Another great Frank Lowy battle

February 2, 2010

Dear Mayne Reporters,

I'm sitting in the foyer of Sydney's Westin Hotel directly underneath the head office of the Millionaires Factory, and reflecting on some of the claims made at yesterday's remarkable Macquarie Airports AGM. A few spinners from Macquarie get these missives so they are invited to pop downstairs before 3pm and tell me precisely where these lucrative performance fee arrangements payable by the unlisted Macquarie Airports Group were ever publically disclosed, as MAP chairman Max Moore-Wilton suggested yesterday.

After having lots of fun at Macquarie Airports yesterday it's hard to believe that today's Westfield AGM was even better.

Frank Lowy said his family had no debt on their $3 billion stake in the company and that he intended to serve a full three years as executive chairman, backing off from last year's suggestion that he would follow David Clarke's Macquarie Bank lead at some point and step back to non-executive chairman. That will take him through to 80 and 50 years of service, a perfect time to retire in 2010-11.

On the perennial question about Lowy family greed and double dipping with $35 million of salaries on top of the $180 million of annual distributions from the debt free 10% stake in the company, Frank pointed to his charitable donations saying they were much bigger than his $16 million salary on an annual basis.

A couple of shareholders made the point after the meeting that this was completely irrelevant. What Frank does with his personal wealth has nothing to do with Westfield shareholders and we all note that he refuses to do a James Packer and donate his services for free. I told him that shareholders have taken a big hair cut this year and it was time he did too, but this copped short shrift, as usual.

The various combative audio exchanges unfolded as follows and are all worth a listen:

Got a margin loss, boss?

$1 billion in currency hedging profits

You currency hedging guru, you

If we're so cashed up, what's this $17b of debt?

Reflecting back on internalising the management structure

Take a hair cut on the salary, Frank

How old is the candidate, Mr Hilmer, and is he going to serve a full term?

Surely Mr Gonski is too busy with the ASX chair coming up

Don't vote for John McFarlane, he's Mr Opes Prime

Full audio of our exchanges

A friendly chat with the incoming ASX chairman

As usual, some of the most interesting exchanges happened after the meeting. David Gonski popped over for a chat and we discussed his workload and my coming tilt at the ASX board. He mentioned that we got along constructively at the recent working group on reforming the AGM, such that I almost thought he was going to offer me a spot on the ASX board.

“Give me a call, let's have a chat,” he said.

It's probably just a charm offensive but I told him the tilt was going to be focused on the ASX demanding all the Babcock and Macquarie vehicles release their full management agreements, complete with termination provisions. The governance ball was really dropped for these financial engineers with all their Bermuda registrations, super voting shares, non-disclosures, board gerrymanders, poison pills and conflicts of interest.

If it was good enough for Frank Lowy, David Gonksi and the Westfield boys to internalise the management four years ago then these wallowing Babcock and Macquarie vehicles should do likewise, or at least properly disclose to shareholders the financial implications of doing that to deal with the typical 30-40% discounts to NTA that are now prevailing.

John McFarlane on Opes Prime

The other remarkable chat after the meeting was with former ANZ CEO John McFarlane. I gave him a real spray about Opes Prime and managed to elicit the biggest protest vote from the floor for the day. Frank wasn't happy and launched a strong defence of McFarlane, whilst the Scottish banker came over later to declare I was "out of order".

However, we then engaged for about 10 minutes and he confessed to never having even heard of Opes Prime before it collapsed and also being unaware that ANZ and Merrill Lynch together dominated the security and margin lending business last year with a combined exposure of more than $5 billion to Tricom, Opes, Lift and Chimaera.

McFarlane has chosen not to even speak to anyone at ANZ about the Opes mess and he certainly isn't to blame for the botched way it has been handled.

His complaint about my attack was that the eventual ANZ loss will not be material, if anything at all. As a CEO he did indeed create $40 billion worth of sharereholder value. My explanation is simply that anyone who leaves a mess behind and then pops up somewhere should at least have this ventilated at the AGM when they face election.

Frank Lowy told the meeting that he actively pursued McFarlane after he retired last September but the little Melbourne-based banker said he wouldn't be joining any other boards, partly because of people like me. I think he was joking.

McFarlane has made about $100 million from his stint running ANZ and he really pushed the tax laws by largely getting paid in scrip. He's now sold down to just 100,000 to pay some big tax bills and run a diversified portfolio.

Only Babcock to go

All up, it was another fascinating meeting as we wind down towards the end of the AGM season for companies with December 31 balance dates. The last big remaining gathering will be Babcock & Brown next Friday. This will be a real doozy.

That's all for now.

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.