Investors may well be reaping what they sowed with Alinta’s management buy-out, having installed the management and then let them build a national giant.
When you look at the short history of Alinta Ltd it is perhaps not surprising to find it the subject of a management buy-out tinged with controversy due to the perceived conflict of interest of the key players involved.
The scale of the transactions in the recent past is unprecedented for almost any Western Australian company, let alone a supposedly benign utility spun-off from state-owned energy operations and privatised.
In just four years, former CEO Bob Browning and his team have acquired billions of dollars of assets through several audacious buying sprees and takeover attempts, spun-off a significant new listed entity and then bought it back, and driven development of the Dampier to Bunbury Natural Gas Pipeline, the state’s most important piece of infrastructure.
All this has been done with a business-as-usual feel, despite concerns over the size of the moves, criticism over conflicts of interest and alarm at how these transactions would be funded.
When reviewed, this history looks more like something that reflects an investment bank rather than a gas utility.
And so it would. For all intents and purposes, Alinta has been role-playing an investment bank, albeit within a specialist area of interest.
Furthermore, due to the number and pace of transactions during the past three to four years, its management team has spent more than a little bit of quality time in the company of investment bankers, both as advisers and adversaries.
So perhaps the market should not be completely surprised when Alinta’s management team starts acting like a bunch of investment bankers.
Adding to that thought is the fact that sitting right alongside Mr Browning has been independent director and then, until the MBO, chairman John Poynton, one of Perth’s most successful investment bankers.
The problem has been that, when it comes to Alinta, none of the shareholders seems to see it in these terms.
No matter how spectacularly Alinta has grown and morphed during the past few years, few retail shareholders – and they are a healthy number – would see it as anything more than a successful gas company.
Even the institutions view it as a simple business. Just a few short years ago they voted down a CEO remuneration package, mainly focused on options, that was supposed to have recognised and rewarded Mr Browning’s talent for growing the wealth of investors.
Instead, with CEO packages in the headlines at the time and concern about the price paid for the Duke assets also making big news, institutional investors decided to knock back the deal.
They decided to pay him to run a geographically isolated utility, rather than see the company for what it was and reward him appropriately.
Many, including Mr Browning, saw the ‘no’ vote as simply east coast snobbery.
At the time, in mid-2004, Mr Browning told WA Business News he was shocked at the outcome of the shareholder vote.
Given the megabucks many have made running relative minnows in sectors such as mining recently, perhaps Mr Browning should have taken the hint and moved on; but he didn’t.
Instead, he vowed to prove them wrong, and continued on his aggressive deal-making path; a move few shareholders would have any right to complain about given the impact that has had on the value of their shares.
Each transaction has brought its share of concerns. With Aquila it was too risky, with Duke it was too expensive, with DBNGP there were monopoly concerns, with AGL there was outrage at David v Goliath nature of the move, and with Alinta Infrastructure Holdings there was the complexity. And then, with the takeover, there was doubt about the original transaction.
Mr Browning has navigated past these deftly and left his shareholders delighted. He has created a major company out of small isolated retail gas network, and many spoke of him in the same way they refer to WA’s most successful CEO, Michael Chaney.
Like in sport, successful business people tend to leave their critics mute.
Under such circumstances, maybe Mr Browning could be forgiven for being over-confident and believing that the market would accept his central role in the MBO.
Instead, he and his team have been quickly damned by all and sundry for showing the very same qualities that got them their success – those of investment bankers.
Furthermore, by coming out early with an embryonic proposal, they have not had a decent chance to explain their motivation – namely it seems that Alinta may have reached a point where it could no longer maximise shareholder value by remaining a listed company. The same people who wouldn’t reward the CEO are now undervaluing the company.
Unfortunately, for the MBO proposers, the millionaire factory at Macquarie Bank (which is backing their deal) and others have made investment banking increasingly controversial. In recent times, the rise of private equity and leveraged buy-outs has further heightened concerns in the market, and beyond, about the role of investment bankers.
They are painted as selfish and greedy, with few concerns about the consequences of these private equity deals and price that may be paid in the future if companies fail or consumers end up wearing the cost of debt-driven acquisitions.
In some ways, the irony of all this is that launch of the MBO last week came with a press conference jointly featuring Mr Poynton, who’d stepped down from the chair, and his hastily installed replacement, John Akehurst.
The aim, according to WA Business News sources, was to avoid acrimony and adversarial commentary emanating from each camp, given how much they both knew about each other.
In hindsight, that may well have looked a little cosy to outsiders in the market – especially those interstate who don’t believe that anyone in Perth is independent of anyone else – who might have been wondering how Alinta shareholders would extract full value when one bidder was in the box seat.
Mr Browning, Mr Poynton and their MBO colleagues now have a big job explaining why their deal will make investors better off – aside from the $1 billion or so they can already claim the move has added to the share price since it was announced.
In some ways, they’ll be flying the flag for the whole private equity movement, while the real investment bankers sit in the background largely escaping attention or flak, and maybe even sneaking off the company in a rival bid.
• The reporter has a beneficial interest in Alinta shares.
