Macquarie Pillages MAp One Last Time
Macquarie Pillages MAp One Last Time
Let's start with some facts. MAp has a management agreement with Macquarie Group whereby it pays the mothership between 1% and 1.5% of MAp’s market capitalisation. At today’s price, that’s more than $40m per year, plus performance fees.
Now the directors tell us that they can employee Kerrie Mather and her team of 30 – that’s all of Macquarie’s airports expertise – for approximately $11.5m a year. All we need to do is get 50% of the outstanding securities in favour of a deal to sack Macquarie, we employ Mather and team and put $30m per year straight in the Johnny rocket. Tell me, please, where do I sign?
Hold on a moment, Bristlemouth, the directors tell us. Ah, that’s not really in securityholders’ best interests. We think you are better off paying Macquarie $340m in securities to ‘internalise’ the management of MAp. You see, if you just sack them, well, maybe the management team won’t come across.
Really? Surely you could get an office and a few computers for $500k a year, which leaves $11m in salaries with which to pay our 30 staff. They must know something about the investment banking job market that I don’t if an average of $330k each isn’t enough. Jobless investment bankers are a dime a dozen and, to be honest, monitoring a portfolio of airport investments is hardly the world’s most difficult job.
But apparently there’s an even bigger reason to hand Macquarie 6.3% of the group. Sacking Macquarie, we’re told, will trigger ‘change-of-control provisions’. It seems that Macquarie has a poison pill with which it, or the banks financing the underlying airports, can ‘blow up Macquarie Airports’ in the words of Malcolm Maiden in Saturday’s Sydney Morning Herald.
Perhaps that’s true. We’ve never been given access to the full management agreement between the two entities. But is Macquarie really going to destroy the value of a fund in which it has a billion dollars of its own money invested?
The reputational issues would be severe enough. But the financial implications make for a ludicrous line of argument.
I can’t see one good reason to pay Macquarie this extortionate amount of money. Securityholders should vote against the proposal and immediately put a new one forward: internalise the management, but internalise it for free.
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Looking forward to your updates on MQG and MAp on your main site.
Yeah, it seems like a big fee when the alternative is free. Can we do a better deal?
At least I own both MAp and MQG, so some of what Mac rips off from Map I will get back.
Well put Steve! Although I'm still convinced MAp are better off internalising management either way.
No sympathy from me - every investor in MAP, MIG or the many other thousands of similarly structured investments went into their with their eyes wide open.
I didn't hear too many people complaining while prices kept heading upwards and upwards.
Very interesting. Investors obviously thought the news was good when the price shot up on Thursday. Yes you are right Justin, we did go in with Eyes Wide Open but look to be coming out with our Pants Right Down. This story so far is very one sided in the favor of MQG.
The issue as I see it is trying to get a majority of shareholders to vote against it, given Macquarie get to vote too and have a large slice of MAP shares (22%). And I can't imagine they would vote against it.
I think its a complete rip-off by Macquarie. If I had MAP shares, I'd definitely be voting against it.
cheers
mike
Actually Mike - Macquarie don't get to vote their shares, which is usually the case where there's a conflict of interest (see page 13 of the internalisation presentation). At least that's one thing to be thankful for!
Well said Dan, and oh Justin what are you playing with, or are you a Macquarie shareholder? It is time to face facts - the world is better off without the likes of Macquarie Bank and Goldman Sachs. The ONLY value they add is to themselves, we surely haven't evolved for 50 million years to become a bunch of 'bankers'.
Steve
I certainly hope you are right. Macquarie do not deserve another cent out of MAP, MIG, or any other of the satellites that they have pillaged. Please keep us informed on this issue.
Regards Russ
Can't TII get a bit more information on the management agreement between MQG and MAP(even some guesswork)? If its so easy to vote away the management agreement, then why has the MAP board gone down this pathway? I dont agree with Bristlemouth comment that managing a portfolio of airports is a simple job. I would think it quite relevant to want to continue with same management team eg they did sell Rome (and ?Birmingham UK) airports at the top of the market) A good plan is to own shares in both companies, so what you lose in one you gain in the other.
We can all make great moral arguments as to why MQG should give MAp the management rights back for free. But what are the chances - nil I reckon.
