Crikey heard a strong rumour on Friday that Foster’s had appointed an outside person to conduct an inquiry into how it ended up paying Macquarie Bank so much for the float of its Australian Leisure and Hospitality (ALH) division and the separate sale of the hotel property trust.
However, the company’s senior vice-president corporate affairs, Graham Willersdorf, called on Saturday afternoon to say this was “categorically untrue” and the ALH transaction was closed.
Crikey thinks there should be an inquiry into this deal and we also suspect that CEO Ted Kunkel was punted early as a result of it.
Afterall, Kunkel gloated to the market on October 30 last year that the final ALH float price of $2.50 a share would generate gross proceeds for the company of about $1.5 billion.
Gee, how was that the half year result on February 10 only revealed net proceeds of $1.289 billion. No wonder the board announced Ted’s early retirement the day before.
Macquarie Bank took Foster’s to the cleaners on this deal which played a big part in the recent record $494 million annual profit announced by the Millionaire Factory.
Foster’s still has about $81 million worth of ALH shares to sell, which it picked up on-market after the float tanked, and it was interesting that Macquarie announced it had reduced its stake from 11.49 per cent to 10.49 per cent during the week, leaving it only fractionally ahead of Foster’s as the largest shareholder.
Macquarie was meant to be advising Foster’s on the straightforward sale of its pubs division. Instead, they decided to buy and float the business itself and collected more than $100 million in fees. The deal was made all the more dodgy when six institutions were given preferential access to buy shares at just $2 a pop. Was Macquarie one of them?
If the Foster’s board had any guts, now that Kunkel is finally out the door, they would commission an independent report and advise shareholders how this whole deal was so botched.
First sealed section on May 31
A Foster’s watcher writes:
“Dear Crikey, regarding your Foster’s/Macquarie story on Saturday, Ted Kunkel is out of his chair, but still loitering in the halls of Foster’s until July 2. I’d watch that space in July – you might see all sorts of action once he finally leaves the building.”
CRIKEY: Kunkel should have been sacked straight away after it was revealed the adviser he appointed to flog the pubs had bought the business itself, creamed off about $100 million and damaged the company’s brand along the way. Why on earth is he allowed to remain in the building when the new guy has started?
The July 2 finish is also better for Ted’s tax planning and means that shareholders won’t be told the size of his final payout until the 2004-05 annual report comes out in September next year. Poor form Foster’s.
If there is no sign of some sort of external inquiry by September this year, Crikey is thinking seriously about a tilt at the board. The same applies to those appalling Cougar ads, which should be off the air. The Herald Sun had a story last week about a surge in complaints from female bar staff who have to put up with drunks saying “Five Cougars thanks” about 50 times a night.
Second sealed section May 31
There are two schools of thought emerging over the Ted Kunkel departure at Foster’s and the embarrassing saga of the ALH float. Here is one from an aggrieved Foster’s shareholder:
“Dear Crikey, your comments about Foster’s are spot on. The float of ALH was a disgrace – Foster’s shareholders paid a premium of 16% for a business that they already owned! So much for Ted Kunkel’s often repeated statements about looking after the returns for his stakeholders.
Over the years Kunkel has been described as the saviour of Foster’s when in fact the true saviour of Foster’s was BHP’s holding in the company; without this Kunkel was powerless.
Since June 2000 Foster’s shares have dropped from $4.70 to $4.60 whilst Lion Nathan shares have risen from $3.70 to $6.60. This just reflects how dismal Kunkel’s performance has been and how pathetic successive Foster’s chairmen Nobby Clark, John Ralph and Frank Swan have been in pulling him into line.”
In defence of Ted Kunkel
Crikey is now hearing that Ted Kunkel was actually luke warm on the Macquarie Bank structure proposed for the ALH sale but the big proponent was his successor Trevor O’Hoy. Ted decided to sit back and let the new guard drive the transaction, but did the new guard have any idea Macquarie would end up making so much money that the Foster’s board looks like it has been taken for a ride.
The man at Macquarie Bank who led the transaction was none other than Michael Burn, so his bonus would have been huge this year. There is no doubt that the $100 million-plus in fees that Macquarie gouged was egregious and unprecedented in Australian corporate history for what should have been a fairly simple transaction.
One of the ways it got so high was a $28 million incentive fee that Macquarie was paid for successfully keeping the effective interest rate paid on the hotel property trust below 7 per cent. And how did they do that? Well, good old Foster’s guaranteed the $150 million worth of notes in the trust, something which reduces its credit rating and increases its cost of borrowing as this is a liability that still sits on the balance sheet.