The Mayne Report: Dexus disclosure coup, Packer’s Crown exit & more

Full marks to Dexus for expanding SPP and setting new transparency benchmark

First up this week, let’s start with the good news. Property giant Dexus responded positively to our request for an expansion of its $50 million Share Purchase Plan and yesterday announced that it would be accepting all $63.9 million in applications with no scale back.

I wrote about the $900 million Dexus placement and under-cooked $50 million SPP in the last edition of The Mayne Report and will have plenty of say about this in future editions too, particularly given the new precedent set on the transparency front.

The Dexus directors received a detailed letter last month explaining why the in-the-money $50 million SPP should be expanded and thankfully they came through with the goods.

We’ve now added Dexus to this long list of companies which have expanded capped SPPs. Indeed, Dexus has now done this twice which begs the questions as to why they announce such constrained caps in the first place, only to happily change their mind in response to strong retail shareholder demand.

Even better, Dexus have voluntarily set a new benchmark for transparency and data disclosure in their announcement by including this paragraph:

“The SPP offer was sent to 26,774 eligible Security holders and valid applications totalling $63.9 million were received from approximately 4,640 Security holders. This represents a participation rate for those eligible Security holders of 17.3 per cent and an average application worth $13,800.”

I’m particularly chuffed about this language and data after sending the Dexus brass the following email last Tuesday:

Thanks for getting back David. Just one last thing. When announcing the Dexus SPP result to the ASX, could you please include the total amount of valid applications received, plus the number of shareholders who participated. This is line with the amended ASA Focus Issue for 2019 which reads as follows:

Shareholder participation: Companies should maximise shareholder information and engagement through data releases of the number of shareholders:

• voting on AGM resolutions, including a break‐down of for and against, as in a scheme of arrangement vote.

• participating in capital raisings including trading renounceable rights, and dividend reinvestment plans.

If Dexus wants to really blaze the trail in this regard, it could include the following paragraph to set a new benchmark for shareholder participation rates and issuer data release:

“The SPP offer was sent to 25,956 eligible retail shareholders and applications totalling $113.43 million were received from 11,274 shareholders, representing a participation rate of 43.4 per cent and an average application worth $12,746.”

If you do this, I’ll encourage ASA to give you a Bouquet in the next edition of Equity in the “Brickbats and Bouquets” section. However, if you stick with the $50 million cap, you could expect a Brickbat.

Kind regards, Stephen Mayne
Dexus shareholder

So, there you have it. A transparency request was made to Dexus and they followed it to the letter. Well done to chairman Richard Sheppard and everyone involved.

Dexus shares were yesterday trading at around $13.05 so the collective paper gain for those 4,640 shareholders who stumped up $63.9 million to buy new shares at $12.10 will be just over $5 million - around $1100 each for those of us who applied for the maximum $15,000.

Given this offer was comfortably in the money for the duration of the application period, it once again raises questions about retail investor education, capability and advice.

How can 22,134 Dexus shareholders – 82.7 per cent of the retail shareholder base – choose to look a gift horse in the mouth and not take up an in-the-money offer? It’s madness.

I suspect there is a big issue with offer documents simply not making it to the beneficial owners, partly because some accountants, trustees, brokers, fund managers, margin lenders, SMSF managers or WRAP platforms have failed to put in place systems whereby SPP offers are distributed to decision-makers in a timely manner.

Whatever the case, the capital raising system is failing most retail investors, the majority of whom don’t act rationally and leave disproportionate profits on the table for those retail shareholders who do.

Once again, it is clear that Australia’s anything goes system of capital raising has one really big loser – the retail investor who sits there and does nothing to actively manage their portfolio when capital raisings are in play.

It is for this reason alone that capital raisings should primarily be pro-rata and renounceable, although such a model certainly wouldn’t help my bottom line.

What is going on with James Packer?

A lot has been written about James Packer’s Melco deal but there are still a few key points to make.

Firstly, if you take your chances being a minority shareholder in a company controlled by one person, particularly someone as erratic as James Packer, don’t complain when from time to time they don’t act in your best interests.

If James Packer really has always been so tight with Melco controlling shareholder Lawrence Ho, why on earth didn’t he at least talk to Melco before entering into those negotiations with Wynn Resorts earlier this year?

Ho told Bloomberg on Friday that the first he knew of Packer’s desire to sell was when the Wynn deal leaked.

