From the September 3 sealed section

Crikey has been scratching his head about the seemingly bottomless pockets of retail investors pouring money into infrastructure funds – no matter what conflicts or potential conflicts are implicit in the offering.

In true Macquarie Bank-style, Babcock & Brown floated the Prime Fund, which they manage for a healthy annual fee. In addition, B&B locked in the gig as Financial Adviser whenever Prime buys an asset (or, as would seem less likely, sells an asset). Prime investors are assured by a Code of Conduct that terms of engagement of B&B as adviser are assessed by an external expert to ensure they are reasonable and at market.

Prime just won a competitive auction in New Zealand to acquire a regulated energy company, Powerco, at a total cost which may be around $1.7 billion. The good folk at B&B naturally acted as adviser.

So what did the external expert determine to be an appropriate fee? A quick investment banker survey by Crikey suggests a market range of around $5 million to $12 million for such a weighty piece of business, excepting Macquarie who usually claim more than that, and noting that Li Kai Shing’s CKI group is rumoured to get all the advice it needs often below that sort of range.

Nope, B&B got a staggering $25.5 million!

Without questioning the undoubted skills of the B&B advisory team, Crikey’s unscientific survey (and a check of Crikey’s world-renowned privatisation deal list) suggests they don’t seem to be legendary for their work in regulated assets (like Powerco), or in New Zealand public company takeovers.

So what was their particular angle, and what were the compelling market precedents noted by the expert. And just who was the expert? Did he perhaps wonder whether the fee was so enormous that it may even have (sub-consciously of course) incentivised bad advice (eg to bid higher!). Faced with such a fee, and reflecting also on the huge recurrent management fee windfall to flow, it would have been a very brave young investment banker at B&B to suggest tempering the bid, or waiting for the next opportunity, particularly given the upcoming float of B&B itself.

Perhaps Prime holders may want to think about switching to B&B stock when it lists! Or maybe they will get a priority offering in the B&B float! Interestingly, former Queensland Labor Treasurer David Hamill is stepping up as the new chairman of Prime because Elisabeth Nosworthy is stepping down to join the B&B board. Gee, “independent” chairwoman approves outrageous fee then joins board of receipient as deputy chairwoman. Check out The Age’s report on this latest move here.

From the first November 11 sealed section

8. Conflicted Lend Lease directors shouldn’t dismiss Stockland out of hand

Bryan Frith had clearly been well briefed by the Stockland camp before producing this column in The Australian today, but you’d have to say the key points are well made as the battle for GPT moves to the end game.

Sure, Stockland waited far too long to enter the contest, but it wasn’t unreasonable for Lend Lease to agree to a delay of next week’s vote so the full Stockland offer could be considered.

This is where the financial interests of directors often comes into play. Three of the GPT directors have been invited to join the Lend Lease board – a gig that will deliver more than $100,000 a year.

With Stockland not offering such benefits to directors, a group on the GPT board arguably has a financial incentive to push through the Lend Lease merger with undue haste.

Financial rewards for directors are an important but rarely discussed aspect of takeovers. When Prime Infrastructure agreed to the outrageous $25 million fee to Babcock and Brown for advising on the recent $1.7 billion acquisition of Powerco, Crikey pointed out that supposedly independent Prime chairman Elisabeth Nosworthy had a big conflict when she subsequently joined the B&B board.

Similarly, when Mayne took over Australian Hospital Care four years ago, the board unilaterally voted itself a farewell lump sum payment of three times the annual fee.

Did Mayne directors just sit back and allow the directors to pocket almost $500,000? Did this affect the board recommendation from AHC?

Crikey is going to build up a list of director benefits in takeovers and would appreciate any contributions sent to [email protected].

From the second November 11 sealed section

What is it about Queensland’s leading female director, Elisabeth Nosworthy?

We told you this morning about her huge conflict of interest in agreeing to Babcock & Brown’s $25 million fee for advice on Prime Infrastructure’s $1.7 billion Powerco deal in New Zealand. She was chairman of Prime at the time and then joined the Babcock and Brown board as an independent. We pointed this out to illustrate the conflict of interest that three un-named GPT directors have in agreeing to take the six-figure annual Lend Lease board fees if the merger goes ahead.

Crikey believes these directors therefore have a financial interest in the Lend Lease merger going ahead and for this reason they should not have been so dismissive of the alternative Stockland offer, as late and opportunistic as it was.

Lo and behold, it turns out that Nosworthy is actually one of those GPT directors. She’s apparently a double dipper when it comes to these conflicts of interest.

The overall record of the former Freehills partner is mixed. She sat on the underperforming David Jones board from the 1995 float until 2003 and the stock miraculously took off not long after she left. Similarly, she was a Telstra director from 1992 until Bob Mansfield’s clean out in 2001.

If anyone else has any insights into the leading lady of the Queensland business establishment we’d love to hear from you at [email protected].

From the November 15 sealed section

6. Elizabeth Nosworthy’s conflicts of interest

The stories on Queensland’s best connected female director Elizabeth Nosworthy continue to arrive at the bunker, but for now let’s just put on the record what has been reported about her management of conflicts of interest:

This is part of what The Courier Mail reported on September 3:

Nosworthy resigns from chair of Prime
By Liam Walsh

One of Queensland’s best-connected businesswomen is stepping down from one of several board positions to avoid a potential conflict of interest.

Elizabeth Nosworthy — chairwoman of Commander Communications and state government-owned power generator Stanwell Corporation, and a director of property trust GPT Management and biotech Ventracor — yesterday said she would resign as chairwoman of assets investor Prime Infrastructure.

Ms Nosworthy said she was resigning to take up a position as deputy chairwoman of Babcock & Brown, the major shareholder in Prime and also a stakeholder in Commander.

Ms Nosworthy said Prime’s protocols meant she could not stay on as chairwoman while acting as deputy at Babcock.

“The company is . . . related with Babcock & Brown in virtually everything it does, and it really would be on a day-to-day basis (that) I would be excusing myself from virtually every decision from the board,” she said.

Ms Nosworthy also pointed out Babcock provided financial advice and other services to Prime.

“The question arises as to whether or not, you know, directors who are associated with Babcock & Brown can then sort of look at that advice in an impartial way,” she said.

But Ms Nosworthy, who would increase her holdings of 80,000 shares in Prime, would stay at other boards that could use Babcock services.

“That would be on a transactional basis and in that case I would simply declare an interest in the normal way and wouldn’t vote on that transaction,” she said.

Ms Nosworthy said she had declared any potential conflict of interest between Stanwell, which has a portfolio including wind power generation, and Prime.

“I’ve actually had all of that audited,” she said. “I’m in a position to say that in relation to areas where there was even a potential of conflict between the two companies, all of my behaviour has been fully documented and audited by an independent probity auditor.”

CRIKEY: Okay, the next question is how the obvious conflicts of interest between Stanwell, Prime and Babcock & Brown were managed? For instance, did Nosworthy really encourage Stanwell to engage Babcocks on a fat fee for the Townsville Gas big? And did she also recommend that Stanwell establish new Brisbane offices at Waterfront Place, the same development which houses Prime Infrastructure and Babcocks?

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Peter Fray

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