Merged: APA QANTAS Bid and Macquarie Bank: Where's ASIC?

[Capt Kremin]

From todays Herald...

http://www.smh.com.au/news/cbd/was-dickson-in-on-plot-from-start/2007/08/16/1186857680616.html

FOG!

[Sunfish]

A number of people, including me, have suspected that the APA bid was an "inside job" for a considerable time, because it just did not compute.

The markets must have also suspected it, from the behaviour of the Board and senior management, which is why they didn't sell.

I don't believe there will be any inquiry from ASIC, at least not until after the next election, if then.

My interest is now on what is the next large asset that the Sydney push will try for.

They've had a go at Qantas.

They've had a go at the Snowy scheme, but may try for all the water in the rivers if Howards water scheme gets up.

Not sure if they can buy the air we breath.

Maybe Telstra? I can't think of anything else big enough for them to want to chew on.

[QFinsider]

I am astounded for a number of reasons...

ASIC must realise the nature of this transaction was suspect from the start. THE CEO offered a significant equity position recommends a deal of dubious benefit to existing shareholders.

There are questions of who bought the deal to whom...
$4 billion out the door in the first twelve months and the CEO mentions not a word...Is that the sort of issue which the "owners"(shareholders) would like guidance on ? You bet

Fiduciary duty? Corporations Act Hello ASIC

As a SMH arfticle from Alan Koher mentioned why has Dixon suddenly got so many ideas on running Qantas, when in the years preceeding all statements from him were negative? From Tiger to SARS to fuel to aviation volatility...
On and on it goes, yet suddenly post APA the future is rosy....
It is ironic those mental shareholders have held the price far above the pre bid levels, even during this latest dead cat bounce. Was the share price deliberately depressed to suppot a future bid? Was the talk negative to ensure an undervalued asset? When did one arty approach the other? Where did this occur? (Alan Kohler also Mentioned project Susie, a plan to buy Q in 1995 with Kerry Parker and the Donut (punchers) oh I mean the bank. Dixon knew of that deal, Son of Kerry was on the board..

It requires investigation, by competent investigators....
The silence is deafening.

ASIC THE NATURE OF THIS TRANSACTION REQUIRES INVESTIGATION. THE STATEMENTS AND ACTIONS OF THE PROTAGANISTS NEEDS INVESTIGATION.

[lowerlobe]

My interest is now on what is the next large asset that the Sydney push will try for.

Maybe Telstra? I can't think of anything else big enough for them to want to chew on.

.....How about the Liberal government/party?

suspected that the APA bid was an "inside job"

....Remember the interview with Darth and Mac bank rep (forgot his name).

The question was asked who approached who and both men looked at each other and said "next question" or something very similar.

[Animalclub]

LL

.....How about the Liberal government/party?

I thought that they already owned that!!

[notmyC150v2]

LL


Quote:
.....How about the Liberal government/party?

I thought that they already owned that!!

No, they only purchase assets, not liabilities...

[RedTBar]

WEll,if a certain bank with an interest in aviation pays a former NSW premier as a consultant then sunfish is right and they'd buy anything.

[Howard Hughes]

When Dixon was asked later about the "failed management buyout", the chief pilot took exception.
Is Geoff Chief Pilot as well?;)

[max autobrakes]

I thought the Qantas Chief Pilots name was JUDAS ISCARIOT or something like that.
He certainly acts like a Judas.:eek:

[freddyKrueger]

ASIC must tell the full story of what happened at Qantas


The airline's board seems incapable of giving a satisfactory account, writes Terry McCrann | August 25, 2007


THE Qantas result makes it crystal clear and utterly undeniable. Chairman Margaret Jackson and her board were urging shareholders to sell the company $1.5 billion - at the very minimum - below value.

It's important to understand that that's below their minimum value. Not what I or others -- including obviously the two "recalcitrants" -- would have regarded as a reasonable minimum.
Further, it's not hard to make the case that Jackson and co were urging a sale at $2.5 billion or so under their own reasonable valuation.

Even more damagingly, in my judgment, they were urging a sale at least $4 billion below a conservative valuation in the context of a takeover.
Now this is not just of embarrassing historical interest. Although it does seem that CEO Geoff Dixon, who with his CFO Peter Gregg was to be a pivotal on-going management member of the takeover team, resolutely refuses to "get it".

After the profit release Dixon actually bristled at the suggestion that shareholders might have the right to be peeved. And he refused to offer any apology.

Dixon then went on to fatuously, rather desperately, point to the Qantas share price, which in the heat of the sub-prime meltdown had fallen below the $5.45 offer price.

Apart from the meltdown factor -- Qantas closed at $5.56 in yesterday's weaker market -- if Dixon does not understand that an offer price should be higher than an everyday market price he has some financial education ahead of him.
The Qantas saga goes to continuing issues absolutely critical to the integrity of the market and good corporate governance.

Arguably, in my judgment, the corporate regulator ASIC is obliged to investigate the specific circumstances of the Qantas takeover in its own right.
But also as a case study for two broad and fundamental issues. The dynamics of leveraged buy-outs where senior management is a critical component of the buying group. And then obligations on boards to keep shareholders fully informed on a timely basis.

Between mid-December when Jackson and her fellow directors (excluding Dixon and Gregg) signed off on the APA offer -- with that unfortunate embrace of Dixon -- and nearly five months later in early May when it collapsed in chaos, they gave shareholders only three profit updates.
At the release of the interim profit in early February, they said profit for the full year to end-June was anticipated to be around 30-40 per cent higher than last year.

In the sloppy way that Qantas seems to articulate these things, it did not specifically state whether that was pre-tax or post-tax.
It's actually pre-tax. So Qantas was predicting that the full-year result would come in between $872 million and $940 million. With six months already locked in.

The next profit update had to be dragged from the board. Nearly six weeks later, in mid-March, Qantas released a statement noting "substantial media commentary" and, more importantly, "questions from certain investors" (the recalcitrants) on the profit outlook.

"In response to these matters," suggesting that Qantas would not have volunteered the information, the company "confirms" -- a very strange word, confirms who or what? -- that the full-year result was likely to be "towards the upper end" of that February range.

In short, closer to $940 million, but still less than it, than towards $872 million.
Despite further continuing comment, the directors volunteered no further guidance until the dying -- both figuratively and literally -- days of the offer in mid-April.

In their first supplementary target statement, they again urged shareholders to accept. On the outlook, they said they considered "there has been no material change in the net financial position of Qantas from that referred to in the 15 March guidance announcement".

