chapter 8
Airports and bad press in the 2000s
1 Virgin Australia was launched as Virgin Blue in August 2000.
2 Actually it’s a fictionalised version of Australian Prime Minister Bob Hawke who says this in the 2003 film The Night We Called It a Day, also titled All the Way in some countries. But it’s consistent with an attitude he held at the time. In the film, Hawke is not yet PM when he says it but president of the Australian Council of Trade Unions.
3 2005 and 2007 financial years were 60 per cent or greater year on year increases. The increases in after-tax profit through the decade, year on year, were: 2001, 15.1 per cent; 2002, the financial year including 9/11, 3.3 per cent; 2003, 33 per cent; 2004, 48 per cent; 2005, 67 per cent; 2006 (restated for a new accounting treatment called AFIRS), 13 per cent; 2007, 60 per cent; 2008, the last of the pre-GFC numbers, 23 per cent; 2009, when the GFC hit, would be down 52 per cent.
4 Financial Packaging Group, which became Project and Structured Finance, which became the Asset and Infrastructure Group, which became Investment Banking Group, which became Macquarie Capital. And that’s without considering umbrella group titles like Corporate Services.
5 One banker recalls Moore laying out an organisation chart the week after this combination was announced. It showed Moore as CEO of the group, and above his name was a tiny box with ‘Chairman Alastair Lucas’ in it. ‘Even as a junior analyst, I knew that was a signal he was on his way out,’ he says.
6 Deverall, a central figure in the development of Australia’s asset management industry, spent six years at Macquarie and three as group head of the Funds Management Group before leaving and being replaced by Ben Bruck. He would go on to be CEO of Perpetual, then Hunter Hall, and then the NSW Treasury Corporation, a role he holds at the time of writing. He also spent three years as chairman of the Financial Services Council. A co-author of this book once ruined Deverall’s lovely desk at Perpetual after a pen exploded, and would like to take this opportunity to apologise.
7 Other non-division heads, such as then-CFO Greg Ward and chief risk officer Nick Minogue, were also present.
8 Fehon recalls that Moss was always taking an urgent call or meeting, and couldn’t work out how he fitted it all in, until he learned that Moss tried to keep four hours free in every given day in the full knowledge that it would be filled by people who spontaneously needed to speak or meet with him.
9 Moss loved slides, more often than not delivered through his antiquated overhead projector. ‘Look at this chart,’ he would say. ‘It starts at the bottom left and goes to the top right. Isn’t that nice?’
10 Macquarie was equity and subordinated debt underwriter and financial adviser on the airport acquisitions; sponsor, equity and subordinated debt underwriter and financial adviser on the Brisbane air link; and financial advisor on Sydney Airports Corporation. In New Zealand the corporate finance team advised on the government’s sale of its 66 per cent shareholding in Wellington International Airport. A two-page runway photo in the 1999 annual report hinted at what was to come.
11 It listed on 2 April 2002.
12 At one stage Macquarie boasted listed or unlisted funds called MAG, MAp, MIG, MIC, MEAP, MEIF, MIIF, MCIG, MCAG, MKIF, MKOF and MOF simultaneously.
14 That is to say, there were sufficient orders to cover the capital raising. ‘Overnight’ here means the Australian night, the European/US day.
15 As a global insurer, QBE was among the worst hit in share price terms by the 9/11 attacks. Its share price was at A$10.11 on 11 September (remember Sydney is fourteen hours ahead of New York in September), and had dropped to a close of A$3.32 on 20 October when trading in the stock was halted. In the midst of this, Macquarie led a capital raising which John Green recalls as ‘possibly my finest moment in investment banking . . . if we couldn’t have raised the capital, they would have gone to the wall.’
Green remembers Allan Moss asking him, ahead of underwriting: how much due diligence have we done? Green said he had not had time to do much. He recalls Moss saying: ‘Then why should we do this?’ Green replied: A, they’re one of Australia’s most important companies. B, they’re in serious trouble. And C, I’ve known and worked closely with them for years and I trust them implicitly. Moss adds : ‘If you trust them, fine, we’ll do it.’ Green adds: ‘That was relationship investment banking. I’m guessing few banks would take a risk like that today.’
Data sourced from Refinitiv shows that other capital raisings did take place over those days in Australia, Japan, Thailand, Canada and the UK, but most were tiny in comparison to Macquarie’s. The only other one of significant size in the three days after 9/11 was a US$97.43 million-equivalent follow-on for Sentry Select Global Index Income Trust in Canada on 14 September.
16 Listing was originally scheduled for 1 April, but that didn’t seem particularly fortuitous, the more so when that became the formal date of Ansett’s demise. They moved it to 2 April.
17 Other members of the consortium were the German airport operator Hochtief and the Commonwealth Bank of Australia. The rival bidders were Sydney Gateway Group, led by Westpac, and the Connect Group, including ABN Amro and the French transport infrastructure and engineering company Egis Group.
