Like having a hidden camera in the changing room

"The protocols prohibit the buyout group
from using any non-public information
on Alinta that is in their possession
in pursuit of their proposal. However,
the buyout group retains access to privileged
information that will help it flesh out ITS proposal.

The protocols can only go so far.
They cannot make the executive and Macquarie unknow what they know."



One of the sexiest models on the financial catwalk these days has been Macquarie bank. While MacBank has kept its models closely under wrap, it, like other financial institution, such as Goldman Sachs, is changing its fashions and, along the way, changing its relationships with its own clients.

As an advisor, MacBank and Goldie and the others get a peak under the covers of their clients. While it may not be a full undressing, they get access to some pretty private and discrete material. They must, for the good of their client, have confidential information to give good and relevant advice.

But when they start to calculate their own interests based on the knowledge that they got when the client was at least partially bare, are they taking unfair advantage, of their client if not the market and their professional role? If they are going to put a camera in the changing room, should they be allowed to keep the video for their own enjoyment? To show others? To sell it?

Brian Fryth considers matters such as these in "Macquarie Bank should watch where it treads":

CONFLICTS of interest abound in the proposal by Bob Browning and the senior executive team to privatise Alinta by way of a leveraged management buyout (MBO). Nowhere are they more apparent than in Macquarie Bank's role in the proposal.

Some time ago Macquarie moved from simply providing corporate advice to becoming a principal, as evidenced by its participation in the current $11 billion syndicated private equity bid for Qantas, and previous tilts at Dyno Nobel, Patrick Corp and Australian Leisure&Hospitality.

Now it has taken the next step and is seeking to gobble up a client. It's a development that may cause disquiet to the bank's corporate clients, particularly those vulnerable to takeover - and who is not in the current private equity frenzy?

Alinta yesterday told the ASX that a buyout group led by former chairman John Poynton and four of the most senior executives - managing director Bob Browning, business development general manager Chris Indemaur, chief finance officer Stephen Pearce and general counsel Murray King - is being advised by Macquarie.

More specifically the bidders are being advised by the company's favourite adviser, Dunlop. Furthermore, the bank is considering participating in the buyout as a principal.

Alinta's board learned of a possible management buyout on November 30 and the independent directors formed a committee to handle the matter.

On Monday the board met again and the independents decided the proposal had matured to the point that Poynton's conflict of interest meant he could no longer remain as chairman. They elected former Woodside chief John Akehurst as the new chair.

That triggered the requirement for immediate disclosure of the board change and an explanation. Alinta may have been able to avoid disclosure of the buyout proposal at this stage, on the grounds that it was confidential and incomplete, but chose instead to put the market on notice.

It is suggested the independents only learned of Macquarie's role in the buyout proposal in recent days. If that's so, it raises the question of whether Macquarie was still providing advice to Alinta after Poynton first advised that the executives wanted to work on a proposal.

Browning and the other Alinta executives in the group, along with Macquarie, have conflicts of interest because they are privy to more information about the company and its assets than other shareholders and investors.

The officers obtained that information in their capacity as executives of the company, to which they owe a fiduciary duty. Macquarie had a duty of care to Alinta as its client.

The independents are aware of the conflicts and, while in a difficult position, they are doing what they can to deal with them. Protocols have been established and agreed to by the buyout group to try to deal with those conflicts. The difficulty for the independents is that they cannot afford to simply suspend their senior management team for four months until it becomes clear whether the buyout, or a rival bid (if one emerges) succeeds, or whether the company proceeds with its own internal restructures.