That's somewhat ambiguous but can reasonably be taken as an endorsement of the profit guidance. With the qualifications they had outlined, which on balance tended negative.

So 9 1/2 months into the year directors were predicting a pre-tax profit somewhat short of $940 million. And there was no further guidance as the clock ticked into the 11th month and down to the offer's collapse.
The profit came in at $1079 million.

That's after adjusting for the $47 million provision Qantas made for the "alleged" price fixing in the US, which had been specifically excluded from the forecasts.

In short, they were still predicting a sub-40 per cent profit increase -- indeed, all the way through not only the offer's close but the financial year's end. When it came in just over 60 per cent.

The key questions are simple and time-honoured. What did they know and when did they know it? In the context of a takeover, what should they have known?

And what did management led by Dixon know? Should have known? They took no part in the offer deliberations, but kept running the company and had to be the information conduit to the board.

The outcome as opposed to the expectation makes a huge difference to the value at which directors "thought" they were urging shareholders to sell.
They "thought" they were endorsing a bid at between 11.6 and 12.4 times the expected 2007 pre-tax result. They were in fact endorsing a bid at just 10 times the actual 2007 pre-tax profit.

To get back into that directorial recommendation range, the offer instead of being $5.45 would have had to have been between $6.32 and $6.76.
That's to say instead of urging the sale of the company at a total $10.8 billion, the minimum directors should have required was $12.4 billion.
Even $13.4 billion would have been at a modest 12.4 times actual anticipated 2007 profit. My $4 billion extra comes from ascribing a still modest 14 times multiple to the profit.

Now I have no doubt that Jackson and her fellow directors were acting in the best interests of the shareholders as they saw it.
And they expected the takeover to be wrapped up quickly. Their adviser Carnegie Wylie's Mark Carnegie told them, aggressively, that foreign investment takeover approval would not be required. He was wrong.
The problem is that as the takeover dragged on and Qantas's performance improved dramatically, the directors should have changed their minds. But Jackson in particular "did a Thatcher" -- she was not for turning. Up to a point that's fine. What was unacceptable was the failure to keep shareholders informed so they could make up their own minds.
At the very least the market is due a full accounting. Qantas is incapable of providing it. ASIC must.
The Australian (http://www.theaustralian.news.com.au/story/0,25197,22303115-14743,00.html) Saturday 25 August 2007

[QFinsider]

As my post alluded to above. There are plenty of people taking exception to the way management behaved.

I watched Dixon last week and inside business on ABC and it stuck me how utterly inept, poorly spoken and rough he really is..

Terry Mc Crann and Alan Kohler are but two journalists wondering why the deafening silence from ASIC...

If they do not have a look at this, it shows what toothless tigers they are. This "transaction" has all the makings of a hollywood script...It twists, it turns and yet it is true!
There are multiple possible breaches of the Corporations Act that could be investigated by even a cursory examination of the behaviour of "management"


FOG

[RedTBar]

I am looking forward to aircrafts 'take' on this article.

aircraft over to you

[crank]

Chairman Margaret Jackson and her board were urging shareholders to sell the company $1.5 billion - at the very minimum - below value.

Dixon does not understand that an offer price should be higher than an everyday market price he has some financial education ahead of him



Isn't hinsdsight a wonderful thing. Wasn't the shareprice at the time the sale was announced $3.something? $5.45 was a pretty good offer then.

Seems a little too easy to go back now and criticise the nature of the offer, that is unless you picked the whole market to pick up, in which case
you probably made a bundle of cash (and good luck to you if you did).

And yet his real point seems to be made here:


The problem is that as the takeover dragged on and Qantas's performance improved dramatically, the directors should have changed their minds


Too bad its lost in the easy reading rhetoric.

[Creampuff]

But you miss the point Crank. The share price was ‘$3.something’ because people who knew better, and who were being relied upon to say so, were instead talking the company down.

[crank]

I take your point, but I'm not so sure that is the same thing. I think GD had continually bemoaned the fact that the market didn't recognise the true value of the airline.

Talking it down takes a consideration of the operating environment at the time. Fuel/ loads/ forecasts etc, about which I can't make a comment, other than that I seem to recall the fuel surcharges were pretty much at their peak about that time. There's obviously a fine line between trying to manage market expectations in the face of these types of issues, and some suggestion of suppressing the value of Qantas in the market by negative publicity. If only a CEO had that much power over the market (remembering that the bulk of Qantas shares are owned by institutions who do their own research). At the time, the holdouts were widely quoted as saying not only did they value the shares higher than the McBank offer, but that they liked the shares as QAL had a good track record of dividend payments, hence the attractiveness of them to institutions.

Whether the board should have revised its recommendation in Feb/ March after profit upgrades and fuel price reductions seems more like the question. And that question is not for GD, but for the whole board IMO. MJ is no doubt falling on her sword as a result.

[Sunfish]

Errr, I'm afraid not Crank.

The old questions, What did they know? When did they know it? And Who did they tell? Require factual answers

Profits don't just miraculously appear or disappear, absent catastrophe of course.

Then of course there is the question the entire market was asking, which was "Exactly what are APA going to do that the current management and Board cannot do?"

...And the answer as we have now seen is SFA.

...Freight being hived off - as APA would have done.

...Frequent flyers being rejigged and perhaps sold off - as APA would have done.

...A robust response planned to counter Tiger Airways - as APA would have done.

In fact the delicious irony is that the better the Qantas performance becomes, the worse the decision to support the APA bid appears.

Funny that. How could such a band of management all stars recommend selling such a wonderful Rolls Royce cash generator as if it was a run down beaten up Holden?

I still can't work it out:confused:

[freddyKrueger]

Did Qantas chief bale out on real job?

