Harold Mitchell, shareholder voting rights, a flurry of media AGMs, Worley Parsons capital raising and the Victorian election

Time for Harold Mitchell to quit the Crown Resorts board?

Harold Mitchell has long been an influence merchant amongst the billionaires who occupy the Australian media landscape, but today’s ASIC charges over the Tennis Australia rights have laid bare his operating style. And it is not good.

As a director of Tennis Australia, Harold was clearly biased in favour of the incumbent rights holder, Seven West Media. He was allegedly leaking sensitive board information to a bidder in a competitive environment. Then Tennis Australia President Steve Healy is also facing charges.

Another key person facing criticism is the long-serving Seven West Media commercial director Bruce McWilliam, whose emails have provided much of the evidence which ASIC is using against Harold Mitchell in court. McWilliam was taking advantage of Mitchell’s leaking when he should have kept well away from him, knowing that such dealings were a conflict and were potentially imperilling Mitchell, as has now come to pass.

Bruce McWilliam is up for re-election at the Seven Group Holdings AGM in Sydney tomorrow and, for mine, he probably should retire.

The same goes for Mitchell, 76, whose tenure on the Crown Resorts board should be cut short, at least until the ASIC civil charges are resolved.

For more on these matters, have a read of this 6 page ASIC summary of the court action. It’s damning and revealing, all at the same time.

AMP and Nine – the latest examples where shareholders were denied a vote

The Wesfarmers demerger of Coles was approved last week – as usual it got the standard 99.5% vote in favour, which raises the question as to whether these votes are actually necessary.

There has been a long history of demergers creating value for shareholders and I can’t think of one which ever attracted any opposition by more than 5% of the voted stock.

Sure, you need a detailed scheme book to explain all the commercial aspects of the separation but given that all shareholders are treated equally and there are no assets being sold to or acquired from third parties, the voting element is particularly uncontroversial.

Compare that with when the old Pacific Dunlop sold off Cochlear back in 1995, fetching around $125 million for the business which floated at less than $3 a share.

There was no shareholder approval and, as we know, Cochlear is today worth $9.3 billion with a stock price of $160. Hindsight is a wonderful thing, but clearly it would have been better if Cochlear was demerged rather than floated, as ownership switched to a completely different set of shareholders. How weird it is that giving the Cochlear business to its own shareholders would have required approval from Pacific Dunlop shareholders but selling it for a song was just a board decision with no shareholder approval required.

It is a rare thing to have shareholder approval in Australia for major asset sales which is the major point of contention with AMP’s appalling decision to offload its life business to a little known Bermuda operation at a $2 billion discount to the $5 billion book value.

Frankly, it is very disappointing that both ASX and ASIC have allowed the AMP board to get away with doing this, despite the push for a shareholder vote, which might even have seen the proposed divestment defeated. There is some talk that AMP chairman David Murray could even face a removal resolution from shareholders, such is the anger.

I was in Sydney last week for the last Nine Entertainment Company AGM before the Fairfax merger goes through and raised the issue of why Nine shareholders were denied a vote on the deal.

Chairman Peter Costello said it was all perfectly legal but this is a reform which the next Federal Government needs to fix because, after today’s Fairfax scheme meeting approved the deal, Nine is being fundamentally changed as a business with no shareholder approval.

As we’ve written before, investment bankers regularly structure merger deals through schemes of arrangement so that the set of shareholders receiving the less attractive element of the deal, usually by paying too much for control of a business, are denied the vote.

For a reminder of the specific deals where this happened, check out the August 6 edition of The Mayne Report.

A festival of media AGMs starting with Alan Jones

Since we last corresponded, there have two trips to Sydney for 3 media AGMs, all of which have started with a gambling focus but then diverted into broader issues.

The Macquarie Media AGM wasn’t webcast or even recorded, which is rather strange for Australia’s biggest talk radio company which owns powerhouse stations such as 3AW and 2GB.

However, I did manage to take some bootleg audio on the phone so if you fancy listening to the opening 10 minutes, click here. It covered off surging gambling advertising along with some governance issues around Alan Jones such as his record defamation defeat in Queensland, the campaign to bring down Malcolm Turnbull and the recent Opera House controversy.

Alan Jones is a particularly feared figure but the gentle criticisms from his bosses at the AGM did generate this lively coverage in The Australian’s media section.

Renewing relations with cranky Kerry Stokes

The Seven West Media AGM last Wednesday was the first catch up with combative billionaire Kerry Stokes for several years and, despite shaking hands before proceedings commenced, he was clearly spoiling for a fight.

