Guy Foster, head of equity capital markets in Australia for Bank of America Merrill Lynch, was red in the face. It may not have necessarily been because three asset managers at the Ownership Matters governance conference were voicing criticism of investment banks hired to sell shares for companies.

“Long-term shareholders are discriminated against” in many share sales, says Simon Marias, managing director of Orbis Investment Management.

“We’re concerned about fairness, transparency, price, allocations and costs” in initial public offerings and secondary share sales, says John Eliopoulos, head of Australian equities at Telstra Super.

Foster, who has worked for more than a quarter of a century in finance, rejects suggestions that share sales in Australia are expensive. He says fees charged by investment banks for initial public offerings are less than half those charged in the US, typically 3 per cent of the total money raised.

Secondary share-sale fees are 1 per cent compared with the US, which is often more than three times that figure, according to Foster.

“Prices are quite reasonable,” he says. “If it were any cheaper I’d have to get my 10-year-old daughter to do it.”

Marias disagrees. He says it is difficult for investors to get information on how much a share sale will cost a company.

It is only some months later that an investor may find out such a sale cost the company $10 million when it could have been done for $10,000 by holding meetings with important stockholders or teleconferencing, says Marias.

He thinks share sales should have a pre-determined set of rules on share allocations to investors.

Graham Lennon, director and head of international portfolio management at Dimensional Australia, agrees, adding he would like transparency around such rules.

Lennon wants companies and their investment banks not to dilute existing shareholders with any stock sale.

Eliopoulos, who was chief investment officer for the Myer family, says if he is unhappy with a share sale, he will call the company chairman to complain.

Telstra Super may even refrain from doing business with a broker to ram home the point.

But it will not vote against the re-appointment of directors who approved the stock sale.

“That’s cutting off your nose to spite your face,” says Eliopoulos.

Lennon, on the other hand, will.

He believes that if you’re dissatisfied with a share sale, a vote against directors ensures the message gets through.


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