The attention of the airline's executives was reportedly split at a vital time, writes Terry McCrann | September 01, 2007

ONE of the top Qantas executives, John Borghetti, has come out with an extraordinary and highly troubling statement.
After an American Chamber of Commerce in Australia lunch on Tuesday, executive general manager Borghetti was quoted as saying Qantas CEO Geoff Dixon had been forced to "abandon" his day job while working on the failed takeover bid for the airline.
"Senior management ... (including) Geoff, Peter (Gregg, Qantas CFO), me ... a lot of time was taken up with this thing.
"It went about six months. You couldn't get your job done. You had to sort of abandon it."
Other executives, Borghetti added, "carried the company through" the period.
Now is this the Geoff Dixon who was paid a multi-million dollar salary to run Qantas? Or was this the Dixon who was part of the takeover team trying to buy Qantas at what became clear was a bargain basement price?
Either way there seems to be a difficulty, if what Borghetti was asserting is correct. And it demonstrates the very serious issues raised by these buyouts in which top management participate.
At a very simple level, a shareholder is entitled to presume that executives who are paid big salaries actually "do" their "day jobs".
Now obviously in multi-billion dollar highly complex takeovers, executives -- and especially the CEO and CFO -- are going to be drawn into supplying information, and having discussions with, the bidders.
As they are acting in the best interests of shareholders, that in a sense becomes their "day job". Borghetti's comment would be unremarkable. In an arms' length takeover.
But in this context who are Dixon and Gregg "working for"? In a perfect world, they could work for both. The shareholders and the bidders.
We do not live in a perfect world. Indeed the board of Qantas recognised the (obvious) conflict of interest; and established protocols so that Dixon and Gregg took no part in discussing the bid as directors.
Rather than solve the problem it exacerbated it; and showed all too clearly the unacceptable face of these management-involved buyouts.
First, surely the protocols should have gone deeper. That Dixon and Gregg could not help the bidder in the bidding process; in a real sense, help themselves.
That not only were they handsomely paid to "do their day job" -- run Qantas; but in the context of the takeover that is exactly all they should have done to avoid any conflict.
But secondly and worse, the board "inviting them out" of their two responsibilities as directors and the company's top executives, actually deprived shareholders of their most important resource in the takeover context.
Yes, governance "says" that's how you resolve the conflict. But who knows most about the company's real-time performance and the dynamics of its value going forward?
If it's not first the CEO and then the CFO, I don't know who. Yet their lips were apparently sealed. At least so far as guiding shareholders was concerned.
This makes even more critical an accounting for Qantas's utter failure to keep shareholders informed of the company's dramatically improved operating performance through the takeover period.
As discussed last week, chairman Margaret Jackson only grudgingly disclosed in mid-March that 2006-07 profit was likely to be slightly better than the 30-40 per cent increase foreshadowed at the beginning of February with the release of the interim results.
The mid-March update said it would be "towards the upper end of the range". That is actually a very marginal uplift. From "30 to 40 per cent", to "towards the 40 per cent".
In fact the actual increase came in over 60 per cent, a very, very significant uplift. And at no stage, through the offer's close in early May and indeed through the end of the financial year, did Qantas revise its guidance.
Let's throw two other matters into the pot that arise in the Qantas context but have relevance to LBOs (leveraged buyouts) and takeovers generally.
It is suggested that Qantas's advisers, global investment bank UBS and then-boutique investment bank Carnegie Wylie, were to share a $96 million success fee.
For what? A price for Qantas that turned out to be far too low? Or for forcing the bidders to pay an extra 10c per Qantas share in the negotiating phase?
If the latter, getting an extra $200 million for Qantas shareholders got them $96 million. You'd have to say, an extraordinarily generous fee.
I can't assert for certain that sum was correct. But some success fee would have been payable. They always are and $96 million in an $11 billion takeover would not have been out of the ballpark.
It would have been if it was the extra $200 million that got it.
So was the potential fee disclosed in the Qantas target statement? No, they never are. Indeed, there is no reference to any fee being paid to UBS and/or Carnegie Wylie.
Now of course both would have been paid by the bidder -- APA, Airline Partners Australia. The success fee as well as the higher bid price.
And perhaps paid more than happily, if the second suggestion is true. That their working as-is valuation of Qantas was $7 a share as against the $5.45 (actually) offered.
Now I have no doubt that Jackson and her fellow directors thought they were acting in the best interests of shareholders. She was consumed by the fear the share price would plummet if the takeover went away. It of course did, go away, and it didn't, plummet.
Although she might ponder whether the company's previously low share price might have in part been due to Dixon's ceaseless talking down of the airline's supposedly precarious financial position, as an IR bargaining tactic, used especially so successfully in starting Jetstar.
Now Dixon and Gregg are honourable men. As Jackson noted in a special statement in late February, Dixon announced he would gift the entire (up to) $60 million incentive payment to him by the bidding group to a charitable trust.
Springing to his defence is understandable. Less so is that she could find the time to defend her CEO, but not to keep shareholders informed on the company's surging profitability.
Further, if we make the reasonable assumption that Dixon's charitable gift would attract a tax deduction, he might have got $28million back from taxpayers.
Bottom line is one word: transparency. LBOs are part of market practice. We might wish it otherwise. Existing governance structures are inadequate.
Why weren't Dixon and Gregg confined to their "day jobs"? Helping the bidder on behalf of helping shareholders should have been unacceptable.
And why didn't Qantas institutionally bend over backwards to keep shareholders informed on its improving profitability -- something presumably known to senior executives.
More broadly, this whole murky business of "success fees" raises a similar issue. Whom exactly are advisers working for? Again, the starting point is to disclose them and their terms.Source:The Australian (http://%3Cfont%20size=%221%22%3E%3Ci%3EThe%20Australian%3C/i%3E%3C/font%3E)

[QFinsider]

Asleep, despite repeated questions from a number of journalistic sources, nothing is done.

How many potential breaches........
Maybe I'm a cynic but in an election year with connections in the HR Nicholls society is it any wonder the silence is deafening.....:E

[Sunfish]

For students of the APA bid for Qantas, I should like to draw your attention to an ongoing court case brought by Macquarie against New Ltd. for defamation.
News Ltd published an article in 2005(?) about how Macquarie acquired $77.5 million in inter compay debts from the Beaconsfield Gold Mine for $300,000.

News Ltd alleged that the deal was shonky and Macquarie sued.

You can find the text of the running articles in The Australian by googling yourselves, but a phrase in todays report sort of jumped out of the page at me when I was thinking about the APA bid and how it was perceived by the market to undervalue Qantas......

AN "independent" report given to creditors of a troubled goldminer to assess a financial proposal from Macquarie Bank contained figures provided by the investment bank, a court heard yesterday.

Michael Ryan, the administrator of Allstate Explorations, operator of the Beaconsfield goldmine in northern Tasmania, replaced a figure in the report he had received from an independent expert with one emailed to him by Macquarie executive Jonathan Rourke.

Mr Rourke agreed in court yesterday the change meant creditors - who were due to vote on a deal to sell Macquarie the right to recover $77.5 million worth of Allstate debt for just $300,000 - were presented with a "more pessimistic and more realistic" view of the mine's potential.

The behaviour of the administrator of the company in this case seems to be unexplainable to me, why did he talk down the prospects of the mine?

Funny that, why did the the Qantas Board apparently allegedly do the same thing, or at least keep stum about profit upgrades?

