Merged: APA QANTAS Bid and Macquarie Bank: Where's ASIC?
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ASIC, are you asleep?
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.
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.
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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.
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.
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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.
suspected that the APA bid was an "inside job"
The question was asked who approached who and both men looked at each other and said "next question" or something very similar.
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When Dixon was asked later about the "failed management buyout", the chief pilot took exception.
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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.
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.
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.
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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
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
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hindsight
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
Dixon does not understand that an offer price should be higher than an everyday market price he has some financial education ahead of him
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
Last edited by crank; 27th Aug 2007 at 11:43. Reason: spelling
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.
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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.
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.
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
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
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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.
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.
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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.....
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.....
Merged: APA QANTAS Bid and Macquarie Bank: Where's ASIC?
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......
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...64-601,00.html
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.
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.
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...64-601,00.html