Expert's MAp valuation conveniently high
Sydney Morning Herald
Saturday August 8, 2009
The proposed payment by Macquarie Airports to Macquarie Group would be $88.2 millionat most, if the parent's management rights had been priced using the average of a valuation methodology Grant Samuelhas used in its role as an independent expert.But as an adviser to MAp's independent directors, Grant Samuel was party to a deal that proposes a $345 million payment to Macquarie Group.In its independent experts' report on the proposed buy-out of management rights for the listed Viridis Clean Energy Group, dated July 10, Grant Samuel listed eight separate buyouts of management rights between 2000 and 2008. The comparison was used to cross-check the value placed on the buyout of VCEG's management rights from Viridis Energy Capital.The document lists the management buyout as a multiple of annual revenue received by the fund's manager. The price of the buyouts ranged from 0.3 times revenue (that of Babcock & Brown Capital's manager last December) to 5.8 times revenue (Challenger Financial Services Group's manager in November 2003).Based on Macquarie Group's reported revenues received from MAp this year of $33.6 million, the values imply a range in the fee MAp should pay of between $10 million and $195 million.The average of all eight transactions was a buyout fee of 2.6 times revenue, implying a fee of $88.2 million for the MAp management internalisation.Grant Samuel also included two other methods of calculating the buyout fee, both implying average management buyout fees of below $88.2 million onthe MAp transaction.In its report, Grant Samuel cautioned about relying on the multiple analysis because of varying circumstances in the management buyouts.But it said the analysis gave general guidance that the VCEG buyout, priced at 2.8 to 3.5 times the revenue received by the manager, was reasonable. (Not reasonable enough for VCEG shareholders, who have negotiated a revised proposal cutting the payout by 14 per cent to $2.76 million. A shareholder vote is due on August 19.)Market sentiment against the fee negotiated by the independent directors of Macquarie Airports remains high, particularly given shareholders can vote out the manager without paying any fee."We maintain that the proposal to internalise is expensive," Scott Kelly, an analyst with UBS, wrote this week."We hope the independent expert's report [due from KPMG] will address the ramifications of removing Macquarie Group by vote (but not holding our breath) otherwise security-holders remain uninformed."
© 2009 Sydney Morning Herald