Babcock blasted at fiery B&B Power AGM

February 2, 2010

Dear Mayne Reporters,

After watching their shares fall from more than $3 to just 9.7c over the past year, shareholders in Babcock & Brown Power were looking for retribution against the directors and, more importantly, conflicted fee gouging manager Babcock & Brown, at this morning's AGM in Sydney.

Plenty of audio highlights

Here are the edited audio highlights and we particularly recommend numbers 2, 3, 6 and 8:

1. Future transactions fees and exactly who at Babcock is working on the next deal?

2. How much are UBS and Deutsche Bank helping out given huge relationships with Babcock?

3. How much were these two new Babcock blokes paid last year?

4. Why we should vote against the impressive independent chairman Len Gill?

5. Will independent candidate and audit committee chief John Fletcher disown Babcock?

6. Let's all vote against Babcock's new man on the board John Bowyer

7. Supporting the move to take out tiny shareholders

8. Getting auditor Marc Upcroft to defend illusory accounts

Big protest votes against Babcock's man and remuneration report

Whilst the anti-Babcock rhetoric was very strong, the biggest actual event at the meeting was the major protest votes against the remuneration report and Babcock's new man on the board, John Bowyer. Both resolutions were comprehensively defeated from the floor and the poll results are not yet out, but here is the proxy position:

Rem report: For 120.3 million, Against 91.77 million

John Bowyer: For 132.76 million, Against 82.87 million

Strip out the 10% stake or 64 million shares voted by Babcock & Brown itself and both resolutions would have been defeated. Chalk that one up as another important milestone for shareholder accountability because it is very rare indeed for any director to get less than 90% of the votes in favour.

Strong performance from Len Gill

I was quite impressed after meeting new independent chairman Len Gill for an hour on Tuesday and he has clearly won the support for his independent push from big and small shareholders alike.

However, given that he has been a BBP director since the float in October 2006, I put the argument that he was clearly too much of a "yes" man for all those excessive acquisitions and Babcock fee gouges and therefore deserved to be defeated from the floor. The proxies were 202 million in favour and only 10.6 million against and from the floor he had about 50 votes in favour and only 5 against.

The other independent director up for election was former AGL finance chief John Fletcher. Despite chairing the audit and risk committee through this share price implosion, Fletcher received 202 million votes in favour and just 10.8 million against and from the floor there were only about 15 votes against.

Given that Gill is an old SECV man who rose to be CEO of TXU Australia before the Texans sold out for about $5 billion, he is the perfect man to be an independent chairman of an internally managed BBP.

Several shareholders left the board in no doubt that they want Babcock sacked as manager and the company renamed with Gill as the future leader.

Not much insight from the Babcock boys

New CEO Ross Rolfe AO gave a presentation at the start of the meeting but after that we barely heard from this Babcock boy. He refused to disclose exactly what he was paid by BNB last year as did BNB's infrastructure boss and BBP director John Bowyer.

However, we did discover that former BBP CEO Paul Simshauer remains gainfully employed at Babcock. This is disgraceful and the board was told in no uncertain terms.

Len Gill revealed that Babcock will receive no fees for its recent advice on the sales of three power stations, but it will be paid, along with adviser UBS, for any future major transactions.

It was also interesting to discover that the two global investment banks closest to Babcock & Brown, UBS and Deutsche Bank, have lot lent any of the $4 billion outstanding. So much for supporting your major clients.

UBS advised on the Alinta acquisition but then didn't stump up a dollar to help get it financed. Why they are still advising today is a mystery?

Auditor defends illusory accounts

After BBP couldn't raise finance for the Alinta acquisition, the shares tanked and BNB provided a $500 million bailout loan at punitive rates. This is now down to $116 million but BBP's future remains in doubt, although you wouldn't believe it reading the accounts.

PwC auditor Marc Upcroft reckons the shares are worth $1.92 each, valuing the whole company at $1.4 billion. Yeah, and the last set of audited accounts for ABC Learning claimed it was worth $2.4 billion.

Have a listen to the auditor defend this valuation using the usual accounting standards argument. The only problem here is that BBP's banks refused to lend it the necessary money. It would have collapsed but for BNB's $500 million emergency loan and now the company is embarking on a series of fire sales, but the auditor reckons everything is just fine and he happily accepted management's valuation recommendations.

The plane is boarding so that's all for now.

Do ya best, Stephen Mayne

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