Is it coincidence that Macquarie was involved in both transactions?

Draw your own conclusions.

http://www.theaustralian.news.com.au/story/0,25197,22495764-601,00.html

[lowerlobe]

I wonder if this question will be asked at the AGM?

[low_earth_orbit]

The closeness of Dixon (and it might appear some members of the board as well) to the APA deal made this nothing short of a management buyout and good corporate governance should have lead to full disclosure of the company's performance and perhaps a caretaker management structure until it was finalised (one way or the other).

The rising cost of credit was always going to be a risk to the APA deal had it gone through - imagine the QANTAS deal makers trying to refinance their corporate paper in todays or future debt markets. The rising cost of credit is here to stay even if todays sharemarket are seeing it as a blip.

It's sobering to think that jobs could have been on the line for the sake of a deal which was designed to turn shareholders equity into fees, breakup capital and interest payments only for the benefit of a few.

Thankfully a few (very brave) fund managers saw the deal for what it was - poor value for all concerned but a few!

[max autobrakes]

QFI will a change of government later this year ,improve the hearing of some of the recalcitrants ?:bored:

[QFinsider]

I hope so Max. Am informed there is a deal of interest in elements of this transaction.

It is worth investigation, it should not be down to a change of government.
I understand there are a few journos sifting throught the rubble of the deal. Not TT/Current Affair type of investigation either..So we can only live in hope.


FOG

[Sunfish]

I would like to suggest that Qantas has the best corporate lobbying connections in the country, bar none.

There will be no investigation under Liberal or Labor Federal Governments. The network of connections is just too deep and on so many levels to allow one to proceed.

Simply look at the current and previous Directors and their known "connections" and "exploits" and you will see what I mean. Interesting things happen in the Chairmans lounge, and I've personally had to sort out one resulting corporate debacle.

[ScottyDoo]

I've personally had to sort out one resulting corporate debacle
If you saved the entire show then you deserve national recognition.

Orders of Australia have been given out for much less... :ok:

[QFinsider]

Thank you to Paul Fianni and Andrew Sisson.

[esreverlluf]

It would seem to me that if Qantas senior management knew about the profit upgrades and didn't pass on the information to the shareholders (as would seem likely) - then they were/are corrupt. If they didn't know about it, then quite simply they were/are incompetent!
Certainly questions should be asked at the AGM, however the institutions that can only see dollar signs will ensure that nothing is done.
WHERE ARE YOU ASIC !!!!

[QFinsider]

I put this in another topic, but just as relevant...Don't know if it occurred, but this was lifted from Wikipedia. Am confirming with a source or two..

We can only hope!

"After the failed Qantas takeover bid in December 2006, and on the back of growing concern of Qantas' future due to the A380 debacle, an independent review of the board of directors by the shareholder's representative group found irregularities and serious shortcomings in the current leadership. The outcome was a vote of no confidence in Mr. Dixon's continuing leadership; as well as that of Peter Gregg (CFO) and John Borghetti (GM) and a recommendation to call a new board election. This is expected to occur towards the end of the year".

:E

[QFinsider]

Sunfish, you can't fool all the people all the time. The federal government is pondering this phenomena at the present time!!

This came from Wikipedia, am trying to source it.
We can live in hope...

"After the failed Qantas takeover bid in December 2006, and on the back of growing concern of Qantas' future due to the A380 debacle, an independent review of the board of directors by the shareholder's representative group found irregularities and serious shortcomings in the current leadership. The outcome was a vote of no confidence in Mr. Dixon's continuing leadership; as well as that of Peter Gregg (CFO) and John Borghetti (GM) and a recommendation to call a new board election. This is expected to occur towards the end of the year".

[Going Boeing]

NAB in talks with Allco on execs' loan

As Allco remains mired in negotiations with its bankers with scant hope of emerging from suspension in one piece, one of its assets, Rubicon America Trust, picked up a 'speeding ticket'.

That's market vernacular for a notice from the stock exchange asking ``please explain why your stock price is rampaging in the absence of any news''. It is akin to the regulator saying, ``we smell a rat''. Indeed RAT (Rubicon America Trust) had risen from 15.5 cents to as high as 27.5 cents last Friday. Today, it slid back to 22 cents.

The acquisition of Rubicon Asset Management was the last deal of any significance struck by Allco, and paid for, before the dramatic events of the past month tipped the structured financier into suspension. It was a desperate deal. And now Allco's bankers are staring at another $100 million loss.

While they dissect the labyrinthine Allco accounts to get a view on asset values, Allco's latest purchase will come under the microscope. Unfortunately, it won't bring much joy.

For $330 million in scrip and cash, Allco had acquired precisely what it didn't need two months ago: another highly-leveraged financial engineering company. Moreover, it acquired the business from two of its own directors, David Coe and Gordon Fell. Opposition to the deal was high - top governance advisor RiskMetrics (formerly ISS) was telling funds managers to vote against it - and the price was higher still.

Pitched at some 27 times earnings, before Allco bowed to public pressure and repriced the deal from $330 million to $264 million, still a handsome result for Rubicon's owners, Coe, Fell and Matthew Cooper.

The earnings multiple may as well be infinity though. Just like Allco, there is too much debt, too much aggressive accounting, too many fees, and too little transparency.

Rubicon Asset manages three listed property trusts, Rubicon America (RAT), Rubicon Europe (REU) and Rubicon Japan (RJT).

While Allco itself is suspended, the Rubicon trio are trading: at 22 cents, 24 cents and 49 cents, respectively. They were all floated for $1 a unit over the past three years. At the time Allco announced it would buy Rubicon last October, they were 98 cents, 85 cents and 86 cents. But Rubicon was doing a share buyback then which helped prop up the stock price.

The deal was completed at December 20. The buy-back notices to the ASX dried up two days later and the three Rubicon trusts have been tanking ever since.

Until this week's inexplicable ''speeding ticket,'' that is, after RAT had gone for a scurry.

"Operating profit before abnormal items...will be lower than the previous financial year by between 35% and 45%'' conceded Rubicon in response to the ASX. That was thanks to ``hedging derivative portfolio'' and writedowns on a bunch of US commercial property loans which Rubicon had brazenly bought, and then written up in value, at the peak of the market.

That Allco had acquired Rubicon after the market had peaked, for an excessive multiple, and from its own directors, can only mean it was desperate to do a deal, any deal to keep confidence alive.

The value, however, is simply not there.

Although RAT's accounts for the June half had recorded a profit of $57 million, the underlying result is more like a loss of $8.6 million.

