Let’s start with some facts. MAp has a management agreement with Macquarie Group whereby it pays the mothership between 1% and 1.5% of MAp’s market capitalisation. At today’s price, that’s more than $40m per year, plus performance fees.
Now the directors tell us that they can employee Kerrie Mather and her team of 30 – that’s all of Macquarie’s airports expertise – for approximately $11.5m a year. All we need to do is get 50% of the outstanding securities in favour of a deal to sack Macquarie, we employ Mather and team and put $30m per year straight in the Johnny rocket. Tell me, please, where do I sign?
Hold on a moment, Bristlemouth, the directors tell us. Ah, that’s not really in securityholders’ best interests. We think you are better off paying Macquarie $340m in securities to ‘internalise’ the management of MAp. You see, if you just sack them, well, maybe the management team won’t come across.
Really? Surely you could get an office and a few computers for $500k a year, which leaves $11m in salaries with which to pay our 30 staff. They must know something about the investment banking job market that I don’t if an average of $330k each isn’t enough. Jobless investment bankers are a dime a dozen and, to be honest, monitoring a portfolio of airport investments is hardly the world’s most difficult job.
But apparently there’s an even bigger reason to hand Macquarie 6.3% of the group. Sacking Macquarie, we’re told, will trigger ‘change-of-control provisions’. It seems that Macquarie has a poison pill with which it, or the banks financing the underlying airports, can ‘blow up Macquarie Airports’ in the words of Malcolm Maiden in Saturday’s Sydney Morning Herald.
Perhaps that’s true. We’ve never been given access to the full management agreement between the two entities. But is Macquarie really going to destroy the value of a fund in which it has a billion dollars of its own money invested?
The reputational issues would be severe enough. But the financial implications make for a ludicrous line of argument.
I can’t see one good reason to pay Macquarie this extortionate amount of money. Securityholders should vote against the proposal and immediately put a new one forward: internalise the management, but internalise it for free.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.