Bumper salaries may signal the high water mark
stevem
in Politicians and Privatisation
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Editorial: Mac Bank and the art of super profits
May 17, 2007
IN a world awash with the retirement savings of ordinary workers, there are rich pickings for those who can find the best way to invest them. Combined with a worldwide trend by governments to sell off formerly state-run businesses, such as roads, airports and water management, this private equity boom has produced both mega profits and mega salaries for those at the sharp end of the business. As John Howard has observed, the $33.49million paid to Macquarie Bank chief executive Allan Moss is a lot of money. Mr Moss’s pay packet was mostly made up of bonus payments on top of a base salary of $671,000 and made in recognition of record profits. Mr Moss was not the only big winner. All up, the top 13 Macquarie executives took home more than $200 million. It is a measure of Macquarie’s financial reach that the high-profile collapse of the $11.1 billion Qantas takeover this month could be shrugged off as just another deal.
Large salary payments naturally generate community debate, something Macquarie Bank chairman David Clarke said was legitimate. Politicians from all sides are naturally wary of defending something that is way outside of the broader community experience, but neither Mr Howard nor shadow treasurer Wayne Swan said government had any business in interfering. The Australian unashamedly believes in the free market and that the market should decide the appropriate level of remuneration for company executives. It must also be recognised that a majority of Macquarie’s business last year was conducted overseas, resulting in significant financial rewards for Australia, including tax payments on profits and wages. Macquarie Bank can rightly be considered a global success story for Australia. But it must also be recognised that the area in which Macquarie Bank operates is still in its infancy and, as such, is a less than perfect market. The rise of firms such as Macquarie Bank has completed the circle from inefficient state- owned enterprises to government- owned corporations to private companies which deliver many of the services essential to daily life such as water, electricity and transport infrastructure. Companies such as Macquarie Bank have soared, not so much on running these businesses better, but from generating the complicated financial schemes that have facilitated the transfer of often public monopolies into private hands. The large profits have come from the hefty fees that flow from advice and finance packages. In short, the money is in devising the complicated structures necessary to minimise tax obligations, maximise profits and offset risk, often to the governments that are selling the assets in the first place. This is why many people do not believe companies such as Macquarie Bank actually do anything productive. They do not create new businesses or manufacture things that can be held or admired. And as Treasurer Peter Costello has noted, management is being paid a lot more than the former government employees, and politicians, who used to be responsible before privatisation.
This said, Macquarie Bank faces the prospect of stiffer competition in future with the growth of rival global investment and advisory firms such as Babcock & Brown. There is also room for scepticism that, in the end, this is going to be the best model for the management of public infrastructure. This is particularly so given the way, as with Sydney’s Cross City Tunnel, profits are privatised but losses socialised. This, more than excessive salary packages, should be the real focus of attention. Ultimately, it is for shareholders to decide whether executive bonus payments are reasonable. The greater public interest lies in governments being more astute on pricing and risk-taking when they put formerly publicly owned assets up for sale.
stevem
MacBank upgrade
Alex Tilbury
May 17, 2007
AUSTRALIA’s first $100 ordinary share is imminent as Macquarie Bank finalised its $750 million capital raising to punch harder into international markets.
Brokers across Australia lifted their price targets for the powerhouse investment bank to more than $110 a share after the investment bank foreshadowed a strong M&A advisory pipeline, particularly offshore.
“Momentum grows in the race to $100,” said Citi Investment Research analyst Mike Younger, who has raised his price target on Macquarie to $117 a share from $105.
“The news of a planned capital raising is surprising but we view it as a positive signal in that short-term opportunities are overwhelming a balance sheet with already solid investment capacity.”
The race is on between MacBank, Rio Tinto and CSL for Australia’s first $100 ordinary share.
Rio’s shares ran as high as $99.69 last week as a speculated BHP Billiton takeover of its mining rival reached fever pitch, and CSL shares hover around $91 as more studies show the effectiveness of its cervical cancer vaccine Gardisil.
