A Good Day For Macquarie Group

  A big day for Macquarie Group yesterday.The shares had one of the best days for weeks, rising around 8%, or over & #36;2 to & #36;27.05 after being up more than 11%.It revealed plans to cut the bonuses of its top 300 executives, including CEO, Nicholas Moore and there was a takeover offer for Macquarie Communications Infrastructure Group.The two moves have the capacity to effectively boost Macquarie Group's capital and cash holdings by over & #36;900 million immediately and over the next few years.The Macquarie Communications deal is also the most definite sign so far that the embattled bank is prepared to sell out of its satellite funds to raise cash and limit any possible collateral damage to its own strength.The offer has come from a big Canadian pension fund that has been in numerous deals with Macquarie Group, Macquarie Bank and several funds in Canada, the UK, New Zealand and Australia.In some respects it has the appearances of a 'mate' coming in to help another 'mate'. But investors won't be concerned if it puts cash (up over & #36;300 million immediately and more over a number of years).Analysts questioned the timing of the deal, which came as Macquarie yesterday ruled off its 2009 accounts. & #160;The investment bank was under pressure to make further write-downs across its holdings in satellite funds, such as MCG. & #160;The MCG offer helped Macquarie avoid a potential & #36;120 million-plus writedown, and the bid sparked a rally across other Macquarie funds as short sellers were squeezed outBoth moves were seen as positive: the changes to remuneration will see the banking group conserve much needed cash.The bid for the Communications Infrastructure group will remove one of the listed investment funds from the Macquarie orbit, thereby lessening its potential problems, in the eyes of some investors who are worried about the impact of some of the satellite funds running into financial trouble and hurting the parent company.The remuneration change was announced & #160;in the morning, the bid a little later.That second announcement saw the price of MCG securities soar by more than 53% to close up 79.5c at & #36;2.29. It helped change investor attitudes to the other funds, like Macquarie Airports which rose 6% yesterday.The changes to the remuneration policy for senior executives will also have a dramatic impact.The bank expects the move will see around & #36;500 million of current and previous years of retained profit share arrangements switched to the granting of shares in the investment banking group.That will limit the cash outflow this year and over the next few years, effectively meaning that half a billion dollars remains in the balance sheet, and Macquarie doesn't have to use valuable capital to make the payments to senior executives.The changes to the remuneration was explained: & quot;The proposed changes will be subject to approval by shareholders at the July 2009 AGM and will primarily apply to more than 300 of its most senior employees, the Executive Directors (EDs), including the Chief Executive Officer (CEO) and members of the Executive Committee. & quot;If approved by shareholders, the changes will apply to remuneration for the current year ended 31 March, 2009 as well as future years. & quot;While the proposed changes reflect recent remuneration trends, they remain consistent with Macquarie's longstanding approach where staff profit share is linked to profitability and is individually assessed with regard to a variety of factors including contribution to profit, use of capital, funding and risk. & quot;The proposals expand on modifications to remuneration announced in February 2008, which included an increase in the portion of performance-based profit share deferred and allocated as equity for the CEO and other members of the Group's Executive Committee. They further enhance staff and shareholder alignment. & quot;In the case of Mr Moore, it had previously been announced that the cash element of his profit share would fall from 70% to 45%. Around 60% of his annual remuneration will now be retained and spread over future years.But offsetting that will be the change that sees all of his retained profit share now be available to him between three to seven years as opposed to a 20% share of his former amount being accessible over a five to ten year period.The senior executive team will see the cash portion of their profit share drop from 60% to 50%, but they too will benefit from the change whereby they can access that withheld amount over the new three to seven year period.For the next group of executives below them - the largest group of people to be affected by the new rules - the cash component of their profit share will fall from 80% to 50%.The retained portion will be held in Macquarie shares and in the group's managed funds. No options will be granted in future over further shares.Macquarie Communications Infrastructure Group has recommended a & #36;1.37 billion takeover offer from a Canadian pension fund.The Canada Pension Plan Investment Board (CPPIB) on Tuesday made a formal cash offer to acquire MCG stapled securities for & #36;2.50 each. The shares closed within sight of that level for the first time in six months yesterday.The offer price values the equity of Macquarie Communications at & #36;1.37 billion and implies an enterprise value, which includes debt, of & #36;7.3 billion. (There's a lot of debt in this group.)Macquarie Group said it represents a 67% premium to the last closing price of MCG's stapled securities and a 134% premium to the three month average trading price.Macquarie Group said it & quot;is pleased that MCG security holders will have the opportunity to vote on the Offer from CPPIB which at A & #36;2.50 per security values the equity of MCG at A & #36;1.37bn and implies an enterprise value at A & #36;7.3bn and represents a 67% premium to the last closing price of MCG stapled securities, and a 134% premium to the three month average trading price. & quot;Macquarie notes the Independent Directors of MCG have unanimously recommended that MCG security holders vote in favour of the Offer by CPPIB, in the absence of a superior proposal and subject to the Independent Expert's report concluding that the Scheme is in the best interests of MCG security holders. & quot;Macquarie notes that if the offer to MCG is approved by MCG security holders, CPPIB will acquire MCG's manager, Macquarie Communications Infrastructure Management Limited (MCIML), by way of a separate inter-conditional offer (the Ancillary Transaction) together with MCIML's entire holding of 18.3% of MCG Stapled Securities for A & #36;2.50 per stapled security. & quot;The Ancillary Transaction provides for an upfront amount of A & #36;56.5m to be paid to Macquarie for the acquisition of MCIML and certain intellectual property and a payment of approximately A & #36;4m per annum for up to 10 years for ongoing advisory services in respect of Arqiva and Airwave and transitional services. & quot;Malcolm Long, chairman of the target's independent board committee said in a statement the independent directors had unanimously recommended security holders vote in favour of the offer, in the absence of a higher bid. & quot;Our support for the Offer reflects its attractive premium to the recent trading price of Macquarie Communications, that the offer is fully cash funded and that it provides investors with certainty and an opportunity to crystallise value, & quot; he said in a statement.The offer is subject to an independent expert concluding that the scheme is in the best interests of security holders.One of Canada's largest institutional investors, CPPIB is a professional investment management organisation that invests the pension contributions of 17 million Canadians.It has & #36;C108.9 billion ( & #36;A125 billion) of assets under management and is an experienced infrastructure manager.CPPIB intends to fund the cash offer from its existing cash resources.The offer and recommendation come after weeks of soul searching at Macquarie Communications as it explored options to enhance security holder value.It was reviewing certain investments and potential third party interest in its business. & quot;As previously disclosed to the market the Macquarie Communications' boards and management have implemented a range of timely initiatives seeking to restore value to Macquarie Communications security holders,' Mr Long said. & quot;Despite these initiatives the MCG security price has continued to trade down. & quot;The Macquarie Communications' boards therefore embarked on a review, which explored several options to restore security holder value and de-leverage MCG, including divesting individual assets and additional capital management initiatives. & quot;It was through exploring all the options that an opportunity arose for CPPIB to submit a proposal to the boards. & quot;The CPPIB offer was considered to be attractive, especially when compared with the less certain and longer term alternatives. & quot;We are confident that the acquisition of Macquarie Communications by CPPIB is a more certain means of providing increased value to security holders in the current climate, & quot; Mr Long said in yesterday's ASX statement.A major asset in Australia is Broadcast Australia. MCG also has broadcast assets and other networks in the UK and several other regions. & #160; & #160; & #160;  

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