Babcock, poison pills and dead parrots
Stephen Mayne writes:
The unwinding of Babcock & Brown’s $80 billion global empire will be the biggest business story in Australia since HIH fell over, yet after a weekend to contemplate last week’s astonishing wealth destruction, we didn’t get satisfactory analysis in today’s newspapers.
Whilst Fairfax’s Michael West hit the mark with this piece on Friday, it was left to Alan Kohler and Robert Gottliebsen to really pick up the pieces in Business Spectator this morning.
Kohler’s Inside Business editorial yesterday was also spot on – the delusional Babcock boys are indeed a dead parrot despite the lovely plumage.
This defiant market update from Babcock today has stopped the haemorrhaging given that shares in the headstock initially recovered to a high of $5.82, but they were back to $5.25 by 11am and the satellites are mixed so overall losses for investors are still above $5 billion.
The strategy of seeking independent chairs for the various satellites is a classic case of shuffling deck chairs on The Titanic because the independent directors are rendered largely powerless by the parent’s outrageous management contracts, which still haven’t been fully disclosed.
All is explained in this exchange from the recent AGM.
The proxy advisory firm Risk Metrics has played a big role in the demise of Babcock. This research paper released in March by Prof Geof Stapleton, now running BHP-Billiton’s global governance program, was a devastating critique of the infrastructure fund model and its absolutely appalling conflicts, disclosure and governance.
Stapleton’s report will go down as the equivalent of what Tiny Rowland did to Alan Bond and stockbroking analyst Victor Shvets did to John Spalvins’ Adsteam empire during the last great debt crisis almost 20 years ago.
Stapleton was succeeded as research director at Risk Metrics by former journalist Martin Lawrence, who has since become emboldened, producing this comment piece headlined “Fund Governance Frankenstein’s” for Business Spectator last week and then repeating some of his lines to Alan Kohler on Inside Business yesterday.
Babcock is now one of the world’s great banking problems. Stand back for a huge asset sale program as all the highly indebted vehicles get deleveraged. The only outstanding question is whether it is the directors or bankers who drive the process.
Babcock cannot be taken over by a third party because the whole structure is full of poison pills. If you take over the head stock, many of the funds management contracts are voided and if you buy one of the funds, you have to keep paying Babcock for 25 years.
Besides, who would buy the head stock when this would mean paying out holders of the unsecured notes at 100c in the dollar. I sold five of my six notes this morning at the equivalent of 35c in the dollar.
Babcock CEO Phil Green can huff and puff as much as he likes, but the Emperor has no clothes. The power has all gone. The market has stopped listening. Anything called Babcock is suffering a capital strike and Phil can’t even pay dividends or interest on his unsecured notes without the approval of his lenders.
*Listen to Friday’s discussion with 702 ABC Sydney’s Richard Glover about Babcock.
BNB
babcock & brown limited
