Crikey

There’s few who would argue with the proposition that Alan Kohler and John Durie are Australia’s two best business commentators.

Kohler’s opening subscriber offering in The Eureka Report yesterday was a typically excellent summary of the divergent opinion about where markets are headed in 2010.

Similarly, Durie today served up a strong analysis of the excessive payout to departing Lihir Gold CEO Arthur Hood in The Australian.

However, one of Durie’s weak points is that he sometimes tries to gratuitously knock down lines run by competing papers and in doing so today he’s come up with the following embarrassing clanger of his own:

Cherry-picking your preferred measure of performance is relatively common in management ranks, as evidenced by the extraordinary remarks from Austal chief Bob Browning on the weekend.

“I honestly think Alinta was the best seven years of my career,” he told another newspaper. “To take a company with a market capitalisation of $320m and leave it worth over $7 billion is something to be proud of.”

This column hopes Browning performs wonders at Austal, but I think he’s wrong about this.

He left in the wake of revelations of secret management buyout plans. Shareholders who stayed with the assets until the end lost the lot when the Babcock & Brown empire went under.

It’s a bit rich to attack CEOs for massaging the numbers and then get them so wrong yourself. The truth of the matter is that Alinta shareholders were told they were getting $15.13 a share or more than $7 billion from the Babcock & Brown-Singapore Power consortium.

The breakdown, as disclosed at the time in mid-2007, was as follows:

Cash: $8.94
B&B Infrastructure shares and notes: $2.74
B&B Power shares: $1.84
APA Group shares: $1.17
B&B Wind shares: 42c

How on earth can a shareholder have “lost the lot” in a takeover when 59% of the consideration was cold hard cash largely funded by the Singapore government?

Besides, APA Group and Babcock & Brown Wind, rebranded  Infigen Energy, today are perfectly solvent businesses, so it was just the $4.58 of paper associated with BBP and BBI that largely disappeared although neither actually “went under” like Babcock & Brown itself.

The 2007 Alinta takeover will go down as the high-water mark of Australia’s wild west contribution to global infrastructure funding.

It was the only time Macquarie and its reckless imitators at Babcock & Brown went head to head in an ego-driven shootout for assets.

Macquarie lost by a nose when it offered more than $7 billion for a business that was already saddled with $6.5 billion in debt, meaning the overall enterprise value was a staggering $13.5 billion.

It was the Alinta deal, more than any other, which sent the Babcock empire to the wall and if Macquarie had got over the line, it may well have been the Millionaire Factory that failed to survive the GFC.

As for Bob Browning, a correct version of history is that he did create lots of value for Alinta shareholders and while his vision of a management buyout was ridiculous from a governance point of view, it triggered an auction that was beneficial for shareholders who may indeed have lost the lot if it had remained an independent Perth-based infrastructure play with $6.5 billion of debt going into the GFC.

Let’s hope John Durie is big enough to correct his error tomorrow.

As for the $15 million that Hood has collected in cash and retained shares, he is indeed a lucky man courtesy of the soaring gold price and the rest of Durie’s arguments today are very sound.