Village EGM and SP Ausnet AGM

July 21, 2010

Dear Mayne Reporters,

greetings from the RACV business centre after a big day in Melbourne with a Village Roadshow EGM, the SP Ausnet AGM and then an hour with the embattled GPT chairman and CEO for an off the record chat.

The Village audio won't be available until tomorrow but we had the most bizarre situation of an EGM to approve 6 million options for long-serving CEO Graham Burke who made the conscious decision not to turn up.

This meant 25 people sat for 40 minutes in cinema 9 at the Jam Factory on Chapel Street in South Yarra for a meeting that was convened just to approve a hugely out of the money incentive package for a CEO who thought his attendance would create some sort of conflict. Ridiculous.

The meeting was chaired by independent director Peter Jonson which was also a strange experience given he was a Crikey contributor for many years as the man behind the Henry Thornton economics commentary site which has now shifted across to The Australian.

Despite being a mate, Jonson wasn't the most co-operative of chairs. Shareholders had to get themselves to the roving mike that didn't rove and then ask a maximum of three questions all at once before sitting down.

John Curry is easily the best performing Australian Shareholders' Association representative and he opened the batting with a big attack on the options package and Village Roadshow's dreadful long term performance.

I went next in the first of three goes at the microphone comprising 9 discreet questions, which ranged from the need to have a meeting at all, the cost, Burke's no show, the possibility of future AGMs being held in Melbourne and the proxies.

Village has been an appallingly governed company over the years but Henry Thornton quoted some accounting firm survey rating it 4 out of 5 on corporate governance. This was all too much, so I asked whether he felt comfortable acting in the chair such that he could replace the rotating Kirby brothers and become a permanent independent non-executive chairman, which would be major nod to good governance. Don't hold your breath.

As is often the case with these poorly attended meetings, it is the coffee afterwards that is more interesting because you can chat with heavy hitting directors and Rich Listers.

Austereo executive chairman Peter Harvie was a in a really bad way after picking up some lurgy in Sydney so we counselled him to go straight back to bed. John Kirby, son of Village founder Roc Kirby, has certainly stacked on the weight in recent years and looked rather strange sitting with the other directors sporting a grey pony tail.

We joked around about the Village AGM which is held at either Movie World or Sea World on the Gold Coast each year and is full of small shareholders who bring carloads of kids and relatives to enjoy free entry to the facility once the formalities have been dealt with. The Village boys seems to think this is great, whereas in truth it belittles what should be a serious occasion.

The most interesting guy to meet was David Evans, the former managing director of Channel Nine in Melbourne who went on to be a big player in Hollywood but is now back in Melbourne and sitting on three boards: Fairfax Media, BSkyB and Village Roadshow.

How he works for the competing Murdoch, Fairfax and Kirby families is something to marvel at, especially given that Fairfax and Village are both big competing players in the Australian radio market.

The Burke options were voted through with 13 million shares in favour and 2 million against, which was a tiny turnout of less than 10%, partly reflecting the fact that Burke has a big stake in the Kirby family's controlling vehicle so it couldn't be voted. With Village shares closing 30c lower at $1.60 today, the whole exercise was a complete waste of time given that Burke's strike price is $3. Still, it was good to catch up with a few directors of this poorly performing and poorly governed company because these AGMs with a 9am start on the last Friday in November on the Gold Coast are just too hard to make.

Fun and games at SP Ausnet

Whilst there is no way of proving this claim, today's SP Ausnet AGM in Melbourne was probably one of the most thorough public shareholder examinations of Singapore Inc's activities that there has ever been.

Chairman Ng Kee Choe was very tolerant in allowing wide ranging questions and allowed several directors to engage, including the CEO of Singapore Power, Quek Poh Huat, who is presumably very close to Singapore's ruling Lee family given he is a former President of Temasek Holdings, one of the two vehicles which holds the island nation's estimated $300 billion in assets and global investments.