18 Mather still challenges this. ‘I don’t think we were as far in front as everyone suggested.’
19 25 June 2002; announcement of Rome Airport would follow on 16 July. According to a subsequent prospectus for Macquarie Airports (MAp), MAp acquired 40.4 per cent of the ordinary equity in Sydney Airport through a special purpose vehicle, Southern Cross Australian Airports Trust, for A$815 million, a transaction that was completed on 28 June. This prospectus added that through its MAG shareholding, MAp had also acquired a 4.3 per cent indirect interest in Sydney Airport for A$88 million, giving it a total beneficial interest in the airport of 44.7 per cent.
20 In February 2022, shareholders approved the takeover by a consortium including the Australian superannuation fund UniSuper, after which the airport was taken private.
21 Macquarie sold the last of its stake in Sydney Airport in 2013.
22 Today Sydney Airport is perhaps the perfect example of the number of different bits of Macquarie that can be brought to bear for the same client or asset. Macquarie has been the owner of Sydney Airport, the seller, has advised it as a listed company raising finance, has done no end of other advisory jobs for it, and at the time of writing is helping the winning consortium take it private again. ‘And no doubt we’ll continue to work with them as a private company, and so the cycle continues,’ says John Pickhaver, co-head of Macquarie Capital in Australia.
23 Now CEO of the Macquarie Bank arm of the group.
24 As always, this description understates the complexity. Firstly, Rome Airport is two airports, Fumicino and Ciampino. MAp entered into a conditional agreement with Macquarie Airports Group and GIF (Macquarie Global Infrastructure Fund, of which there were two, A and B) to acquire a 44.7 per cent stake in Aeroporti di Roma SpA for A$842 million through a special purpose vehicle called Macquarie Airports Luexmbourg SA, or MALSA. To do this, MAp took a 44.3 per cent shareholding in MALSA for A$832 million including acquisition transaction costs, representing a direct interest in the airport of 19.8 per cent; and MAG acquired a 50.1 per cent shareholding in MALSA, representing a stake in the airport of 22.4 per cent. GIF acquired the balance of shares in MALSA. Then, through the MAG shareholding, MAp acquired an additional 8.2 per cent indirect interest in the airport, bringing the total beneficial interest to 28 per cent, plus a first refusal to buy GIF’s interest.
25 In some respects, they demonstrably were. The later MAp prospectus says the weighted average Enterprise Value to EBITDA multiple for MAp’s acquisitions in Rome was 9.6 times, whereas on Sydney it was 14.3 times.
26 This basically means existing shareholders get the opportunity to buy; there was also a public offer if the deal wasn’t covered by existing shareholders.
27 The original listing price was $2, to be paid in two equal instalments. The capital raising priced at $1.60, then the European market tanked overnight so the next morning it opened at $1.53. By the time the second instalment was due in October there were real doubts if retail would follow through with their second dollar payment, though in practice most did.
28 BrisConnections involved the sale of stapled units at 0.1 cents each which came with two instalments of $1 to be paid. See more on this in Chapter 10.
29 Quite apart from impacting travel to Asia, it also meant that for a time the three cities through which Australians usually travelled to Europe at the time—Singapore, Bangkok and Hong Kong—were closed to international traffic.
30 A$1.69, compared to an offer price of A$2.
31 In ‘Why is it Open Season on Macquarie?’, Asiamoney, September 2002 edition.
32 https://www.theage.com.au/national/macquarie-float-in-jeopardy-20020704-gduczb.html
33 Now host of Seven Network’s Sunrise program, but an accountant and financial journalist by background.
34 https://www.abc.net.au/am/stories/s636041.htm
35 The Chaser is ‘a satirical media empire which rivals Rupert Murdoch’s News Corporation in all fields except power, influence, popularity and profitability’.
36 https://www.youtube.com/watch?v=q_v6BVzCHps
37 Spillane is now executive director and global head of private capital markets.
38 https://www.afr.com/politics/how-a-shock-jock-brought-moore-down-to-earth-20080207-j77va
39 Smith, who had been Telecommunications Industry Ombudsman in Canberra, was also there to help Macquarie win mandates on the second and third tranches of the Telstra privatisation, known as T2 and T3. They failed to get a major role on either. ‘We learned some lessons,’ Smith says: ‘Being overconfident. Just because you look like the natural, given that you’re Australian and you’re competent and the pricing was reasonable, doesn’t mean you will get the right outcome.’
40 Andrew Low had taken over the global Telecommunications, Media and Technology (TMT) business in 2001 with a mandate to internationalise what was a largely domestic business and to push it down the same path as other infrastructure towards the fund model. Initially daunted—he was, by background, an M&A banker, now being told to put a billion dollars of the bank’s balance sheet on the line—he came to see the logic.
