Babcock & Brown’s pugnacious CEO Phil Green blithely told the press
after Friday’s AGM that his company would float “four or five” new
satellites over the coming year, in keeping with the pace he set in
It is the myriad fees coming to Babcock & Brown from these various
vehicles which have driven its strong profits and share price since the
2004 float, but the performance has started to wobble in recent months,
particularly after it was revealed Babcock & Brown Wind had paid a
whopping $33 million in performance fees for the December half. As some
shocked commentators pointed out at the time, cash flow was only $15.8
million for the half, so investors copped a net loss of $18.3 million
after the fee raid.
No independent directors or institutional investors should tolerate
gouging, so I asked the Babcock board on Friday what sort of protection
they had in place to stop themselves from being sacked as manager.
After being told Macquarie Bank chairman David Clarke usually says
“nothing, just our good performance” when asked a similar question,
Phil Green adopted that strategy. But is that really the case? What
would happen if a group of shareholders petitioned an EGM to sack
Babcock as manager? Are all the circumstances in the public arena?
There may be some interesting developments on this front in the months
When it came to the re-election of Babcock independent director and
long-standing ASX director Michael Sharpe, I asked if he took an
interest in the manager termination provisions in various Babcock
satellites and whether he was satisfied with the level of disclosure.
Acting chairman Elizabeth Nosworthy claimed Sharpe was wasn’t on the
board of any satellites so he wasn’t responsible but Sharp then went on
the public record saying he is “extremely interested” in such
disclosures because “it goes to our reputation” and he is satisfied
“our transparency is of a high standard”.
Babcock, just like Macquarie Bank, pushes the corporate governance
envelope with these satellites because there are huge conflicts of
interest, countless related party transactions and boards which are not
exactly full of genuinely independent directors. For instance, I reckon
much of Friday’s profit upgrade will come from fat fees that will flow
every which way after Babcock & Brown Capital’s $8 billion agreed
bid for Irish telco Eircom.
Here is a summary, ranked from worst to best, of how the various
Babcock vehicles have performed and a list of the independent
Babcock & Brown Capital: Floated in Feb 2005 with $1 billion raised at $5 a share. Now just $4.03 after $8 billion Eircom tilt.
Independent directors: Robert de Crespigny (chair), Kerry Roxburgh and Bill Waivish
Babcock & Brown Infrastructure: Stable for the year, but down from $1.87 last September to a recent low of $1.46 before Phil Green bought.
Independent directors: David Hamill (chair), Leigh Hall, Andrew Tyndale and Barry Upson
Babcock & Brown Wind: $1.40 float price in November 2005, then tanked from high of $1.93 to $1.60 after $33 million in fees ripped out.
Independent directors: Douglas Clemson, Tony Battle, Mr Nils Andersen (Babcock executive Peter Hofbauer is chairman)
Everest Babcock & Brown: issued 60 million shares at $5 to raise $300 in May 2005. Now $5.65 after restructure announced last week.
Independent directors: Trevor Gerber (chair), Kerry Roxburgh, Keith Ince and Olev Rahn
Babcock & Brown Japan: Floated as $1 units in April 2005, now $1.75
Independent directors: Allan McDonald (chair), Paula Dwyer and John Pettigrew
Babcock & Brown Environment: Shares up substantially but hard to follow its various early incarnations
Independent directors: JE Graham, Tony Leibowitz and Barry Murphy (Babcock CEO Phil Green is chairman)
Babcock & Brown: rocketed from $5 float price in October 2004 to $19.97 on Friday:
Independent directors: Elizabeth Nosworthy (dep chair), Michael Sharpe, Joe Roby and Ian Martin
As you can see, some vehicles have independent chairs and others don’t.
However, the independence of people like Babcock & Brown Capital
chair Robert de Crespigny is open to debate given he and Babcock
together went the sword on Primelife founder Ted Sent.
Similarly, is Multiplex chairman Allan McDonald a genuinely independent
chairman of Babcock & Brown Japan given the large number of
property deals that the two firms do together? At the end of the day,
both Babcock & Macquarie need to pay reputable independent
directors who will sign off on their controversial dealings. Who has
the better list is an issue we’ll explore in the days ahead.