Lawrence Ho has done plenty of media since the Crown deal was announced and he came across well on both Bloomberg and CNBC, but should visit Australia and do some public engagements, meet and greets with politicians and formal interviews with gaming regulators.

Ideally, some of this should be in a public setting?

I was interviewed on ABC television’s The Drum last night and called on regulators to introduce a 20 per cent maximum for any individual shareholder in Crown Resorts.

This is what The Alliance for Gambling Reform argued for during the 2017-18 review of the Crown Melbourne licence.

James Packer is just so erratic he shouldn’t be allowed to have unfettered control of three Australian casinos.

But neither should Lawrence Ho, particularly given his colourful 97-year-old father Stanley Ho has been banned from operating casinos in a number of jurisdictions, including NSW and several US states.

If a 20 per cent shareholder limit was applied, it would also ensure that Crown Resorts remained listed in Australia, which is an appropriate situation for Australia’s biggest casino company.

Given issues around money laundering, trade, tourism and high roller gambling, it just wouldn’t be appropriate for Australia’s biggest casino company to be controlled by a company which is based in Hong Kong, listed in the US and holds its AGM in Macau, a major competitor to Australian casinos in the high roller market.

The Melco move on Crown provides an opportunity for Australian gambling regulators to look carefully at this situation and make a determination.

Frankly, the Victorian, WA and NSW Governments should all get together and agree that Crown can never be taken over by a foreign company.

As for whether Melco should be given two board seats, this should only happen if there is an independent chair.

What will happen at the 2019 Crown Resorts AGM

The 2019 Crown Resorts AGM in October is looking very interesting because Lawrence Ho’s Melco Resorts and Entertainment will have 20 per cent of the stock but no board seats and no regulatory approval to exert power.

Indeed, with some of the state agreements talking about shareholder limits of 5 or 10 per cent, it is very cheeky of the two billionaires to think they can exchange 20 per cent of Crown Resorts without government approval. These probity processes are expected to take a year to resolve but Melco will pay $887 million for the first 10 per cent on Thursday, June 6, with the next 10 per cent settling no later than September 30.

So, how will this 20 per cent be voted at the next Crown AGM if regulators haven’t cleared the deal? It is very hard to stop a shareholder from voting their stock.

For instance, if a Melco critic nominated for the Crown Board (hint, hint, who would do that?), you would expect Melco to vote against such an external candidate. But are they allowed to influence board composition at Crown?

Whatever happens, the Crown Resorts board will need to change, particularly to reduce the influence of James Packer.

The re-election cycle at Crown will see former Qantas CEO Geoff Dixon, former Federal Communications Minister Helen Coonan, executive chairman John Alexander and the newest director, John Poynton, all up for election at the 2019 AGM.

There are currently 11 Crown directors which is too large. If Melco is going to score board representation commensurate with its voting interest, it will presumably finish up with two out of 10.

James Packer currently has 3 out of 11 directors including the executive chairman so the first step would be to appoint an independent chair and make the current executive chairman, John Alexander, a conventional CEO with no voting rights as a director.

Geoff Dixon should probably retire at the end of his current 3-year term in October given he is well into his 70s and has served on the Crown board since 2007. I’d be happy to see the back of Harold Mitchell and Andrew Demetriou as well, given current controversies.

Most of the Crown directors, nominally independent or otherwise, have been hand-picked by James Packer so we really do need some serious turnover.

Incidentally, the website profiles of the Crown directors leaves a lot to be desired. It doesn’t say the age of the directors, where they live, how many shares they own, when they joined the board or when they will next be up for election.

If you want an example of best practice website director profiles, check out how ANZ does it.

A spate of small cap placements without SPPs

I found myself buying $500 worth of shares in three companies last Thursday after an unfortunate spate of placements which weren’t accompanied by an SPP. The directors will be getting letters of complaint in the coming weeks and potentially a board tilt later in the year.

The offenders were as follows:

Strike Energy: $12 million placement at 6.5c with $300,000 going to two directors, including Crown Resorts director John Poynton. Bought $500 worth of shares at 8.1c on the same day, highlighting that this was an excessive discount. Retail investors should be participating on the same terms through an SPP.