Given that the AGM was being webcast, I didn’t bother with any bootleg audio besides this opening exchange on gambling matters. However, you can sense the combat with the way he contested the idea that was I representing The Alliance for Gambling Reform because they didn’t directly own any shares. He also took the opportunity to tell the meeting my holding was just 5 shares. I didn’t realise at the time he was wrong. I’ve got 6.

I’d love to give you chapter and verse on all the other interjections, put downs and arguments that flowed from the chair over the course of the next 45 minutes but, sadly, Seven West Media has declined to publish the archive of the AGM webcast. This is standard practice. Even Crown Resorts did it for the first time after the recent AGM in Perth, so you can listen to various exchanges I had with half a dozen different Crown directors at that meeting.

The Stokes camp have been cranky in recent years that I’d supported Amber Harrison in her battles against the company, but our history went back a lot further with Stokes being the only person who has called security to end a session with the microphone, way back during the GFC.

I did also manage to delay Seven’s controversial $1.8 billion Westrac acquisition after the GFC by lodging an objection with the Federal Court after shareholders voted in favour of it. The judge took the weekend to consider it, then waved it through. This is the same option Anthony Catalano is now facing if he want to try and stop the Nine-Fairfax merger following today’s strong shareholder mandate.

Stokes was most sensitive last week on the Amber Harrison matter, openly declaring he was going to shut me down. Even when couched in broader gender or corporate culture terms – such as why Seven West Media still only one has female on their 10 person board – Stokes did not give an inch and clearly hated the topic even being canvassed.

The most interesting revelation at the Seven West Media AGM came from commercial director Bruce McWilliam who, when asked to update shareholders on the alleged $8 million stolen by former executive John Fitzgerald, blithely revealed that they’d settled and got most of the money back because John  wasn’t a gambler or a big spender.

You would think there would be a no talkies provision in any such settlement but Bruce was happy to chat about it and John Fitzgerald fired back the next day with an extraordinary interview which ran on page 3 of The Daily Telegraph.

No one has come out of this one looking any good whatsoever, but we’d probably be none the wise but for the question being asked at the AGM.

Seven vs Nine – compare and contrast

I bailed from the Seven West Media AGM shortly before it finished to hot-foot it across town for the Nine AGM which started an hour later at 11am.

The contrast was stark indeed. Nine chairman Peter Costello was charming and accommodating with questions, as the full webcast archive demonstrates. If you want to listen to our various exchanges, here are the topics and time frames:

• Nine’s reducing reliance on gambling advertising – 25 minutes into AGM.
• Billionaire Bruce Gordon’s stake as the largest Nine shareholder – 30 minutes into AGM.
• Remuneration report with 99.6% in favour – 36 minutes into AGM.
• Supporting Catherine West and board selection process – 43 minutes into AGM.
• Lack of shareholder vote on Fairfax merger – 53 minutes into AGM.
• Final omnibus question on Hywood exit, Nick Falloon succession plan, Keating attacks against Nine and Peter Costello being a politically partisan Fairfax chair - 64 minutes into AGM.

The final question was the one which triggered some media coverage in the Fairfax papers when Hugh Marks called the Keating attacks “misplaced” and Peter Costello suggested that previous Fairfax chairs such as Roger Corbett and Ron Walker were also partisan given their Liberal Party connections.

A couple of women in the television industry have pointed out that Nine CEO Hugh Marks has done a power of work on the culture front to be more inclusive of women, as is spelled out in some detail on page 22 of the 2017-18 annual report.

Indeed, Nine currently has a majority of female non-executive directors, something Seven is miles away from achieving.

The Seven Group Holdings AGM is taking place in Sydney tomorrow and it would have been great to attend and re-heat some of these arguments, including on gender given this Kerry Stokes controlled board also only has one female director. Alas, the logistics are too difficult.

Getting ready to engage with Gerry Harvey, possibly Solly too

However, one final AGM season trip to Sydney has been booked for the Harvey Norman AGM on November 27, where Gerry Harvey is expected to be even more combative than Kerry Stokes. An example Gerry’s unique approach can be seen in his decision to release written responses to ASA questions to the ASX.

No other company does this, with the message supposedly being that all investors are getting equal access to information, rather than ASA benefitting from a selective briefing.

Amusingly, all Gerry managed to achieve with this tactic was a negative page lead in The AFR pointing out some of the various controversies he oversees at the retailer.

The other cranky billionaire that is known for being very hostile towards questioners at his AGMs is Solomon Lew, who is once against launching into Myer big time at the minute. The Premier Investment AGM is slated for Thursday, November 29, so that may be worth attending, depending on what happens at the Myer AGM this week.

Last time I popped in to see Solly he was demanding to know how many Premier shares I owned. It’s only 8 at the moment, but with the stock underperforming – particularly given the ridiculous $100 million punt on Myer – it might be worth buying a few more to average down before the big day.

