapiet: head of corporate finance

Andrew Downe: head of treasury and commodities

Michael Price: co-head of Financial Products

Oliver Yates: co-head of Financial Products and brother of former PBL CEO Peter Yates

Stephen Crook: former head of cross-border leasing and asset finance.

How many Australians have made more than $20 million out of Macquarie Bank? At a guess, the final figure would probably be close to 30 although it's hard to prove.

The AFR's speccie tips lose more ground

I've been giving The AFR some stick - including on the Sky Business Channel and in this video - for their front page promotion of 20 speculative stocks in their Weekend edition two Saturdays ago. At first, the portfolio outperformed with only 5 of The AFR's 20 tips falling on the Monday after it was published, despite a 2.3% drop in the All Ords that day.

Alas, eight straight days of falls and these speccie stocks are coming back to the field. I've picked up the 18 AFR tips that weren't already in the portfolio during this losing streak and am also running a pretend portfolio as if I had $1000 invested in each of them before the paper hit the news stands.

Whilst the All Ords is down 8%, The AFR portfolio has dropped by 7% over the same period. Avastra Sleep Centres has been the worst performer for the paper - and me - losing more than 20%.

My crazy portfolio is now up to 562 stocks but the value is only $188,120 - an average holding of just $335.

The paper loss - before considering Commsec's $13,000 in brokerage putting the damn thing together - is currently $21,124 although there has been about $50,000 in capital gains already crystallised over the past 18 months as it has been assembled.

Let's hope these 20 AFR stocks help pull the portfolio out of the mire when the bounce comes.

Disclosed: the 2008 share purchase

We promised complete disclosure of our share dealings as part of the Mayne Report and it has been a very busy time so far in 2008 with each fall representing a better buying opportunity. As mentioned earlier, $6,600 was ploughed into 300 News Corp shares last week at $21.99 and the 72 investments listed below were all $500 each, plus Commsec's $20 brokerage fee.

As you can imagine, it's pretty hard to keep track of this and I've just discovered two double purchases whilst putting this list together tonight.

January 2

Babcock & Brown notes

January 7

Apex Minerals
Brickworks Investments
Challenger Diversified Property
Conquest Mining
Image Resources
Linq Resources Fund
Mermaid Marine
Mirabela Nickel
Myer notes

January 8

ABC Learning notes
Breakaway Resources
Brockman Resources
Coal of Africa
IMX Resources
MEO Australia
Sundance Energy
Vulcan Resources

January 9

Avastra Sleep Centres
Campbell Bros
Imdex (for the second time, accidentally)
MAC Services
Mineral Resources

January 10

AP Eagars
Challenger Diversified Property (for the second time, accidentally)
Fleetwood Corp
Swick Mining

January 11

Aspen Group
KFM Diversified
OM Holdings
Platinum Australia
QRX Pharmaceutical
Sylvania Resources
Whitehaven Coal

January 14

Ainsworth Game Technology
Allied Brands
CEC Group
Chemgenex Pharmaceutical
Ironclad Mining
KFM Diversified

January 15

Neptune Marine

January 16

Acrux Ltd
Adamus Resources
Axiom Properties
Carnarvon Petroleum
CP1 Ltd
Credit Corp
Forest Enterprises
Galileo Japan Trust
Impact Capital
Macquarie Winton
Nido Petroleum
Rameleus Resources
Sphere Investments

If it falls again today, I'll be buying a few more although the quality is starting to wear a bit thin and I'm down to about $40,000 of cash, which needs to be preserved to absorb the start-up costs of this venture and take advantage of any major market tumble from here.

That's all for now.

Do ya best, Stephen Mayne