Stock pickers at ABN Amro – the Dutch bank which is merging with Barclays – recommend investors buy Macquarie Bank shares and have lifted its price target to $110 a share following a bullish start to 2007-08.
Macquarie’s overseas earnings are expected to continue driving growth, after its M&A advisory income soared 29 per cent to $1.23 billion in 2006-07, on the back of the BAA, Thames Water, Indiana toll road, Xstrata and Promina deals.
Macquarie’s dealmakers scour the globe for assets that are exposed to limited competition, such as airports, toll roads and utilities, and either float them publicly or wrap them into managed funds.
Macquarie’s international income grew 70 per cent and now represents 55 per cent of its total income.
The capital raising through Macquarie Equity Capital Markets and JPMorgan was priced at $87 and participants won’t be entitled to its $1.90-a- share dividend to be paid on July 4, 2007.
But it’s still a good outcome, considering Macquarie closed at $89.50 on Monday. Its shares soared 3 per cent or $2.70 to $92.20 yesterday.
Macquarie Bank chief financial officer, Greg Ward, said the issue received strong support from local and international investors and was significantly oversubscribed, enabling it to be priced at the top end of the bookbuild range.
Not forgotten are the bank’s ordinary shareholders who will have an opportunity to participate in the capital raising by way of a share purchase plan and can invest up to $5000 at the institutional price, without brokerage or other costs.
UBS also yesterday lifted its Macquarie price target to $110 from $96.
“The result (released on Tuesday) was driven by very strong growth in all businesses, with the tailwind of favourable markets and global liquidity enabling revenue growth of 49 per cent.”
UBS said Macquarie’s capital raising will provide more firepower for ongoing acquisitions and seed investments.
But Goldman Sachs JBWere said Macquarie’s stock looked fully priced after it booked its strong FY2007 result which beat the market’s expectations, helped by higher than expected asset sales and broker commissions.
stevem
Merger makes MacBank No.2 aged-care provider
May 17, 2007
MACQUARIE BANK’S Macquarie Capital Alliance Group yesterday announced a $220 million agreement with Regis Group to meld its Retirement Care Australia business with the aged-care provider.
MCAG owns 98 per cent of RCA and to complete the deal has agreed to acquire the 2 per cent balance from Queensland retirement company TriCare.
The move effectively gives Macquarie Bank a bigger interest in the aged-care sector, creating the second-largest private aged-care operator in the country.
The merged company, which will be named Regis, will be 54 per cent owned by Regis Group. MCAG will hold the remaining 46 per cent. The deal values RCA at $220 million.
MCAG said the merger would bring together 19 RCA facilities in Queensland, NSW, Victoria, South Australia and Western Australia, and 18 facilities owned by Regis in Queensland and Victoria.
Regis will manage the facilities, which have 3600 beds.
MCAG chief executive Michael Cook said the merger offered the company better economies of scale.
Investors would gain a stake in an operator with a much bigger share of the Australian aged-care sector, Mr Cook said.
“We are anticipating the delivery of meaningful operating synergies through greater economies of scale in relation to head office investments, staff training, procurement and catering,” he said.
“The merger achieves MCAG’s publicly stated goal of internalising management of the RCA facilities.
“Significantly, the larger group delivers an improved platform for growth within a sector that is continuing to consolidate.”
MCAG flagged plans to expand its aged-care portfolio further, with development over the next three years expected to increase the number of facilities under Regis’s control to 41, housing 4500 beds.
UBS analyst Andrew Goodsall said the merger made great sense for both MCAG and Regis because of the improved economies of scale it would offer.
Scale was crucial in aged care, Mr Goodsall said.
“If you’re a successful operator it’s about being able to export your skills at the head-office level, across the broader range of beds, and bringing some consistency of approach to the homes and so on,” he said.
MCAG shares closed up 6c at $4.41.
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