Gaynor: Golden handshakes AGM target

By BRIAN GAYNOR

Contact Energy's annual meeting should be a lively event with two shareholder resolutions on the agenda, one from Graeme Bulling and the other from Arcus Investment Management.

Mr Bulling is proposing that a director's retirement allowance should be restricted to no more than 10 per cent of the total remuneration he or she has received as a director of the company. Shareholders must also approve the payment.

This motion is in response to clause 101 of the company's constitution which states that a director may be given a golden handshake that equates to the total remuneration of the director in any three years chosen by the company. This does not require shareholder approval.

Mr Bulling successfully proposed a similar resolution at last year's Restaurant Brands annual meeting. Before calling for a show of hands, Restaurant Brands chairman Bill Falconer told shareholders the directors were making no recommendations. He also announced that 6.1 million proxy votes supported Mr Bulling, 532,000 were against and 21.1 million proxy votes were undecided and held at the discretion of the chairman.

The motion was carried by a show of hands, and Mr Falconer declined to call for a poll and vote the 21.1 million undecided votes against the motion.

Contact Energy directors have taken a different approach. In a statement in the notice of meeting, the board says it "considers that both the existence of an ability to choose and the limits on that ability, as currently worded in clause 101, are appropriate".

But is it appropriate for directors to comment and vote on a motion where their self-interests are involved? Phil Pryke can receive a golden handshake of up to $234,000 without shareholder approval under clause 101, whereas under the proposed change he would receive approximately $43,000 and this would need shareholders' approval.

Arcus Investment Management has sponsored a motion that will require Contact Energy to seek shareholder approval if it enters any agreement with the group's 51 per cent shareholder Edison Mission Energy. The proposal is in response to concerns that the company may enter joint venture agreements with Edison that may be more beneficial to the controlling shareholder than to minority shareholders.

On October 8, Contact announced it had entered a joint venture with Edison to construct a 300MW peaking plant in Victoria. Contact's share of the financing was stated to be $A66 million ($81 million), giving the New Zealand company about 40 per cent of the project.

Argus and a number of other institutions were concerned that the $A66 million deal represented 4.9 per cent of Contact's shareholder funds, just below the 5 per cent threshold where shareholder approval is required.

They were also bothered by the following comments: "Finally, it [the Victorian project] enhances our relationship with our cornerstone shareholder and provides Contact with a platform for developing further joint initiatives for the benefit of all shareholders."

Does this close relationship mean Contact looks only at deals with Edison and no one else?

What are the other joint ventures?

Will Edison use these joint ventures to extract value from Contact now that its takeover offer has failed?

Will Contact change its dividend policy and use additional earnings to finance joint venture deals with Edison instead of distributing these earnings to shareholders?

The Contact Energy board is fairly dismissive of the Argus motion and has legal opinion that it would not be binding if passed. This is by virtue of section 109 (3) of the Companies Act 1993.

But the proposal does raise an important issue. It will also give a strong signal to directors that shareholders will be carefully watching any deals with Edison Mission Energy.

Contact's annual general meeting will be in Auckland on Monday, March 11. Proxy votes must be lodged by Thursday, March 7.

Bendon AMP is making a terrible hash of its bid for Bendon. Its strategy has also created a potential conflict of interest between its different investment funds.

On the one hand, AMP is trying to buy Bendon's operating assets, in partnership with Bendon's managing director Hugo Venter, for as little as possible for its Pencarrow Private Equity Fund. On the other hand, AMP should be trying to realise the highest possible price for the 25.9 per cent Bendon stake it holds on behalf of other clients.

The offer for the operating assets, which is the equivalent of $1.96 to $1.99 a share when Bendon's surplus cash is added, has been rejected by directors of the target company and there are no plans to hold an extraordinary meeting to approve the deal. Bendon's directors have reluctantly advised shareholders to accept Pacific Retail's $1.90 a share offer if no other bid eventuates.

AMP can hardly accept the $1.90 a share offer on behalf of its 25.9 per cent stake when it has made an equivalent offer above this.

Thus it faces the prospect of being a minority shareholder in a company controlled by Pacific Retail, one of Eric Watson's listed entities. This is not a pleasant prospect as Mr Watson is not known for his favourable disposition towards minority shareholders.

AMP should make a full offer for Bendon at $1.96 or above. Otherwise it is not looking after the best interests of the beneficiaries of the 25.9 per cent Bendon stake it holds.

Director appointments

The appointment of Richmond chief executive John Loughlin to the board of Tranz Rail is a positive development for several reasons:

* Unlike in the United States, there are very few senior executives of listed companies on the boards of other listed companies. This is unfortunate because the experience gained from outside directorships would benefit both the individual and employees.

* It would also have a long-term benefit for New Zealand business as it would expand the pool of experienced people available for appointment as non-executive directors.

It is disappointing that senior executives of some of our large companies, particularly Air New Zealand, Carter Holt, Telecom and The Warehouse, are not, or have not been, directors of Australian listed companies. Australian directorships would allow them to get a better understanding of the Australian business environment, before and after their company ventured across the Tasman.

It would also put them in a better position to identify Australian directors who could be appointed to New Zealand boards.

Institutional shareholders in other countries encourage companies to allow their senior executives to take outside directorships. It would be a positive step for the New Zealand business sector if chief executives of listed companies had one outside directorship.

* Disclosure of interests: Brian Gaynor is a Bendon shareholder.

* bgaynor@xtra.co.nz