As a MQG shareholder why would I agree to give up the $40 million blood money every year without a suitable inducement?
The only questions to answer is: is the $340 milliosn a 'fair' price?
I've got a meeting with Kerrie Mather and the lead independent director tomorrow. I'll let you know if anything useful comes out of it.
As a fellow Macquarie shareholder I'd love that to be the case, Jay. But, from the perspective of a MAP owner, why give Macquarie anything if you don't have to? If securityholders are able to dump the manager through a vote without paying hundreds of millions, then they'd be mad not to follow that course of action (which I think was the general thrust of Steve's argument).
Change of control event? You mean they'd have to pay out on SKIES? Gosh, now there's two reasons to vote against.
I found it interesting that the weekend AFR reported it as if it were a done deal and all analysts (and even one of the top 5 shareholders) reportedly said it was a good deal for MAp.
This has been so conflicted from the outset. I refused to ever buy a share in MAp because of what I saw. Never mind the cashflow statement - negative net operating cashflows year on year is not the recipe for a sustainable business. This was always a pump and dump stock and nothing has changed.
That's an understandable position to take, DH. Though subscribers to The Intelligent Investor have done very nicely buying this collection of fine assets when they've been 'on sale' over the years (allowing a generous discount for the structure, of course).
We upgraded to Buy in May 2003 at $1.13 and recommended selling that position in March 2005 at $3.26 (plus some nice distributions along the way). More recently, we were able to upgrade to Buy in February at $1.575.
As an aside, I'm off to the Macquarie AGM in half an hour or so - and will report to members on anything that comes out of that.
I watched the webcast of the MQG AGM. It was interesting to hear the question from one shareholder who though Mac were selling the management rights too cheaply!
I also find it interesting that they are taking the payout in scrip rather than cash, so they are getting substanitally more than $340m in value. It's about $600m worth of NAV. MQG are picking up their fee at market price while refusing to mark their holding completely to market. They are getting the best of both accounting worlds. If $340m is the value of the management rights, then how about we (MAp) pay them (MQG) $340m net asset value of shares. Otherwise, they are "closing the gap between NAV and market price" by diluting the NAV by issuing share at a discount to it.
Here, here! I completely agree. Did I miss anything by leaving the AGM at 2:30pm (4 hours into the meeting!)?
Probably only the free lunch. It didn't go much longer than that.
It looks like extortion. Also, MAP has NTA of 4.50 per share (valued by you know who) so surely the fair deal is to issue shares at this value rather than the 2.30 proposed.
As already pointed out it's diluting ordinary shareholder value and rights. Is there much chance of it being voted down? What do institutional shareholders usually do in this situation?
[...] few hours after I posted Macquarie Pillages MAp One Last Time, a Macquarie representative was on the phone requesting a meeting. That wasn’t too [...]
Completely agree ~ why don't they take their $340m in WVAP? Only when it suits, it seems.
To Greg: I understand your position, and it may have been possible to get "in and out" over time at attractive prices. Personally (call me a fuddy-duddy investor - though I'm only mid-30s) I prefer to only buy a share when I believe the fundamentals are intact. MAp funded distributions out of capital, not earnings, booked accounting revaluations as profits (financial chicanery) and always had the bank staring over the fence - it was clear whose interests were being served first - not those of shareholders). Not for me, at any price!
I was the MQG shareholder who suggested (tongue in cheek) that Macquarie were selling the MAp management rights too cheaply. The deal was done in return for a number of shares so the cost to MAP could be judged as market rather than net assets per security.
After all that has been said over the years by chairman, Max Moore-Wilton, it must be embarrassing to now have to take instructions from MQG and pay up so MQG can exit management of MAp in their hour of need. No doubt a name change will follow and MAp will be left with all that debt in Sydney Airport (about which Kerrie Mather boasted passengers are trapped for one and three quarters hours to spend at overpriced retail before boarding flights).
This announcement is a step in the right direction: http://asx.com.au/asxpdf/20090828/pdf/31kdl66l65yn88.pdf
It deals with the dilutionary effect (for those who participate) of issuing shares at a discount to NTA. The question of price still remains - $345m versus $0.
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