I made sure everything got a run, including the $350 million Singapore Inc has blown up on ABC Learning, plus the billions dropped bailing out UBS.

Mr Quek was queried about the financial strength of SP Ausnet's 51% parent company Singapore Power which is 100% owned by the Singapore Government and loaded up with about $17 billion in debt after splashing $8 billion in cash on Alinta's east coast distribution assets last year right at the top of the market.

He was quite open in acknowledging that the debt was a big burden but he could manage it and there had been no need thus far to ask Temasek for a capital injection.

Singapore Power's only offshore expansion has been to Australian and what a big bold move it has been when you consider it controls $13 billion in assets Down Under, it's biggest offshore play in a single sector.

I wrote an opinion piece headlined Eaten by Singapore for The Sunday Age last July, pointing out that the tiny island nation now controls more business assets in Australia than our own government.

Given some of the big decision makers were lined up in the ANZ Pavillion at the Arts Centre, I simply asked why they loved Australian power so much. The chairman pointed to Australia's stable regulatory, legal and political system and gave the Kennett Government's electricity reforms of the 1990s a big tick.

SP Ausnet is a fascinating corporate governance situation given that it was going to buy the Alinta assets off its parent for $8.14 billion last December before ditching the idea the day before the EGM.

The proxy situation has never been properly explained but today the CEO Nino Ficca and lead independent director Ian Renard both confirmed that the proxies were marginally in favour, although it was a tight run thing.

The board's decision to pull the deal was the right move in hindsight as those same assets would today probably be worth about $6 billion if they were sold and Mr Ficca confirmed that current discussions between SP Ausnet and Singapore Power are only related to operational issues rather than any plans to revisit the transaction.

SP Ausnet does have some strategic issues to deal with it because it remains a highly geared infrastructure fund with a third party manager that is paying out a very high proportion of earnings in distributions.

However, the management fees are only 0.75% of assets which is relatively low and operating cash flow does more than cover the $220 a million a year in distributions, even if last year's $157 million net profit did not.

Whilst Tom Rados from the ASA and your correspondent asked all but one of the questions at the two hour meeting, the institutions weren't in a very happy mood.

The proxy advisers clearly want a majority of independent directors because Jeremy Davis, a non-executive director who also sits on the Singapore Power board, copped a big protest vote of 261.5 million votes against his re-election. Strip out the 1.1 billion shares held by Singapore Power and this was a clear majority of the independent shares voted.

Even Ian Renard, the independent director who ultimately led the decision to pull last year's deal, copped 75 million votes against his re-election, which seemed a bit rough given he actually demonstrated a governance process that held up well and dodged a bullet for shareholders.

Shareholders ended up paying out $24 million on the failed transaction which is a lot of money. The directors were given special additional payments of $277,000 given all the extra work involved, which really is a tiny proportion of the total cost.

One of the directors pointed this out after the meeting and he is right in claiming that our non-executive directors should be paid a lot more money given the vital role they play.

The Singaporeans aren't fans of big salaries. Last year I pointed out that CEO Nino Ficca's $670,000 package was ridiculously small and after it was more than doubled to $1.5 million this year, I told shareholders today he should send me a case of Grange for helping secure that pay rise.

All up, it was a very interesting and informative meeting. I told the chairman after the meeting he did a great job and two other directors came up for a chat later and seemed pleased with the debate.

We've packaged up the audio as follows:

Audio breakdown of SP Ausnet AGM

What were the proxies when the board pulled last year's $8 billion related party deal over the Alinta assets?

Given Transurban and others, should we review our model and structure?

How financially strong is our parent Singapore Power given it is loaded with $17bn in debt?

What is SP Ausnet now discussing with Singapore Power?

Wow, big protest against Jeremy Davis and what caused the independents to stand their ground over Alinta deal?

What was the formula by which directors were given special payments for extra work on the Alinta acquisition?

Was the Alinta acquisition a factor in the CEO's salary doubling?

Full audio

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.