Clouding the picture was a $72 million uplift in unrealised property gains and another $20.4 million from unrealised forex gains. Strip out a $22 million deferred tax benefit and there is simply $69 million in net property income against $45 million in finance costs.

Net property running income, after costs and fees, was just $18.7 million. Allowing for $27.3 million in capitalised costs and there is the loss.

It is this kind of aggressive accounting which shapes the profit figures of the entire Allco stable. Not to mention the fees and the leverage.

RAT alone is toting $1.5 billion in debt. Its market cap has slipped beneath $100 million.

But at least RAT is still trading. Allco's $6 billion in visible debt (such is the financial engineering that it is impossible to know the entire obligation) presents its bankers with a dilemma. If they recapitalise it, they cannot rely on equity investors to drive the share price.

All of Allco's satellites have performed poorly so their earnings stream from originating more Allco product (spin-offs and funds) is finished.

A select asset sale to cherry-pickers such as Macquarie would leave angry investors with a maze of vehicles and structures but no assets. And a capital injection from a white knight, if it could happen, would have to be struck at such a discount that the dilution could kill the deal.

It is a quandary indeed, and one which is not solved by the performance of the three Rubicon trusts.

True, Allco is merely the manager but Rubicon unitholders are hardly going to throw good money after bad.

Allco used to own 20% of Rubicon and picked up the rest when the transaction was completed in December.

The original terms were $64 million cash plus 24 million Allco shares with the prevailing Allco share price at $8.50. The effective value of this transaction, after a repricing in the face of market distaste, was $268 million.

The terms were revised to $24 million cash plus 20 million Allco shares. The effect was to reduce the transaction value by around $20 million.

This week, with Allco shares suspended on a last trading price of $3, the value on the acquisition of 80% of Rubicon is $136 million.

Besides its unlisted assets, Rubicon itself owns owns 46 million RAT units, 46 million REU units and 50 million RJT units. The total investment was a cost of $150 million. The value of these units is now $46 million. While the purchase of this stock obviously supported the unit prices it resulted in a loss of over $100 million.

In the year to June 2007 alone, Rubicon Management charged $78 million in fees to the Trusts, comprising management fees and procuration fees according to the expert's report from Grant Samuel which okayed the Allco/Rubicon deal.

Needless to say, Grant Samuel did not make much of the fact that Rubicon is in the habit of paying distributions from capital.

In any case, expect banks and investors to scrutinise every last asset evaluation when Allco finally announces its earnings, delayed possibly until next week.

[bongiORno]

Thank you GB for that forensic analysis on a business that has earned itrself some space in a rubbish bin at the Longreach museum.

Now there are a few other threads that urgently need your diligence and insight.

How about an analysis of the muddled interactions between AIPA, AFAP and jet*?

Perhaps too hard. Then what about an analysis of the internal functioning of AIPA and the sour relationship within the executive and any transactions between that executive, the rest of AIPA COM and the general AIPA membership, with special emphasis on the transparency and truth of such transactions. These are core issues for any business including Allco and AIPA.

[Taildragger67]

SMH stories (25 Feb 08):

It's all over at Allco (http://business.smh.com.au/its-all-over-at-allco/20080225-1ujw.html)

Allco's future is out of its hands (http://business.smh.com.au/allcos-future-is-out-of-its-hands/20080225-1uk0.html)

... and this is the pack of genii that were big players in last year's tilt at the Rat.

Should have seen it - something as fanciful and far-fetched as that bid - typical top-of-the-market stuff.

Couldn't happen to a better wunch of bankers.

[Sunfish]

it's not quite over yet, as Allco is not in receivership, but the stories do indicate the quality of the APA bid, which as I said at the time smelled to high heaven, and by implication, so does the Board and Senior Management of QF.

The Board should have sent APA away with a flea in their ear the minute they knew Allco was involved, because one of the functions of a Board (and a reason that there are so many well connected people with multiple Board seats) is to examine and do due diligence on the quality of companies who want to do business with you - and I don't mean a Dun and Bradstreet check!

To put it another way, there are always shonky operators who want to do business with well known institutions, or attach themselves to your good name one way or another. Then they drag you down into the mud with them. Quite a few tried it on me at one time.

I rest my case.

[Launch_code_Harry]

Sunfish, its not looking good.

Deadlines could doom Allco

Related Coverage
Ian Verrender: Exec chairman hides (http://business.smh.com.au/exec-chairman-hides/20080225-1upn.html)
Malcolm Maiden: Coe and boys to go on diet of sales, boiled vegetables (http://business.smh.com.au/coe-and-boys-to-go-on-diet-of-sales-boiled-vegetables/20080225-1upq.html)
New current liabilities of $2 billion surface in interim report (http://business.smh.com.au/new-current-liabilities-of-2-billion-surface-in-interim-report/20080225-1ups.html)
Comment: Is this the end? If not, perhaps it ought to be (http://business.smh.com.au/is-this-the-end-if-not-perhaps-it-ought-to-be/20080225-1upr.html)
Scott Rochfort and Stuart Washington
February 26, 2008ALLCO Finance Group concealed for more than two months the nature of its exposure to a $900 million debt, which it has finally admitted could sink the company.

The gravity of Allco's situation was laid bare yesterday with the further disclosure that the structured finance company had understated its current liabilities across the group by $2 billion in last year's annual report.

After postponing its half-year results twice, Allco's reporting of a 10 per cent fall in net profit to $83.94 million appeared of little consequence after the auditor KPMG raised doubts about the company's future.
"The group is dependent on the ongoing debt facilities provided by its financiers to continue to operate as a going concern," KPMG said in the accounts.

Allco's chief executive, David Clarke, tried to put a positive spin on the situation in a phone hook-up with the media, declaring his desire to "rebuild" the company. His plan would involve repaying Allco's debts to "comfortable" levels via the sale of some assets by June 2009.

Mr Clarke also announced the group would exit its capital-hungry infrastructure and "financial assets" operations, to focus on its core activities of leasing planes, ships, trains and real estate.
But this appeared to fall on deaf ears. Allco shares plunged $1.94, or 64 per cent, to $1.11 after coming off a two-week trading halt. Allco added it could be forced to write down the bulk of its $1.3 billion in goodwill and $176 million in "intangible management rights" because of its impaired financial position and prospects.

There was also bad news for the listed vehicles managed by Allco, Allco HIT and Allco MAX. Mr Clarke conceded that Allco's exit from its "financial assets" operations could result in the funds being wound up.
Fuelling suspicions the company has tried to hide the true extent of its woes, Mr Clarke conceded a $900 million debt originally due to be refinanced in September next year could now be required to be repaid within 90 days.

