A big day for Macquarie Group yesterday.
The shares had one of the best days for weeks, rising around 8%, or over $2 to $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 $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 $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.
The investment bank was under pressure to make further write-downs across its holdings in satellite funds, such as MCG.
The MCG offer helped Macquarie avoid a potential $120 million-plus writedown, and the bid sparked a rally across other Macquarie funds as short sellers were squeezed out
Both 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 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 $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 $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: "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.
"If approved by shareholders, the changes will apply to remuneration for the current year ended 31 March, 2009 as well as future years.
"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.
"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."
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 $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 $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 $1.37 billion and implies an enterprise value, which includes debt, of $
