Executive summary: October 16, 2009
By Scott Rochfort | smh.com.au | 16 October
Cops on the beat ... Tony D'Aloisio and John Laker.
CBD
The heart and soul of twin regulators
The post-modernist filmmaker David Lynch probably never had a warped enough imagination to think any country would name its financial regulatory framework after one of his TV shows.
The corporate police's top agent, Tony D'Aloisio, tried to bend perceptions even further yesterday in his interpretation of the Twin Peaks model of regulation, when talking to an accountancy conference.
After noting the Europeans like Australia's model of having a separate corporate cop (headed by himself) and banking cop (headed by John Laker at the Australian Prudential Regulatory Authority), the Australian Securities & Investments Commission boss suddenly went off on a weird tangent.
“He [the international observer] likened it to that, really, you can't have one body with two hearts. In other words you can't have one body doing both roles," he reasoned to the CPA Congress in Sydney.
“The body just doesn't work. You need to separate them out.” It sounds like the plot for the next Lynch offering.
Perhaps agent D'Aloisio could co-star in a third series of the TV show, which starred a female corpse wrapped in plastic, a giant, a bewildered FBI agent, a dwarf and a demonic spirit.
We await a European remake of the Australian version of Twin Peaks. But please be warned that Lynch is known for his complicated plots, general weirdness and very few happy endings.
Rise and fall
It is good to see the senior executives and directors of Australia Post have chipped in to help the government-owned delivery service weather the economic downturn.
"Like many other businesses around the world, Australia Post has experienced an extremely difficult year as a result of the global financial crisis," noted the postal carrier's chairman, David Mortimer, in helping to explain the 35.7 per cent plunge in full-year profits.
So it was refreshing that Mortimer, who is also chairman of Leighton Holdings, backed up his comments with the group's remuneration report that was tabled in Federal Parliament yesterday.
His fees increased 5.6 per cent for the year to $179,895, while the fees of the deputy chairman and former Liberal minister in Victoria, Mark Birrell, increased 9 per cent.
This no doubt helped offset the whopping 2.7 per cent per capita rise in the group's wage bill that Australia Post's 35,000 workers have gorged themselves on.
Staff were also pampered with a $500 bonus last month despite wage talks breaking down last year for a new enterprise agreement.
The group's executive team also showed some restraint, with the base pay of the outgoing chief executive, Graeme John, rising 5.1 per cent to $1.4 million.
His bonus was trimmed from $1.06 million to about $600,000 (or 1200 times what the average worker was paid). His total remuneration dipped from $2.89 million to $2.58 million.
Luckily, the bonus pool for other key executives only fell from $1.56 million to $1.3 million. Aussie Post also managed to lift the "non-monetary benefits" paid to John and his team by a modest 55 per cent. No disclosures were made whether John will collect any termination payment when he leaves the mail carrier. Under his contact, if John is "terminated" he is entitled to a payment of 1.5 times his annual $1.4 million base pay.
Size counts
The board at Babcock & Brown Infrastructure has found some spare time to consider other aspects of life while trying to salvage the rapidly capsizing port and rail infrastructure company.
Aside from deciding to re-adopt the company's old name, Prime Infrastructure, the chairman, Mark Hamill, and his fellow directors have had enough time to work out that they are due for a 50 per cent pay rise.
In working out the resolution that proposes to swell their remuneration pool from $1 million to $1.5 million, BBI notes in the notice of meeting how the company had "reviewed survey data" of other boards of companies in the sector and of a similar size.
It seems the calculation was based on BBI's market value following its proposed $1.5 billion recapitalisation that will leave existing security holders with a $1-2 million stake.
Incensed
Downer EDI's new chief financial officer, Grant Fenn, probably thought he had avoided any executive pay controversies after departing Qantas before its annual meeting. Sadly not.