This is on top of the $250 million it needs to refinance by May 1.
While bankers had not yet called in the debt, Mr Clarke conceded the dipping of the company's market capitalisation below $2 billion meant the clause in the loan agreement that could trigger the repayment requirement was in effect. Allco is worth $408 million.

Despite the company's value remaining below $2 billion since January 9, Mr Clarke said Allco was not obligated to reveal the situation to investors.
"The advice was clear; this was not an event that needed to be disclosed," he said.

Allco made no mention of this debt clause when it responded to a share price query from the ASX on January 21.
The company said there were "no developments with regard to Allco's business which require market announcement".

Mr Clarke said yesterday that Allco had appointed Caliburn Partnership to advise on the restructuring of the group's operations in December. "Caliburn were hired at end of last year to turn us into an organisation that can put itself forward as a simplified organisation," he said.

The Australian Securities Exchange said it was investigating whether Allco had breached disclosure rules. "We are looking at it very closely and assessing whether it's in compliance with their obligations," said an ASX spokesman, Matthew Gibbs.

Adding further instability, the position of two lenders including National Australia Bank on a margin loan over more than 50 million Allco shares - to an investment vehicle largely owned by senior Allco employees - was thrown into doubt.

This was despite an earlier announcement of an apparently concrete standstill agreement. It emerged that the standstill agreement had not actually been reached.

On January 29, the Allco Principals Investments director Christopher West said it had "concluded a heads of agreement providing for a standstill agreement with its two remaining margin lenders".

The supposed agreement was to stop any forced sales of 23.7 million Allco shares held by Allco Principals Investments until after the release of Allco's full-year financial results later this year. But as the share price plunged yesterday the heads of agreement vanished.

Allco Hybrid Investment Trust asked for an extension of its suspension from trading because the standstill agreement "has not yet been formally documented and agreed".Source SMH (http://business.smh.com.au/deadlines-could-doom-allco/20080225-1upm.html)

Is there any chance that Qantas was going to somehow "acquire" this $2 billion of Allco debt? Was that the whole intention - get Allco out of the hole, and macback a fee bonanza? Then throw the debt laden carcass to the public via an IPO.

[Sunfish]

But of course LCH! And they said it at the time! Albeit in a language that the punters were not supposed to understand.

Qantas has an enormous cash flow - all airlines do. Once you get your hands on that cash flow there is no end of wonderfully creative things you can do with it! Furthermore, the banks are not going to be too picky about a privatized QF (or its investors) if they want a share of their business.

Then of course there is the fact that all that money is in different currencies, and there is this delightfully non -transparent clearing house in Montreal where airlines exchange interline tickets and money. I wonder if the ATO ever got onto that? The best, most secret way of moving money around the globe.

Then of course there is the QF advertising budget... do you think the SMH would be running stories today on Allco if it's Chairman was on the Board of QF? Think again.

A successful APA bid would have fireproofed Allco.

It's an old tactic. When you know your business is shonky, try and buy a good business and then hide behind it. Allan Bond tried that three times. (Lonrho, Bell Corporation and Channel Nine)

[Sunfish]

By the way, for those of you who doubt the sagacity and wisdom of Sunfish, I refer you to post number two on this thread (August 2007):

My interest is now on what is the next large asset that the Sydney push will try for.

They've had a go at Qantas.

They've had a go at the Snowy scheme, but may try for all the water in the rivers if Howards water scheme gets up.

Not sure if they can buy the air we breath.

Maybe Telstra? I can't think of anything else big enough for them to want to chew on.

We have our answer - The NSW Electricity System, although I guess this time Allco won't be a player.

[Taildragger67]

Just wondering when we'll hear from some of the other APA apologists who were on these boards last April/May telling us how great the APA 'partners' all were...

[teresa green]

Am I having a very serious senior moment, when I heard GD on lateline (the elderly don't need much sleep) saying "when we decided not to let the takeover go ahead" tell me if I am totally losing it, but did the takeover not go ahead not because of GD and Marg, but because of a yank late shareholder stuffup? Was not GD and Marg skipping around estatically as they were both about to pocket about 190 million between the two of them for flogging the company to these mob of carpetbaggers? Was it also not the pressure from the general public who fed up with the sale of Aussie icons such as The Rat made it very plain they were not amused? Was I the only one who heard it? Time to book myself into "Dunrootin" home for retired airline pilots I think.:confused:

[404 Titan]

teresa green

I can’t remember the exact timing but there was an initial offer put in by the Mac consortium that was rejected by the board. It was the next offer that was so overwhelmingly accepted by the board and Darth.-

[lowerlobe]

How many times have we heard corporate giants telling us the damage that unions and employee attitudes do to the bottom line of their company's.

It seems to me that they have a very selective memory as seen with TG's post and now we see just how precarious the financial position of one of the failed take over partners is.

At times I doubt some of these people could lie straight in bed but of course it's not their fault that the wheels fall off but the employees and the evil unions....

By the way, does anyone want to buy a few child/day care facilities.I hear that a few are about to go very cheaply......

[ampan]

The phrase "Private Equity" is one of the worst misnomers in business. There's no equity involved. It's all debt. Worse still, it's not "Private Debt". The enormous debt incurred in purchasing the target company is unloaded onto the target company.

For a good example of how these so-called 'private equity' characters can ruin a good company in double-quick time, see what happened to an NZ company by the name of Feltex Carpets Limited. It was a minnow compared to Qantas, but the same thing could happen - except that I can't imagine any Australian government, Labour or Liberal, allowing Qantas to go under.

[max autobrakes]

Todays Business section of the Australian:

ASIC warns short sellers they could be jailed for spreading false rumours that hit stocks.

Australia's two share market regulators, the ASX and ASIC, have launched a campaign to crack down hard on malicious rumour-mongering as well as forcing greater disclosure of stock lending for short selling.
In a wide ranging joint release yesterday, ASIC noted it was "concerned that some individuals may be spreading false and mis-leading information about listed securities to artificially provoke sales of securities and reduce their market prices."
A subsequent statement by ASIC noted that spreading rumours to help force share prices down is a breach of the Corporations Act and is punishable by a five-year prison term and/or a fine of $220,000.It is clearly aimed at short sellers, who have been active in the recent volatile share market and in some cases appear to have known details of the margin loans taken out by some of the major shareholders in companies such as ALLCO and ABC learning.


