Macquarie Group to Face Problems with MAp Deal

Submitted by Jim Thesiger on 17 September, 2009 - 16:50

The Australian financial service provider Macquarie Group’s (MQG) chances of cutting a lucrative deal while exiting from the Macquarie Airports (MAP) managements took a hit as the Risk Metrics appeared strong against the agreement as it appears there is not much of assurance that debt costs will not shoot high. The report can ignite another battle with CGI Glass Lewis, the rival governance group which is supporting the proposal. Despite the proposal of going for internalisation of the management received universal support, the difficulties are on the layers of poison pills which were left by Macquarie to establish their management control over MAp.

One of these being review clauses in the $4 billion worth of debt facilities that is related to Copenhagen and Brussels airports and that can be triggered due to the change in company management. The proposal of $345 million payout to Macquarie for the MAp management was planned to avoid such clauses being triggered. The prospect of higher interest charges was enhanced as Macquarie agreed to underwrite the MAp shareholders to the tune of $100 million if the review is triggered. However, it is to be mentioned that the indemnity is only for six months. The MAp authority admitted that any review could boost up costs by more than $120 million.

Despite the chances of the review getting triggered is low; some questions may arise as MAp is seeking a payment approval from its shareholders for a smooth transfer without assuring that the review is not going to be triggered. Nevertheless, Macquarie could be easily thrown out by a majority vote by MAp shareholders without any payment. It is to be mentioned that Macquarie Group has received a large amount of money as base and performance fees for managing the company that worth $546.5 million. The group collected a $143.3 million as investment banking fees along with $213.3 million in fee to an unlisted fund and a cost recovery fee that worth $216.3 million.