One transaction was all it took for big investors to turn on market darling Alinta
Browning fights to ‘prove them wrong’
One transaction was all it took for big investors to turn on market darling Alinta. But the energy company’s CEO believes its critics are mistaken and the $1.69 billion purchase of Duke Energy’s Australian assets will create value for shareholders. Mark Pownall reports.
A month after Alinta CEO Bob Browning received a stinging series of rebuffs from the market he remains angry, especially at the institutions on the east coast that soured his company-making deal.
In some respects, the locally lauded business leader with the mild American accent might be starting to understand what it feels like to operate in an isolated market at the whim of distant capital.
Western Australians often feel the same way about the east coast as many Australians do about the US. And right now, apart from the accent, Mr Browning sounds very much like he was Perth born and bred.
“People in Western Australia, and rightfully so, have pride about this State and how important it is to the Australian economy,” Mr Browning told WA Business News.
“You get to the east coast and it is not even on the radar.”
In fact, Mr Browning hints at the possibility that good old fashioned east coast snobbery was behind the dousing Alinta got from institutional share-holders over the $1.69 billion purchase of Duke Energy’s Australian assets. This culminated in an embarrassing knock-back, among other things, when the CEO’s options package was voted down at last month’s AGM.
Fortunately, however, Mr Browning has adopted a stance that has led to many a Western Australian success story against the odds. He says he is going to prove his critics wrong.
He believes adamantly that the price was not too high – even though at least one of his management team resigned over the acquisition sum – and will deliver shareholder value by both smoothing over gaps in Alinta’s future earnings capacity, as well as offering new earnings diversity.
Mr Browning admits he may have become a poster boy for a new wave of shareholder activism, possibly because the Alinta share price had risen so strongly in the months ahead of the Duke deal – a fact that, ironically, helped make the deal possible.
However, he said reaction over the price and the vote against his options package (with key performance indicators similar to those approved by the National Australia Bank board for its new managing director, John Stewart) was institutional ‘short-termism’ at its worst.
“Quite frankly, I was shocked at the reaction,” Mr Browning said.
“You would think they would give us some credit for what we are doing, that we know what we are doing.
“Everybody is so resistant to change.
“You have a market saying they don’t care what you achieve over the next three years, they must have some culpability for that.”
He said one fund manager had admitted to voting down the options package because he felt he had to be consistent after criticising the Duke assets purchase.
“We don’t need institutions like that,” he said.
“At the end of the day we will prove them all wrong. There are consequences. The next time we do an equity raising we will be a little more careful about who we invite on the register.”
As the share price regains the ground lost immediately after the deal was announced, Mr Browning said the acquisition was a company-making deal and the integration was going smoothly in its early phase without any negative surprises.
In fact, he said, a number of projects were sitting on the Duke shelves waiting for a company with some capital to commit. Some of these might appear in the near future – probably within 12 months.
And Alinta’s recent agreement with Energex in Queensland to transport gas through Alinta’s Queensland Gas Pipeline to Comalco’s new $1.4 billion alumina refinery in Gladstone showed that the network’s business could win contracts to use up capacity.
“I have never felt better about Alinta than I do today,” Mr Browning said of the company that has grown dramatically from the WA retail utility it was when he started in early 2001.
The near-term activity includes challenges such as the integration of two major purchases – Duke and the Aquila restructuring – as well as dealing with the dramas surrounding the Dampier to Bunbury Natural Gas Pipeline, which is in the hands of the receivers.
There are also the negotiations taking place over the Wesfarmers LPG contract, where Alinta expects to lose as much as two thirds of its current business.
A mild winter is also a painful experience for a gas business, though a very cold May will have balanced that out somewhat.
On the domestic front, Mr Browning claims to be disappointed by the lack of competition after the recent full contestability in the retail gas market, even though new entrants would challenge Alinta’s local monopoly.
He said the lack of newcomers was due to the failure to deregulate the retail electricity market because most east coast energy providers bundle gas and electricity.
Alinta would be happy to see interstate gas rivals here if it meant it could sell electricity in competition with Western Power.
“Electricity customers are more profitable”, Mr Browning said. “They are a bigger market.”
However, the Western Power break-up and reform of the electricity market do not appear to have the urgency in Mr Browning’s mind that the receivership of DBNGP has, something he said was such a big concern to the State that would have to be resolved quickly.
That is a significant issue for Alinta’s future.
In an alliance with mining giant Alcoa, Alinta wants to build up to 10 small power stations – about 140MW each – but for most of those to be built the pipeline has to be expanded.
“We think we can solve the State’s problems, we just need the pipeline fixed,” he said.
It is all big thinking, but Mr Browning claims he has achieved everything he set out to do after arriving three and half years ago – a fact he acknowledges has been done with the strong support of his board and, if not of late the market.
Having been 12 months in the job, and stripping about $30 million in costs out of the business, Mr Browning said he took the Alinta board off-site to explain his strategy for the company’s future – building scale and diversifying income streams.
“We quadrupled the size of the company and you don’t do that without the support of the board,” he said.
“We have had 70 board meetings in that time [two and half years]. When you are working deals, they have to be involved.”
For its size, the Duke deal brings very few additional staff. After redundancies, mainly at corporate level, there will be about 200 staff spread around the country.
This may be of some relief to Mr Browning, who has found the industrial relations environment here quite different from the system in his native US.
This has been especially the case in Victoria, where Alinta now operates significant assets and is “toe-to-toe” with the unions there on a daily basis.
Mr Browning said WA had also had its share of difficulties, but claimed a recent breakthrough when members of the Electrical Trades Union got tired of their leadership’s stance on negotiations for a 36-hour week.
“To our employees’ benefit they found ways to offset the lower working hours,” he said.
“We came out ahead and the employees were happy.
“When you have a disinterested third party with a political agenda that is a real problem.”
He said Labor’s strong links with the union movement meant that in government it was often forced to act in ways it should not.
Outside his own business Mr Browning rated the regulation of retail trading hours as something he would change if he had the power to do so, especially with WA proving to be so far behind the rest of the world in this regard.
As a positive comparison to the US, he said utilities had a lot more freedom to move here, whereas American companies were bogged down in regulations that had stifled investment – prompting so many to make poor investments in offshore markets such as Australia.
So what about being an American at corporate level in Australia, where so many of his compatriots have taken the money and run in recent years?
Mr Browning said he thought Australians placed too much emphasis on Americans on the whole. He doubted there would be the same concerns if he was “an Italian called Brownalino”, a fact that he simply did not understand.
“I think Australians have too heavy a fixation on America, Australians have a lot going for themselves,” he said.
Mr Browning said the Alinta role was more than an “expat assignment”, even though he was originally recruited through Aquila, which had the cornerstone investment in the then newly privatised Alinta.
He has put down roots and got involved in the community – including wearing his allegiance to the Dockers on his sleeve.
However, Mr Browning admits that with three children at university age living in the US, there will always be a strong draw from the family that makes the distance hard to overcome in the longer term.
“As I sit here today I suppose I will go back to the [United] States but it is not something that is imminent.
“We live life day by day,” he said.
ALINTA’S PLANS
- Integrating Duke and Aquila operations.
- Overcome issues regarding the Dampier to Bunbury Natural Gas Pipeline.
- North West Shelf LPG supply negotiations.
The reporter has a beneficial interest in Alinta shares.
