LSE bidder Macquarie faces backlash over business deals

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The Independent Online

The Australian investment bank Macquarie has become embroiled in controversy over its business practices back home as it seeks to reassure London Stock Exchange customers that it would be a sensitive owner of the business.

Macquarie's £1.5bn hostile bid for the LSE was tabled on Thursday, days after an Australian court ruled a consortium controlled by the bank had "misused its monopoly power" over fees at Sydney airport.

The Australian Competition Tribunal upheld a Virgin Blue claim that Sydney Airports Corporation had abused the deregulation of airport pricing. Virgin Blue, which put up a billboard at the airport bearing the legend "Macquarie - what a bunch of bankers", claimed its fees were put up by 97 per cent before privatisation in 2001 and a further 52 per cent since.

Other reports accused Max "The Axe" Moore-Wilton, a top civil servant lured by Macquarie to run Sydney airport, of allowing standards of hygiene and repair to slip in a search for fatter profits.

Macquarie's investment in the Beaconsfield gold mine in Tasmania is also causing a rumpus in Australia. Macquarie snapped up the mine's debts of A$77.4m (£32.5m) for just A$330,00 in 2001 after it had run into trouble. Even though shareholders contributed to the refinancing of the business they missed out on handsome returns when the gold price helped Beaconsfield record A$33m profits last year. The mine is still in administration, and some shareholders in Beaconsfield's owner, Allstate Exploration, want a court-appointed special administrator to look at unwinding the debt deal.

John Jost, a past chairman of Beaconsfield Gold, said in August: "Macquarie Bank are clearly fantastic generators of wealth. They call it the millionaires' club and they are very good at their job. In this particular case, maybe they have gone too far."

Macquarie also sparked outrage over its ownership of the M6 toll road north of Birmingham when its former head of infrastructure Dennis Eager said: "We can put up tolls by whatever we like and start the tolls on day one at whatever we like. If [motorists] don't complain about it being too high, we won't have done our job properly." Mr Eager resigned, and Jim Craig, the head of Macquarie's European operations, defended his bank's record yesterday, saying M6 tolls had decreased since Macquarie took over.

But the LSE's customers, many of whom are shareholders, remain deeply suspicious of Macquarie's reassurances this week that it had no intention of lifting average prices for brokers' services or information services. Kevin Sloane, of Apcims, the private-client stockbrokers' association, said: "Intention is good but it is not anywhere near strong enough. It's no guarantee.

"Our impression of their track record is that they typically buy assets with a captive customer-base, then screw down costs and raise prices. There is still a lot for them to do to get us and our members on side."

Macquarie appears to have a long way to go to get the support of LSE shareholders too. Yesterday the biggest investor, Threadneedle, followed the lead of Scottish Widows and rejected Macquarie's 580p-a-share offer. The two institutions control 17 per cent of the LSE's shares, which eased 2.5 to 617.5p.

Threadneedle questioned Macquarie's planned ownership structure. Should the bid succeed, the LSE's owners would be two hedge funds - an Australian investment vehicle, a Portuguese holding company and Matthew Perrin, the ex-head of the Billabong surfwear label.

Mr Perrin, who is 33, was forced to quit Billabong in January 2003 after he sold shares worth A$66m without informing his board. The transaction was handled by Macquarie.

Mr Perrin, the hedge funds Centaurus and CQS, and Macquarie itself, own one of two Macquarie investment funds that in turn own MLX, the LSE bidding vehicle, alongside the Portuguese infrastructure investor Finpro.

CQS was set up in 1999, while Centaurus is a well-known European hedge fund, based in London and founded in 2000.

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