Merged: APA QANTAS Bid and Macquarie Bank: Where's ASIC?
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"Private Equity"
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.
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.
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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?
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?
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.
To put it another way, Qantas is quite capable of generating it's own negative publicity.
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"Short Selling"
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.
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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.
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.
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To put it another way, Qantas is quite capable of generating it's own negative publicity.
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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.
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.
What's QF trading at now? Nothing else matters.
Taildragger:
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.
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 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.
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.
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sub prime
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.
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'Teflon Geoff' Not out of the woods...yet
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 of the report. (Dial-Up)
The transcript should be up today sometime.
If Allco falls over & the banks start chasing the principles, something 'interesting' may surface during the washup.
Direct link to windows media broadband video of the report. (Dial-Up)
The transcript should be up today sometime.
If Allco falls over & the banks start chasing the principles, something 'interesting' may surface during the washup.
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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.
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.
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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!
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!
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For a moment there I thought he was talking about Qantas, Geoff Dixon and the APA dea
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.
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.
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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.
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.
