There is no doubt that Macquaries used its knowledge of the internal workings of Alinta to make decisions about whether or not to involve its own finances.
Qantas and Geoff Dixon attempt to avoid Alinta's problems by keeping Dixon away from the actual buyout dealings. However, the sizeable payout and other financial perks given to Dixon, especially in light of the other corporate abuses going on, seems suspect at best. Overall, the Takeover Panel's suggestion that individuals who are involved in the buyout of their employing company should step down seems the most solid advice in avoiding conflict of interest.
IV. The Takeover Panel and Conflict of Interest
In their Guidance notes, the Takeovers Panel attempts to alleviate or prevent negative outcomes, citing that private equity bids and other buyouts can have major effects. Many of the items outlined by the Takeovers Panel have specific applications in the deals and issues related to Qantas, Alinta, and Macquaries bank.
The Panel cites that its major concerns are to ensure that buyout bids are considered in an unbiased manner, without the influence of participating insiders to move forward with one bid or another. The Panel also lists that companies should ensure that any disclosure of information to buyout bidders is appropriately controlled.
In the case of Alinta, the MBO involving Browning and Poynton was subject to influence by the two men, who kept their positions within the company. Macquaries Bank similarly used its inside influence to make bids for buyout that took advantage of their position. It is unlikely that other bids were provided with the information furnished by the inside parties, causing an unfair advantage for those involved in the Alinta MBO buyout.
The Takeovers Panel additionally suggests ways to address potential conflicts of interest, with few of the suggestions being incorporated into the buyouts in question. The Panel's suggestion to inform the board as soon as participants are approached by a potential bidder may have made it possible to avoid problems in the case of Macquaries, Browning and Poynton. Poynton and Browning in fact went against the board's intentions by seeking out Macquaries' help rather than seeking out board consent before taking action, as the Panel suggests. Overall, the Takeovers Panel outlines a number of cautionary suggestions that could have helped the three companies discussed here to avoid the conflicts that arose from their buyouts.
The cases of Qantas, Alinta, and Macquaries Bank are high profile cases -- they involve large sums of money and the participation of numerous other workers and investors. It appears that poor decision-making on the part of individuals and entire institutions resulted in the abuse of the power and duties entrusted to those participants. If this sort of poor decision-making can happen even in the closely-watched large-scale businesses mentioned here, it can certainly also happen at other levels of business and investment. Where it is happening, loss of confidence and loss of business threatens the markets, individual businesses, and individuals.
To mitigate this risk, businesses can adopt the rigorous guidelines suggested by the Takeovers Panel. In particular, companies involved in a buyout or possible buyout should appoint an IBC to manage the protocols and processes involved. Beyond these internal checks, the most effective way to regulate these issues is sadly through the self-management of the market. By allowing the market to self-regulate some individuals may be taking larger risks; however, investing and other finance procedure is never without risk. In the criticism of both of the Qantas and Alinta buyouts. While it is beyond the scope of this paper, the media frenzy resulting from these issues no doubt contributes to an undesirable public relations situation, further compromising investor confidence.
Mehran, Hamid, and Rene M. Stulz. "The Economics of Conflicts of Interest in Financial Institutions." Journal of Financial Economics (forthcoming), doi:10.1016/j.jineco.2006.11.001, 2.
Mehran & Stulz 2. In their assessment, Mehran and Stulz cite additional definitions that are not as useful due to their narrowness or assumption of action where conflicts of interest exist. These definitions are not practical for economic use and are of little use when looking at examples like those used in this paper.
Takeovers Panel. Issues Paper: Insider Participation in Control Transactions. Feb. 21, 2007. Available:
http://www.takeovers.gov.au/content/1189/download/IPCT_issues_paper.pdf,2. The Takeovers Panel defines participating insiders as "persons with significant inside of non-public information concerning the target company, gained by virtue of a position of trust with the company, or who hold a position of trust."
Mehran & Stulz 2.
Mehran & Stulz 35.
Mehran & Stulz 15. The authors cite that discounted price will be recognized as devalued property, such as those that might be offered by a less reputable firm. However, in other sections they clearly offer that reputable firms might lose their reputation due to risky activities. While a good reputation is certainly something to look for in an analyst, consultant, or financial institution, it does not guarantee uncompromised behavior, as is obvious in the Qantas and Alinta examples.
Mehran & Stulz 20-30. However, the authors do point out that customers do not always feel any or great adverse affects when participating individuals take advantage of their inside knowledge. While this may be true, there is no great way to estimate what lost benefits occur through these transactions, as these should also be included as losses.
Evans, Michael, and Stuart Washington. "Conduct Unbecoming." SMH.com, Business: Jan. 20, 2007. Available:
Evans & Washington 3.
Evans & Washington 3-4. Poynton is reported to have contacted Robert Dunlop of Macquaries Bank on January 2. As of 30 November 2006 the Alinta Board had already appointed JP Morgan and Carnegie Wylie to handle the terms of the buyout. The board had also told Poynton not to speak to Macquaries concerning the buyout.
Evans & Washington 1.
Evans & Washington 3.
Evans & Washington 1; Gray 11.
Evans & Washington 4.
Evans & Washington 1.
Macquarie. "Fact Sheet - Macquarie Bank and Alinta." Available: http://www.macquarie.com/au/au/about_macquarie/acrobat/alinta_factsheet.pdf.
Evans & Washington 4-6.
Takeovers Panel. Guidance Note 19: Insider Participation in Control Transactions. Takeovers Panel, Draft Guidance Note: Feb. 21, 2007. Available:
Takovers Panel. Guidance Note 19. 1-3.
Takeovers Panel. Guidance Note 19. 12.
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