ALLCO were they not the one and same mob behind the APA takeover of Qantas? I wonder if any of the rats reading this are becoming more nervous?:eek:

[Sunfish]

This little rat wouldn't own, borrow or steal Qantas stock, let alone sell it short.

To put it another way, Qantas is quite capable of generating it's own negative publicity.

[ampan]

Another rant about these a*seholes: I've heard the phrase "short selling" for years, but never knew what it actually meant. So a couple of months ago, I decided to find out. Shorting selling is a way of making money by betting that the price of share will go down. How, might you ask, is this possible? I might believe that the price of XYZ Pty Ltd will go down, but I don't own any shares in XYZ Pty Ltd - so I've got nothing to sell. This is what happens: Hundreds of you fly boys & girls out there will hold shares in XYZ Pty Ltd through your super fund or through another trustee company. The short seller borrows your shares from you, to give the short seller something to sell. The shares are sold, the market price falls, and then the short seller buys the shares back at a lower price and puts them back in the cubboard - and pockets the difference. You, of course, know nothing about this, and receive no payment for having your own property used in this way. The fee for the service goes to the sharebrokers and fund managers. They might say "Why should you care? You had 10000 shares in XYZ Pty Ltd, and you've still got 10000 shares in XYZ Pty Ltd?" Of course I should care: (1) You have used my property to make money, and I get nothing, and; (2) What if the sharebroker or fund manager goes belly up? All I'm left with is a lawsuit against someone with no money.

[PLovett]

ampan

There is another reason that people should care. Their superannuation funds 10,000 shares in XYZ Ltd. (not Pty Ltd - that is a private company not listed on the stock exchange) are now worth considerably less than they were before the short seller got hold of them.

The other question it raises is why would the superannuation fund lend the short seller the shares? Fees is the answer. They make money for themselves, not you the blessed ignorant whose superannuation is basically being erroded for the sake of some **** wit who will get a massive bonus at the end of the year for robbing you.:mad:

[lowerlobe]

To put it another way, Qantas is quite capable of generating it's own negative publicity.
......I wonder why would any business or company want to do that Sunfish?:hmm:

[Taildragger67]

Ampan and Plovett,

1. When you say 'you hold these shares via your pension fund', that is actually incorrect. The member of the super/pension scheme has a right to a future payment; they do not have an interest in the investments used to generate that payment. The shares (or other investments) are the property o fthe scheme, to do with what the scheme wills.

2. You ask (rhetorically), "who gets the fees for stock-lending?" and opine that it is 'the scheme'. Well, the scheme exists to make money for its members. As a result, fees paid by a stock borrower, will become part of the scheme property, go into the scheme's pot and thereby actually help the scheme's investment returns. It doesn't go into some evil fund manager's back pocket, it gets accounted for as income in the scheme's accounts.

3. It is up to a particular scheme's rules whether or not it can short-sell. Some can; most cannot. The reason for this limitation is that generally, super/pension schemes view themselves as long-term investors, who are interested in three things: i) capital gains over the long term; ii) dividend income; iii) a say in how the company is run (ie. voting rights). Hence a 'conservative', long-term investor will usually not be outright short as it then has no access to dividend income or voting rights; the change in capital value is seen as a short-term strategy.

Increasingly, schemes can invest with managers whose mandates allow for some shorting, in order to generate absolute returns.

4. Many pension funds are index funds, meaning that, under the rules of whatever index it is, they must hold index-weighted stocks (or at least provide the index return). So these guys have no choice but to grin & bear it when share prices fall. One way to cushion the blow a bit - make the stocks they hold, work a bit harder. One way to do that is to lend them out. This is no different from taking the cash stashed in your piggy-bank (ie. you're naturally long), to the bank and earning interest (by lending it to someone who has a use for it - the short-seller's use is to deliver it upon the sale contract).




Don't get the idea that just because someone sells something, the price must go down. There is, for every company, a finite number of shares in issue. Hence any trade is zero-sum; foreign exchange, where short positions can be funded by simply borrowing cash, is different as the financial system can create money by fiat. The short-seller of shares is betting against the person who buys the shares they are selling. Certainly, those buyers may pull their bids - if they think the company's prospects are less bright, and a seller may push down to that bid. But short-selling does not determine whether a comoany is well-run or not, whether it has good prospects, whether it is paying a dividend, etc.

If you don't like how your super fund is being run, talk to your scheme's trustees and get them to move the mandate. Managing pension money is a very competitive business and the fund management companies have to be pretty open to the consultants and schemes they deal with. Bonuses are usually paid to fund managers on the basis of fund performance, as if the fund manager does not perform (ie. provide as good a return as possible for the scheme members, ie. the people chipping in their contributions every week), th emanagement company loses mandates and goes out of business.

If an individual fund manager manages to pull a 'massive bonus', it's because he/she has managed to pick their market like a nose, meaning the fund's done well, meaning the superannuants/pensioners have done well as a result. In order to prevent an individual manager taking silly positions, bonuses are often paid on the basis of accrued performance over a rolling number of years, so even a blinding year won't get fully reflected straight away.

Pension fund management is actually pretty transparent - every fund has a benchmark to be compared against and so you get to see, very clearly, whether the fund has done well or badly compared to that benchmark. Few industries are so transparent.

Pension fund managers are pretty standard, boring, Magna-driving people. They make corporate lending bankers look wantonly reckless. They are the people you see on the 7.46 from Burwood, who get off at Wynyard and scuttle into the AMP or AXA buildings, from whence they emerge 9 hours later. They are not generally driven to excess. It's not the sort of industry where 'rock stars' - or 'robbers' - last very long.

[Blip]

What's QF trading at now? Nothing else matters.

http://au.finance.yahoo.com/q?s=QAN.AX&x=0&y=0

[Sunfish]

Taildragger:


If an individual fund manager manages to pull a 'massive bonus', it's because he/she has managed to pick their market like a nose, meaning the fund's done well, meaning the superannuants/pensioners have done well as a result. In order to prevent an individual manager taking silly positions, bonuses are often paid on the basis of accrued performance over a rolling number of years, so even a blinding year won't get fully reflected straight away.

Pension fund management is actually pretty transparent - every fund has a benchmark to be compared against and so you get to see, very clearly, whether the fund has done well or badly compared to that benchmark. Few industries are so transparent.

Pension fund managers are pretty standard, boring, Magna-driving people. They make corporate lending bankers look wantonly reckless. They are the people you see on the 7.46 from Burwood, who get off at Wynyard and scuttle into the AMP or AXA buildings, from whence they emerge 9 hours later. They are not generally driven to excess. It's not the sort of industry where 'rock stars' - or 'robbers' - last very long.