41 Smith was involved in this too—‘the best performing asset class of all those funds we created was the communications, so I’m quite proud of what we did there’—while future CFO Alex Harvey was involved in the establishment of Macquarie Media Group. Smith notes that at one point they had all the broadcast towers in his home state of Tasmania ‘and we could have turned off Tasmania, basically. Which sometimes, in later years, I thought was a very good idea.’ MCIG would go on to own a network of broadcast infrastructure in Australia, the UK and the US, including Broadcast Australia, Britain’s Arqiva tower operations, and Airwave, which runs emergency services transmissions in the UK. A large part of the stake was taken over by the Canada Pension Plan Investment Board in 2009, and some assets transferred to Macquarie European Infrastructure Fund 2.
42 He left Macquarie in 2016 and is the founding partner of BGH Capital.
43 Allan Moss recalls the Reserve Bank saying: ‘You’ve got to have bank branches. And they’ve got to be on the ground floor. When people go to Macquarie, it has to look like a bank. Basically, none of which we really wanted to do. We did not want to even hold cash on the premises but the Reserve Bank made us do that too, though not much and I think they relented on that later. In my whole Macquarie career, the only times I ever saw cash on Macquarie’s premises were for coffee money and Melbourne Cup sweeps.’
44 FSG became Macquarie’s seventh operating group in June 2000, including retail marketing, sales, advisory and customer services activities from across Macquarie, with the balance of the investment services group forming the new Funds Management Group. At first, Richard Sheppard became group head of FSG, with Greg Matthews and David Deverall joint heads of Funds Management Group. The 2000 annual report says FSG ‘will be the bank’s focal point for sales, advisory and customer service activities for retail clients seeking a quality and value-added approach. It will service these clients directly and through third party financial advisers. It will do so using established technologies and increasingly through new technologies such as a wrap products and the internet.’
45 . . . where he was general manager, business and consumer markets.
46 Maher, having built his career elsewhere, has a rare perspective on how different the culture was at the top level. ‘The pressure to perform and the achievement-oriented culture is not something that you see on banners or coasters around the place, like other companies would do it,’ he says. ‘It’s just inherent in the way people do things.’
That started with Moss, ‘the most sophisticated leader I have ever worked with in my career.’ Like many, Maher came to understand this odd double act of extremely high intelligence and deliberate understatement. ‘He had this wonderful balance where he wasn’t telling you how bright he was, he was allowing you to your own conclusions. And he really demonstrated the art of asking the killer question.
‘It’s not quite the smiling assassin. But he had a lovely, disarming way of allowing you to feel confident and comfortable but still getting to the nub of the question that he wanted to ask, and asking it quite bluntly.’
47 It was a hard slog. Aubrey remembers being in a meeting in which senior people suggested they should scour the world, get the best investment managers, and have them all signed up within three months. ‘I actually burst out laughing because that was ridiculous, and then realised everyone was looking at me and they weren’t joking.’ It took eighteen months to start finding the right manager—‘we had to kiss a lot of frogs’—before they signed up with the Morgan Stanley global franchise strategy, which Macquarie would later seed as a new boutique after it left the US house.
Walter Scott was the standout success of that program and spoke to the team’s persistence. ‘I remember turning up in Edinburgh and they said, “How did you find us?” They didn’t have a website.’
48 ‘Skunk Works’ refers to Lockheed Martin’s Advanced Development Programs, which build secretive things like the U-2 and SR-71 spy planes. It’s used as a shorthand to describe organisations with high degrees of autonomy working on secret projects.
49 Australians don’t speak of mutual funds, but managed funds.
50 The CMT topped A$10 billion in the 2005 financial year (see annual report).
51 Ottmar Weiss, who ran the equity markets division until his departure in 2005 after earning $20 million in the previous two years, and who along the way cornered the market for 1983 Grange Hermitage, was notoriously tough. More than one person recalls people leaving his office in tears, yelled out of the room and across the trading floor.
52 Complex Products Need Understanding, Chris Wright, AFR, 4 May 2005 https://www.afr.com/politics/complex-products-need-understanding-20050504-jkxbc
53 Though not as high as Australians seem to think: Australia doesn’t even make the top ten jurisdictions for highest personal income tax rates. But the opportunities for deductions are more significant in Australia than many other nations. https://worldpopulationreview.com/country-rankings/highest-taxed-countries
54 Collateralised debt obligations, in which a bank would package all sorts of different assets—loans, mortgages and so on—into a single product. The prominence of these products, coupled with inappropriate ratings from agencies that perhaps didn’t entirely understand them and a lack of transparency about cross-holdings between banks, is considered one of the key culprits in the global financial crisis.
55 National Australia Bank, Commonwealth Bank of Australia, Westpac and ANZ.
56 The equities group and equities markets group were two different divisions at that time. Initially there was just an equities group with a retail and an institutional component, and a derivatives component under Ottmar Weiss which became so successful it was made into its own group, equity markets. That group came to include principal equity trading, structured products and derivatives trading. The equity markets group was not predominantly a personal finance division, but principal equity trading and risk management; it’s just that, off the back of that capability, products were designed for intermediated distribution (that is, through financial planners).