Fenn, who was paid a relatively meagre (compared to Geoff Dixon) termination payment of $108,125 from Qantas, attended the first annual meeting of the season where a company had its remuneration report voted down by shareholders.
Investors seemed unhappy over the dwarf-like long-term incentive hurdles set for Downer chief executive Geoff Knox and his $2.5 million bonus last financial year.
Fenn, who is just seven days into his job at Downer, said he also was not surprised Qantas's former beancounter, Peter Gregg, picked up the gig as Leighton Holdings' chief financial officer.
"They will certainly know that he is there," said Fenn of his former workmate. Seems Qantas is a good training ground for engineering beancounters.
Gregg, for the record, picked up a $1.76 million termination cheque from the Flying Roo.
My backwater
The kingpin of the British shopping basket manufacturer turned marketing giant, WPP Group, appears to have a very positive attitude to Australia.
Sir Martin Sorrell, whose firm's subsidiaries include the PR outfit Burson-Marsteller and advertising outfit Ogilvy & Mather, apparently quizzed one of his former employees last year who wanted to return to the former colonial outpost.
"Why would you want to do that? It's a backwater," Sir Martin asked the Australian ad-man Craig Davis, who returned to Australia last year to take up the senior creative role at a WPP rival, Publicis Mojo.
Davis recounts the conversation on his blog, where he launches a defence of his country that would make the author of the poem My Country, Dorothea Mackellar, proud.
Davis recalls how he pointed out to Sorrell "that Australia and New Zealand have a habit of proving themselves world class, and make a point of punching above their weight".
Before his return to Australia, Davis had headed the creative department for the venerable JWT, which is one of Sorrell's major companies.
Got a tip? email srochfort@smh.com.au
Insider
Edited by Jamie Freed
Fundamentally, they must be joking
Here's a wacky idea – think of the prospect of BrisConnections trading on its fundamentals rather than being considered a monumental joke.
As funny as that sounds, that's exactly what Macquarie Capital and Deutsche Bank are hoping for, at least after they chip in for the third and final instalment due on January 29.
Credit Suisse analysts – the only ones to cover the stock – said in July that BrisConnections shares could be worth $1.81 on a fully paid basis.
That pales against the $3 of total contributions, but is much better than yesterday's closing price of 10c plus a $1 remaining liability. The idea is that once the units are fully paid up, investors will finally take the stock seriously.
For now, Macquarie owns 45.5 per cent of BrisConnections and Deutsche owns 35.5 per cent. To cover the next instalment, Macquarie will have to chip in $176 million, while Deutsche will need to put in $137 million.
Insider hears Macquarie and Deutsche have no plans to dump the stock on market before the third instalment is paid.
Of course, any thought of selling would be a hard ask, given that Brisconnections traded on just three of the last 17 trading days, in a total volume of 57,000 units, and fell 5c to 10c yesterday, despite $2 of capital having already been invested in each unit.
Instead, they are hoping it will be re-rated to a level closer to Credit Suisse's valuation, which would allow for an orderly sale at a later stage.
Another option under examination is delisting the stock now that Macquarie, Deutsche and Queensland Investment Corp combined own 91 per cent of the company.
But retail holders might not be happy with that solution, so it remains to be seen whether that will occur.
As the designer of the not-so-brilliant listing, Macquarie came out better than Deutsche.
It milked $133.8 million in underwriting, listing, management and other fees, meaning it is sitting on a potential loss of $218.2 million, assuming the shares were worthless after the third instalment.
Deutsche, which was only an underwriter, received only $44.7 million in fees, resulting in a potential loss of $229.3 million.
Curious timing
The decision by BHP Billiton and Rio Tinto to drop a provision of their iron ore joint venture allowing for some joint marketing on the spot market is not a surprise – but the timing is certainly curious.
That clause, allowing for up to 15 per cent of production to be marketed together, always seemed like a red herring that would be the first thing to go to appease regulators and customers.