Pension funds move as a herd. They don't care about making "stratospheric returns"at all. What the managers of funds want to do is be just a tiny bit better than the other funds. That way even if they lose 50% of value, they can point to other funds that have done worse. It's called safety in numbers.

I'm scared to look at my super at the moment, I don't give a toss about share price movements as such, what concerns me is if any of the super funds have invested in toxic American debt.

And you can bet that if one has, they all have.

PLease note that it was a standard, boring type of trader that just cost a French bank about five billion dollars.

[ampan]

I doubt whether even Taildragger67 can give any reassurance on the toxic US debt. ANZ have admitted to a 300 mill exposure, but that could just be the start of it.

[freddyKrueger]

Last nights 7.30 report lead story was on the MFS train wreck. Allco finance and the failed Qantas takeover and what "might have been" gets a run. Worth a look for those interested:
Direct link to windows media broadband video (http://www.abc.net.au/reslib/200803/r231797_926427.asx) of the report. (Dial-Up (http://www.abc.net.au/reslib/200803/r231797_926428.asx))

The transcript (http://www.abc.net.au/7.30/content/2007/s2186788.htm) should be up today sometime.

If Allco falls over & the banks start chasing the principles, something 'interesting' may surface during the washup.

[Taildragger67]

Ampan,

No, I can't. Personally I've regarded most ABS and MBS structures as 'toxic waste' for a few years now but I've not been in a position to do anything about it (except not touch them with a barge pole).

Sunfish,

Kerviel worked for a bank, where risk-taking in trading activities is encouraged; performance is your last trade. Pension fund managers have a different skill-set and are measured over a longer period. Also, as I wrote earlier, if you're an index fund manager, by law (ie. your contract with the pension scheme whose money you're managing) you have to follow the index you're told to follow - and that means not outperforming, as well as not underperforming. The best index managers are those whose tracking error (in absolute terms) is nearest to zero.

Absolute-return managers do take more risk, but then they are mandated to go after the higher returns.

In the history of all these financial market frauds - eg. Hamanaka, Leeson, Metallgesellschaft, NAB, AIB Allfirst, Daiwa, Kerviel, Peter Young, Joseph Jett -they are generally banks or company trading arms with a high-performance, profit-centre mentality. Very few (Orange County is really the only one which comes to mind) are super/pension/retirement funds. Even LTCM and Amaranth were not mainly managers of pension money, but hedgies who wouldn't let the likes of your average PPRuNer darken their doorstep, let alone invite them in for tea.

http://en.wikipedia.org/wiki/List_of_trading_losses (not all are frauds - some are just massive losses following incorrect bets)

I'll stay out now to prevent further thread drift.

[max autobrakes]

Listened to the video stream that Freedy gave a link to,
the best quote I thought was from Michael O'Sullivan

" I think there is always a concern which ought to be taken into account by investors of where you have a very strong personality as the CEO of the company and a concern that the CEO is not sufficiently constrained by the board so that was the case in HIH and has been the case in a lot of the calamitous crashes"

For a moment there I thought he was talking about Qantas, Geoff Dixon and the APA deal! :ooh:

[bongiORno]

Mindful of the flippant rant status lurking here you might consider the QF-APA bid for comparison with the present attempt by Seven to take control of WA Newspapers.

The open letter just sent by WAN's non-executive directors clearly states their position and demonstrates an alternative path that QF directors could have taken if they believed it was required.

In making criticism of any company you might need to consider;
1 Where Board #n has hired a CEO who turns feral, or
2 Where that Board #n is progessively diluted with those more inclined to encourage the CEO's feral behaviour, or
3 Where the CEO acts to almost totally replace Board #n with Board #n+1 so that it will rubber-stamp the CEO's feral behaviour and make it appear "acceptable". Yes it does happen, and has happened in an organisation very vocal about the QF-APA bid.

[Stationair8]

Its called greed, greed and more greed.
Gordon Gecko is alive and well.

[max autobrakes]

Greed!
how's this,
the latest "tranche" of Qantas executive bonus' was released a few moths ago, some $100 Million dollars worth .
Worth every penny ,NOT!!!!:{

[max autobrakes]

When investors are left out

Elisabeth Sexton [SMH]
May 5, 2008

ONE of the enduring questions raised by the private equity bid for Qantas is whether aspects of the deal would have withstood court challenges if it had proceeded. In the quieter times for private equity brought on by the credit crunch, some of the nation's best legal minds have been pondering whether some basic principles of justice were overlooked in all the excitement. A perennial issue is whether shareholders should have a right of veto over generous offers to executives to stay on with the new private equity owners.
In a speech to a conference in August, the Sydney barrister Tom Bathurst, QC, said: "If an existing employee is offered shares or other incentives to participate in the bid or to stay on with the company after the transaction is completed … there is a real prospect that he or she is improperly profiting from his or her position as an officer of the company."

The problem might be able to be cured by board approval, Mr Bathurst said. "Where an independent board reaches the conclusion that a transaction is in the interests of shareholders, and that a necessary incident of the transaction is that the benefits to be provided to the officer necessary to keep the officer there and to ensure that the bid is made and proceeded with in the best interests of shareholders, then in my opinion (but without any certainty) the board's approval would provide the necessary informed consent of the company.

"The issue, however, remains controversial." The Melbourne barrister Neil Young, QC, took a tougher line in a speech delivered in July, saying a full meeting of shareholders was necessary. "[In] the private equity context, it becomes plain that senior executives of a target company cannot, consistently with their fiduciary duty, agree to accept substantial incentive or equity packages from a bidder without the approval of the target company's shareholders," he said. "If they do, they will breach their fiduciary duties and will be bound to account to the target company for any profits they make. Even if executives in this position disclose all of the details of their agreed incentive packages to the target company's board of directors, that would not afford an answer to their breach of fiduciary duty."

In a speech in October, Justice Robert Austin of the NSW Supreme Court said debate about "managing" conflicts of interest in private equity bids risked "losing sight of the strict standards set by the law". Some conflicts had to be avoided altogether, he said, because the law demanded "undivided loyalty from a fiduciary". "The question is not whether there is an actual conflict; the question is whether there is a real sensible possibility of conflict.
"If there is, either the conflict must be eliminated (for example, by the executive director rejecting the offer of benefits) or the proposal must obtain the fully informed consent of the company."

Any judge dealing with the issue would be "interested to know" why a 1936 case insisting on full shareholder approval should not apply, he said.

:=