Othocell: completed $10.6 million placement at 40c when I had to pay 45c on the same day to get on the register. If institutions and well connected under-writing clients are getting such a discount for new stock, there should be a $15,000 SPP offer to all shareholders on the same terms.

AVA Group: raised $3.25 million through a placement at 14c last Thursday when the stock closed on Friday at 16.5c. No sign of any SPP to show respect for loyal retail investors.

However, it wasn’t all bad news on the placement front. Perth-based Mincor Resources raised $18 million in a placement at 40c and has followed through with a $5 million SPP which closes on June 27. There is no VWAP – X pricing alternative unfortunately but it is currently in the money with the stock at 43.5c last Friday.

I’m not on the register unfortunately but have just bought the mandatory $500 worth to be ready for the next time Mincor does a placement-SPP.

There was also a $50 million placement by ARENA REIT last month and yesterday they followed up by launching this $5 million SPP on similar terms. I’ve only just bought in, getting ready for next time, but hope they’ll expand the cap if they get flooded. The ARENA SPP is currently marginally in the money.

PAITREOs dry up as even Mirvac joins the placement club

It has now been 9 months since we last had a PAITREO capital raising as can be seen on this list. We really seem to be losing the battle with even Mirvac opting for a $750 million placement last week, backed up by an under-sized $75 million SPP which will hopefully be expanded.

The Mirvac placement was priced at $2.97 but then you have the untidy situation of the follow-on SPP coming after the payment of a 6.3c distribution, so it will be priced at $2.90. These differentially priced placement-SPP offers are not ideal and often don’t take into account the tax situation of shareholders in terms of how much they value and can benefit from any franking credits. That said, REITs such as Mirvac don’t pay corporate tax so the distributions are unfranked.

Mirvac shares had recovered to $3.10 by yesterday, so this looks like an in-the-money offer which should get swamped and hopefully expanded. The standard letter will be sent to the directors close to the end of the offer period if it remains in the money.

Contemplating a tilt for the St Barbara board

Goldminer St Barbara is meant to be an ASX200 company but it came up with a dark ages capital raising offer last month which needs to be called out.

The trigger was what looks like an over-priced $854 million takeover of Canadian company Atlantic Gold Corp, which is to be partially funded by this $490 million 1-for-3.1 non-renounceable offer at $2.89.

There is absolutely no reason why this capital raising shouldn’t have been a PAITREO.

If it wasn’t a PAITREO, it should have at least been renounceable and if it wasn’t renounceable then at least retail investors should have been able to apply for unlimited overs.

Instead, St Barbara went with a non-renounceable that had the most restrictive overs component we’ve even seen on the Australian market, with no minimum amount of overs and an overall cap of just 25 per cent of a shareholder’s entitlement.

I currently own 3 St Barbara shares and to highlight the stupidity of this, I’ve been offered 1 new share in the entitlement offer and a maximum of 1 additional share for a grand total investment $5.78.

There will be many other small St Barbara shareholders who should have been given the opportunity to at least expand their stake to a marketable parcel worth $500.

In these situations, boards should adopt the same principle as an SPP and offer all shareholders a fixed amount of additional shares, such as $15,000 worth, plus an additional amount linked to their entitlement which rewards the bigger retail shareholders.

There is precedent for this in non-renounceable offers as follows:

Australand, 2009: overs were limited to a maximum of $40,000 or 1 times a shareholders' entitlement. Finished 3 per cent short. See announcement.

Folkestone, 2014: 1-for-4 at 20c with all shareholders limited to maximum overs of $100,000. Finished 16 per cent short after only $1.6m in overs applications. See announcement.

Very few other companies have gone with such a restrictive 25 per cent overs cap. I’m currently building this list of restrictive overs offers but so far the only entry matching St Barbara is GPT back in 2009, which is listed as follows:

GPT, 2009: shareholders limited to overs of just 25 per cent of their entitlement. This only brought in $27 million of overs and left a $300 million retail offer $73 million under-subscribed.

St Barbara has about 9000 retail shareholders and they should have been treated better than this.

The $355 million institutional component of the offer finished 19 per cent short and St Barbara claimed to have done a bookbuild for the shortfall but how does it do a book build if it is a fixed offer price of $2.89. This is where you need genuine price discovery to maximise sale proceeds from the shortfall, with the premium returned to non-participating shareholders as compensation for their rights.