The miners are now claiming it was never meant to be a bargaining chip, and that if it had been, it would have been removed at a later stage rather than now.
Nevertheless, the market will wonder whether things are going as smoothly as hoped on the regulatory front. Insider understands there have been some initial discussions with competition regulators about the deal, but if a formal application had been filed with the European Commission, that would have been made public.
It is said the completion of a binding joint venture agreement – expected by the end of the year – does not prevent BHP and Rio from filing an application.
At the moment, work on the deal is believed to be very much in the hands of lawyers and internal teams from each company rather than the investment bankers.
Meanwhile, the talk in the market remains that the joint venture, while a win-win for both sides, will benefit BHP more.
Many also find it curious that BHP's Ian Ashby will get the chief executive role, while Rio's Sam Walsh will be the chairman.
Even many BHP executives would privately acknowledge that while they are stronger at marketing – an activity to remain separate in the production joint venture – Rio is the superior operator.
AWB bargain
AWB has kept mum on the progress of its talks to form a joint venture with an international commodities trader since the notion was first floated to the market alongside its $459 million recapitalisation plan last month.
However, it seems that due diligence is continuing to progress in a positive manner and AWB, advised by Deutsche Bank, remains hopeful of finalising an agreement by the end of the year.
The identity of AWB's partner remains a mystery, with companies like Glencore, Cargill, Louis Dreyfus, Olam and Japanese trading houses floated as potential candidates.
In the meantime, AWB and joint venture partner Elders have also been in talks to sell their Hi-Fert business for $138 million or so.
The sales process, run by KPMG, has narrowed the field to a preferred bidder – despite others remaining in the wings – but an unprecedented collapse in fertiliser demand in recent months means it has been tougher than expected to attract the right price.
A deal is not expected until early next year, rather than by the end of this year.
Meanwhile, Elders was validated yesterday when 95.6 per cent of shareholders voted in favour of its deeply discounted $550 million recapitalisation deal. Its $150 million share purchase plan, at 15c, closes on October 23.
Elders shares closed 3c lower at 20c yesterday. The retail component of AWB's one-for-one rights issue at $1 a share closes on October 21.
AWB shares closed 1c higher at $1.24 yesterday, making it look like a bargain.
jfreed@smh.com.au
Business briefs
Mining
Anglo merger off Mining giant Anglo American has successfully fended off Xstrata's proposed $71 billion "merger of equals". Swiss-based Xstrata ruled itself out just days before the October 20 deadline by which time it was required to make a formal approach under British "put up for shut up" takeover rules. Xstrata refused to rule out making an offer for Anglo in the next six months.
Retail
Myers keep 1% The Myer family has decided to retain just over 1 per cent of Myer Holdings after the department store chain is floated in November. The Myer Family Company Pty Ltd will retain 6.5 million of the 41.8 million shares it owns in Myer Holdings.
Resources
OZ strategy OZ Minerals' new chief Terry Burgess is set to deliver his growth strategy to the company's board next week, with the market to be filled in on his plans for the slimmed down copper and gold producer on November 30.
Infrastructure
Call for upgrades Major infrastructure upgrades are "desperately needed" to facilitate coal exports or Australia's rebound out of the economic crisis will be constrained, according to Macarthur Coal chief Nicole Hollows. She said the recovery of metallurgical coal sales had been largely due to increased demand from Indian and Brazilian steel makers, but Macarthur was struggling to supply customers due to infrastructure bottlenecks.
Polaris offer Cash sweetener Mineral Resources has increased its takeover offer for fellow explorer Polaris Metals, by introducing a cash component to the offer, and increasing the bidder's shares on offer. It said the revised offer valued Polaris at 65.33c per share, up from 56.96c under its earlier offer.
Leisure
Cinema purchase Leisure operator Amalgamated Holdings has bought the Beverly Hills and Cronulla cinema complexes in Sydney for $9.8 million.
First published by Smh.com.au on October 16 2009
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