Friday was a big day for the Macquarie group of companies.
Macquarie Group issued its 2009-10 interim profit on Friday and its last remaining satellite investment fund, Macquarie Infrastructure Group (MIG), revealed plans to separate from the parent, at a cost of $50-$100 million, plus a string of fees and other costs.
The timing was intriguing: was the hope that the higher profile and more eagerly awaited bank result would overshadow the broad outline of the revamp of the struggling MIG and its $35 billion of debt?
It sort of happened that way, but media reports Friday and Saturday did focus on the revamp at MIG and what it means for the bank.
More fees, distributions and other payments, which will help fatten the bank’s bottom line for the full year.
This will be on top of the $40 million plus from the Macquarie Media group which is also separating.
The 1% transaction fee on the MIG split, could add another $30 million, pushing the total payment from the last two divorcing funds closer to $200 million.
But that will be a long way from the $345 million fee paid by Macquarie Airports to get rid of the parent.
The MIG proposal was outlined to the fund’s annual meeting shortly after Macquarie Group revealed the profit, with a fall in earnings, as forecast.
Macquarie Group said its fiscal 2010 second half profit will be in line with the first half fall of 21%.
Net profit was $479 million for the six months to September 30, down from $604 million, Sydney-based Macquarie said in a statement on Friday.
Macquarie had forecast profit for the six months to be equivalent to $435.5 million.
The bank took write-downs of $414 million in the six months to September, but all divisions except the real estate banking division, were profitable.
Operating income fell 11% to $3.5 billion and the bank took further write-downs and impairments.
Macquarie revealed a first half dividend of 86 cents per share unfranked, compared with the $1.45 a share paid for the first half of the 2008-09 year.
The lack of franking will become commonplace now that the bank is expanding offshore, especially into North American funds management, advice and wealth products.
That will replace the earnings and fees from the fleet on locally listed funds like MIG and Macquarie Media.
Macquarie Group CEO, Nicholas Moore said while market conditions were improving, it was still volatile, making it difficult to make short-term forecasts.
"We currently expect the profit for the second half of 2010 to be broadly in line with the first half but this remains subject to market conditions and significant swing factors and excludes the impact of one-off items," he said in Friday’s statement.
"While there have been some improving trends in a number of major markets, overall we continue to maintain a cautious stance with a conservative approach to funding and capital."
Mr Moore said there continued to be opportunities for medium term growth whether that was internally generated or through takeovers.
"Our strong balance sheet, strong team and market conditions provide opportunities for medium term growth, building upon the strength, diversification and global reach of our businesses," he said.
Macquarie Group has spent over $A800 million in four acquisitions so far in the US or Canada in advice and funds management.
The rationale is easy to see given the write-downs, bad publicity and other big falls taken in the value of the listed funds, such as MIG.
MIG revealed plans to separate its tollroads into two separate listed entities, pending the approval of security holders: a sort of ‘Good MIG’ and "Bad MIG".
Good MIG will be set free to be a stand alone business; BAD MIG will continue to be managed by Macquarie Group because it’s debt-ladened, with poorly performing assets, especially in the US and Europe.
The plan will create a stand alone entity holding MIG’s interests in the 407 ETR and Westlink M7 motorways, which it’s calling `mature MIG’. This is really ‘Good MIG’.
These are mostly highly profitable, strong cashflow operations. It will have debt of just 31% of assets.
There will also be a managed entity holding the remaining assets, comprising M6 Toll, APRR, Chicago Skyway, Indiana Toll Road, South Bay Expressway, Dulles Greenway, Warnow Tunnel and Transtoll, described as `active MIG’. This is ‘Bad MIG’ and will have debt of 86% of assets.
"The MIG boards believe that this restructure will unlock value in MIG as it provides security holders with greater clarity around the investment profile of the two separate portfolios," MIG chairman Mark Johnson said in a statement on Friday.
Based on MIG’s June 30 valuations, `mature MIG’ would have a portfolio valued at $3.64 billion and `active MIG’ a portfolio valuation of $1.45 billion.
MIG also said that after providing adequate working capital for each entity there will be surplus cash of $226 million that will be paid out to security holders. Macquarie will get 24% of that.
A payment to MIG security holders of a special distribution of 10 cents per stapled security will be made in addition to the normal interim distribution in fiscal 2010, if the restructure is approved.
(That’s a nice carrot and stick.)
Macquarie Group will facilitate the restructure transaction and provide transitional services – including wages and premises – to `mature MIG’ for 12 months afterwards.
MIG also said the base management fees it currently pays will be adjusted for the
