Duet's 'simplification' more a trick than a transaction

The Duet Group has unveiled its "Group Simplification Proposal", the documentation for what may be deemed the most unnecessary deal of the year.

The Duet Group has unveiled its "Group Simplification Proposal", the documentation for what may be deemed the most unnecessary deal of the year.

The dense 213-pager contains the plan to simplify the labyrinthine structure of the Duet Group from its present six entities back into a mere four. We use the word "back" because it used to have four entities before it embarked upon its "Internalisation" plan last year and turned its then four entities into six.

Duet owns a suite of power assets such as pipelines and transmission towers. It had been managed by Macquarie Group and AMP until shareholders voted last year to buy out, or "internalise" the management of Duet because they were tired of paying these two $100 million a year.

Having accomplished this, the board of Duet, or shall we say the two boards of Duet - for there are two boards, albeit with the same directors - has now unveiled its "Simplification Plan" to reduce the quantum of entities back to four ... once again.

Apropos of its former "'external management" structure, the idea of positioning management outside a company rather than inside it - as would be logical - was a stroke of Macquarie genius from the 1990s that enabled an entire generation of lavish and unnecessary fees to be torn out and paid to external managers (principally themselves) from these stapled trust structures.

Institutional shareholders - the stewards of the nation's savings, themselves largely overpaid and not entirely necessary in the broad scheme of things - grew tired of it.

They finally put their votes to good use during the financial crisis and external management became passe. Duet was one of the last of the fee-chomping dinosaurs to graze upon the verdant plains of Australian superannuation.

As for this simplification, unless somebody can convince your correspondent otherwise, we can only assume that its quintessential purpose is to charge fees. There may be other reasons for it, perhaps tax, but these are not clear. As there were already four entities before the internalisation anyway, things don't look any simpler.

As part of the simplification plan, Macquarie and AMP are to be granted a simplification fee of $5 million - which comes on top of the $96 million they got for surrendering their management rights last year - the "walk away" money that is stemming from the internalisation deal.

All up, the price of simplification is $10 million. In other words, those who sculpted this hydra-headed beast in the first place are now charging Duet unit holders to simplify it.

This deal brings fond reminiscences of the majestic Macquarie Airports swansong where the bankers swept off with a "termination fee" of $345 million for simply agreeing not to manage Sydney Airport any more.

Duet is not nearly so breathtaking in pecuniary magnitude as the airports heist, but at least the airports shareholders were paying for something almost tangible - a departure.

The Simplification Plan is as much a magic trick as a transaction. It delivers the illusion that something is about to disappear - two Duet entities - but when you rub your eyes you realise there was nothing there anyway before they conjured two entities out of thin air with that crafty internalisation ruse.

Of the $10 million total cost of simplification, KPMG takes home $130,000 for its "independent expert" report into the transaction. No prizes for guessing the outcome there.

Lawyers Allens have put in a big effort, charging 10 times as much, a tidy $1.3 million, for "due diligence on legal matters". Shareholders can be forgiven for suspecting they have been taken for a ride here, what with the ludicrous price for a vague service on a deal that hardly needed to be done.

PwC nonchalantly skims off $1.6 million for "tax advice, independent valuations in accordance with APES 225, financial model review and legal services". Breaking it down, this technical baffler "APES 225" almost gets you in. Did one of the crew exclaim, "Heh, why don't we chuck in the old APES 225!" when they were white-boarding it up?

But PwC's "financial model review" is a curious one. If it was fair dinkum about its reviews, who was the culprit who "reviewed up" the entities from four to six just six months ago, only to have them "reviewed down" now?

It can only be deduced that this three-word grouping, "financial model review", is designed purely to deduct space from the page.

Likewise the "work" on "independent valuations"; what has changed? Nobody is buying or selling anything - apart from six intangible entities becoming

four. And four still looks like three too many.

It is truly a chic deal this simplification; elegant in the richness of its fees, yet svelte, almost imperceptible, in its substance.

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