Takeover Tango Devised To Fix Magellan Advice Tangle
Sydney Morning Herald
Thursday December 27, 2007
HOW much is the investment advice of two of the best-known bankers in town worth to James Packer? In the case of Chris Mackay and Hamish Douglass, the pair's contract to advise the Packer-backed Magellan Financial Group has been valued by an independent expert at more than $27 million.
But should Magellan succeed with plans to buy the company managing the contract and have the pair advise in-house, Mr Mackay and Mr Douglass will earn the comparative pittance of $250,000 a year each, with the chance to get that amount again in bonuses.Under the buyout offer, Mr Mackay, a former boss of the investment bank UBS, will receive Magellan stock worth up to $26.4 million and Mr Douglass, a former Deutsche Bank investment banker, up to $18.1 million. Magellan pays advisory fees to a private company that Mr Mackay and Mr Douglass control, NPH Funds. While it is 40 per cent-owned privately by Mr Douglass, the rest is owned by the publicly listed New Privateer Holdings, controlled by Mr Mackay. As a public company New Privateer has obligations to its shareholders.The sticky situation emerged after it was revealed the Packer-backed Magellan would have to pay "very material" advisory fees.Mr Mackay had planned that he and Mr Douglass would forgo the fees to benefit "Magellan's future". He was forced to step down as chairman of New Privateer to avoid a conflict of interest between his roles with Magellan and New Privateer.Mr Mackay, who is also director of James Packer's Crown Limited and Consolidated Media Holdings, told the Herald in August: "We should have been smart enough to, in effect, not have had this in the first place." Magellan then launched a takeover to clean up the situation.Now, according to an independent expert's report commissioned by Magellan and prepared by the advisory firm Grant Thornton, it has been revealed that while New Privateer was due to earn service fees of about $2.3 million this year, it stood to earn $10.9 million in performance fees from Magellan.Determining a fair market value for a control premium for New Privateer, Grant Thornton calculated the advice provided by Mr McKay and Mr Douglass was worth up to $27.1 million.Magellan plans to internalise the advisory contract, paying Mr McKay and Mr Douglass the $250,000 each plus bonuses.Apart from the backing of Mr Packer, Magellan's high-profile launch drew in celebrity investors such as ex-Southcorp boss John Ballard, Sussan group proprietor Naomi Milgrom, and Simon Leversha, former managing director of Citadel Investments (Asia).The board of New Privateer has recommended Magellan's offer.
© 2007 Sydney Morning Herald