Then again, the caravan has well and truly moved on from an argument about who is getting windfall gains out of St Barbara to one about who is left picking up the tab for an out-of-the-money raising.

St Barbara shares were trading around $2.59 yesterday after the company issued this profit warning last Friday.

Unsurprisingly, there is now talk of class actions because who issues a profit warning half way through a major capital raising?

We’ll provide an update in future editions on this issue, particularly given this $135 million retail offer at $2.89 is likely to fall substantially short.

The shares were trading at $3.32 before the over-priced acquisition was announced so a lot of value has been destroyed already.

Jacqueline Hey joins the ASX200 female chairs club

Robert Johanson has done a great job for many years but it’s also a relief that he has finally revealed when he will bow out as chairman of Bendigo and Adelaide Bank. He stayed too long and even copped a hefty 15 per cent protest vote in 2016, despite good performance.

Rob didn’t want to run the gauntlet of an increased protest vote again at the 2019 Bendigo AGM where he will retire after 13 years as chair and 29 years on the board. See last week’s announcement.

The new chair will be Jacqueline Hey who will join that small but elite group of female ASX200 chairs.

The current club comprises the following 14 female chairs, which is not a large number although at least it’s better than the number of female CEOs we’re currently got at ASX200 companies:

Elizabeth Alexander: the former PWC partner was a long-term chair of CSL and a former director of Amcor and Boral, where she chaired the audit committee. Currently chairs Medibank Private.

Ilana Atlas: current chair of Coca Cola Amatil, serves on the ANZ board and also was a long-serving Westfield director.

Elizabeth Bryan: the former CEO of NSW State Super is now chair of Virgin Australia and IAG and is the former chair of Caltex. She also served on the Westpac board and was chair of Australia's second biggest industry fund, Unisuper.

Paula Dwyer: current chair of Tabcorp, recently departed chair of Healthscope after a takeover and also chairs the ANZ audit committee. A previous director of Suncorp, David Jones and Leighton Holdings.

Katherine Fagg: chair of Boral and also on the board of Incitec Pivot.

Jacqueline Hey: will commence as chair of Bendigo and Adelaide Bank in October 2019. See announcement. Also on the AFIC and Cricket Australia boards.

Tracey Horton: about to lose her spot on this list when the Navitas takeover goes through but she also serves on the GPT board and is a former director of Skilled Group and Automotive Holdings.

Vicki McFadden: former chair of Skilled Group and current chair of GPT.

Rebecca McGrath: chair of OZ Minerals and a director of Goodman Group and Incitec Pivot.

Christine McLoughlin: became chairman of Suncorp in September 2018 and moved against her CEO Michael Cameron last week.

Sally Pitkin: current chair of Super Retail Group and President of the AICD in Queensland. Also a former Aristocrat Leisure director.

Catherine Livingstone: former chair of Telstra, current chair of CBA and chaired the Macquarie Group audit committee for many years.

Dr Nora Scheinkestel: a banker with experience at CRA, Macquarie Bank, Chase AMP and Deutsche Bank who is the current chair of Atlas Alteria, the old Macquarie Atlas Roads. Also sits on the Telstra and Stockland boards and is a former director of Pacific Brands, Mayne Group, Mayne Pharma, North Ltd, Newcrest and Paperlinx. 

Karen Wood: the former company secretary of BHP is now the chair of South32, having succeeded David Crawford.

Interestingly, Bendigo and Adelaide Bank will join Coca Cola Amatil as the only ASX200 companies with a female chair and CEO, given that Bendigo is currently led by Marnie Baker and Alison Watkins is the CEO of Coke under chair Ilana Atlas.

Wearing the anti-gambling hat, I’m hoping this female Bendigo duo will be prepared to lead from the front when it comes to reducing gambling harm in Australia. A ban on cash advances using credit cards to top up accounts with foreign-owned bookmakers would be a good start.

Unfortunately, Jacqueline Hey doesn’t start off on the right foot on this question. She was one of the Cricket Australia directors who happily renewed the Bet365 sponsorship last year, when the correct decision would have been to follow the 2017 lead of the British Football Association and go gambling free in terms of league sponsorship.

We’ll be pushing the AFL to do that when its lucrative $10 million a year Beteasy sponsorship expires in 2021.

That’s all for now.

Until the next edition around the middle of June, keep doin’ ya best!

Stephen Mayne.