Gyngell’s pay packet is an insult to NEC shareholders

On the topic of outrageous remuneration packages, the Australian Financial Review has reported today that Nine Entertainment Company Holdings (NEC) chief executive, David Gyngell’s 2014 remuneration is $19.6 million.

According to the Australian Financial Review, Gyngell was quoted at the time of the NEC float as saying: “If I get that money – and I’m not saying it’s not a lot of money – I think everyone else will be doing pretty well.”

“Everybody else” are the poor shareholders of NEC, and are they “doing pretty well”? Of course not, how can they be when the share price of NEC is below the float price? If you are an NEC shareholder would you rather be in your place or Gyngell’s place? Stupid question, isn’t it?

I don’t know about you, but I’m sick of these kinds of remuneration deals, where hired hands take excessive amounts of shareholders’ money and then deliver mediocre to awful results. It just has to stop.

Gyngell is running a relatively small and poorly performing Australian television network, not BHP or Newscorp or Microsoft or General Electric. As such, his pay is out of all proportion to what reasonable minded people would think appropriate.

You will recall that Gyngell publically disgraced himself earlier this year when he was involved in a street brawl with James Packer – yes, these are our business leaders folks! Apparently punch-ups on the street are now acceptable behaviour for chief executives of publically listed corporations in Australia! Gyngell didn’t get sacked, so I can only conclude that this behaviour was acceptable to the Board of NEC.

A friend of my father always use to say that Australia is a country that rewards mediocrity in politics and business. I’ve thought long and hard about that statement since I first heard it as a child. Unfortunately, nothing I’ve witnessed subsequently has allowed me to refute that statement. Australia has mediocrity at all levels of government and business and to a greater extent now than ever before. Mediocrity is one thing, but to pay the sums of money we do for it is a travesty of monumental proportions.

Caledonia’s Will Vicars very pricey real estate purchase

Just a short post on some articles that I have been reading recently on Caledonia Investments Chief Investment Officer’s purchase of some incredibly pricey real estate.

It has been widely reported in the media that Will Vicars, the Chief Investment Officer of Caledonia Investments spent $21 million (last year) on two adjoining apartments in Sydney (one costing $10.9m and the other $10.1m). Apparently he was planning to join the two apartments together to form one residence.

Now, unless Will plans to donate those apartments to charity, or the media reports are incorrect, the purchase raises some interesting questions:

1.    What does the Chief Investment Officer of Caledonia get paid? (Perhaps way too much, judging by this lavish expenditure?).

2.    What sort of person would spend $21m on a residence? (Certainly not a Buffett disciple, expenditure on that scale is much more closely associated with those who enjoy ego-driven displays of wealth).

3.    Did he get value for money? (I doubt it).

Whatever the answers to these questions, it’s not a good look for Caledonia (as a firm that is open to investments from the public). It informs an opinion in my mind regarding Caledonia’s Chief Investment Officer that is far more revelatory than any public relations material ever could be.

It’s even worse when you consider that Caledonia has (supposedly) always worshipped at the altar of Warren Buffett, a man who despite being vastly wealthier than Mr Vicars, would never dream of living in such ostentatious surroundings.

If I was a Caledonia investor (which I’m not and never will be), I would be scratching my head about this one. That “simple” purchase seems to invalidate a lot of what Caledonia supposedly stands for. But then again, often what people do in their private lives is far more informative than what they do in public.

Food for thought.

The Medibank Private IPO

Just a quick post for those of you considering applying for shares in the Medibank Private IPO.

The float price looks reasonable, but the Government certainly isn’t giving it away, especially considering the backdrop of an anaemic equity market in Australia. And no, it won’t be anything like the gold mine that was the Commonwealth Bank, CSL, or the first tranche of Telstra, those days are well and truly gone.

Medibank is a very solid business that is growing, it currently has no debt, good returns on equity, requires limited capital investment and has healthy cash flows. It does have low profit margins and this is something that can potentially be improved as a publically listed company.

The announced price range for the float is $1.55 to $2.00 per share and you will have to pay the funds across prior to knowing what the final price will be (i.e. you will have to apply for a certain dollar amount of shares, not knowing how many shares those dollars will ultimately represent). This is certainly a negative aspect of this float. There is a fairly significant difference between paying $1.55 or $2.00. This situation could have (and should have) been avoided by holding the institutional book build prior to the opening of the retail offer, but of course, that would have been in the interests of the retail applicants not the vendor.

Hopefully any potential scale backs won’t be too severe (with 2.7 billion shares on offer, there should be enough to go around, but you never know). Anyone who remembers the privatisation of the then NSW TAB (around 1998) will recall the fiasco of that offer, where retail applicants were scaled back to absolutely trivial numbers of shares. That company performed ok, but was not worthy of the level of over-subscription that it experienced on floating. Medibank is also unlikely to be worthy of heavy over-subscriptions and this will be especially so if the price is closer to $2 than $1.55.

I believe that anybody who thinks they will be able to make a quick profit shortly after the float will be disappointed. However, if you are looking for a longer term investment with a bit of capital growth and a reasonably attractive dividend yield, I think you will probably achieve your objective.

Personally, I will probably apply for shares. I don’t expect spectacular things from Medibank, just a return that should comfortably beat the fixed interest rates I currently earn from cash holdings.

As always, the above does not constitute investment advice.