Wrapping up the Worley Parsons capital raising

The October 29 edition of The Mayne Report covered the whopping and very ordinary Worley Parsons capital raising which ended in spectacular style with a huge $530 million retail shortfall for the under-writers UBS and Macquarie, and their unknown sub-underwriters, to digest.

It would have been an ever bigger disaster but for the remarkable decision of Dubai-based Dar Group to write a cheque for $660 million to maintain its stake above 20% even though the $15.56 offer price was well above the market price for most of the retail offer period.

News Corp’s Terry McCrann has been giving the Worley directors a regular shellacking for destroying value and I support everything he has been saying.

Worley shares closed at $14.92 on Friday so the $530 million retail shortfall at $15.56 is currently showing losses of $22 million, which is about half the $44 million in fees paid to Macquarie and UBS to manage the issue.

Dar Group can’t be happy about paying over the odds to avoid dilution, but they are still well in front on their investment having first swooped on Worley Parsons shares in February 2017 when it revealed a 13% stake which cost it $327 million or an average of $10.14 a share.

This included using derivative instruments which are designed to hide a raider’s identity and is a sharp practice which really should be discouraged. For this reason, I’m not overly sympathetic about the poor treatment they’ve subsequently received from Worley, including rejection of takeover offers and refusal to offer any board representation.

After the latest $660 million spend, Dar finds itself sitting on a passive investment worth $1.56 billion which is surely the biggest strategic investment in an ASX listed company where the predator has no board representation.

By way of comparison, Chinese outfit Hunan Steel owns 14% of Fortescue Metals which is currently worth $1.8 billion. Its chairman, Dr Cao Zhiqiang, sits on the majority female Fortescue board which encourages a more co-operative relationship. You have to wonder how long Worley will be able to resist giving Dar a board seat, particularly given chairman John Grill steers the company with a reduced 8.8% stake and the US engineering firm Jacobs has been given a board to look after its 11% stake which is being issued as part of the over-priced $4.6 billion acquisition which led to the $2.9 billion capital raising in the first place.

Wrapping the Victorian election

The Andrews Labor Government is likely to get re-elected next Saturday after making all sorts of extravagant promises to win favour with voters and continuing its theme of “getting things done”, particularly with infrastructure investment.

For some reason, fiscal management has been barely mentioned during the campaign, although yesterday’s Sunday Herald Sun editorial made a very salient point about lack of fiscal discipline and soaring projected debt.

As an old press secretary to Jeff Kennett’s Treasurer Alan Stockdale after Victoria’s Kirner Government was defeated in 1992, I’ll never forget the debt and deficit disaster left behind in Victoria after 3 terms of a Labor Government.

The overall Victorian debt in 1992 was $33 billion and unfunded superannuation liabilities were $18 billion. Even worse, the ongoing budget was showing cash deficits approaching $2 billion, hence the need for one of the world’s toughest peace time austerity programs.

 After a $32 billion privatisation program – including $30 billion from selling off all of the gas and electricity utilities - Victoria’s finance had been completely turned around by the time Jeff Kennett was turfed out in September 1999.

Victorian Labor has been in power for 15 of the subsequent 19 years and the most surprising element of the first term of the Andrews Government, is that they managed to raise $14 billion from further privatisations (the Port of Melbourne, Land Titles Offices and the 29% stake in Snowy Hydro) which has effectively funded the current infrastructure spending spree without jeopardising Victoria’s AAA credit rating.

However, even with all these asset sales, as The Sunday Herald Sun pointed out yesterday, gross state debt is back up to $22 billion and projected to hit $32 billion over the next 4 years.

Booming property taxes are showing early signs of pressure with the lowest auction clearances rates in 5 years on Saturday at just 42.6%. No wonder this little noticed pre-election fiscal update from the Victorian Treasury wiped $2.4 billion off the stamp duty forward estimates.

As an anti-gambling campaigner, it was most disappointing to read in the same update (see p43) projected pokies taxes in 2018-19 has been written up by a further by $29 million to a record $1.147 billion.

With Liberal and Labor on a pro-pokies unity ticket it has been hard to get traction on the gambling issue during the election. The best outcome would be a hung parliament with either the Greens or some regional independents leveraging up their balance of power to negotiate some long overdue pokies reforms, similar to what Andrew Wilkie did with Julia Gillard in 2010, although that ultimately didn’t lead to any meaningful reform.

We’ll know a lot more about this on Saturday night.

Incidentally, if any of you are awake, I’ll be doing a 2 hour shift on the RRR Party Show from midnight until 2am on Sunday morning looking at the Victorian election result. Fingers crossed we get a hung parliament.

That’s all for now.

Keep doing ya best, Stephen Mayne.