1. What does Duet think about the view that this transaction is designed to make fees?
Duet: We reject this view completely.
This transaction is about simplifying the DUET Group structure. This initiative is consistent with the other strategic initiatives that DUET has undertaken over the last 18-24months to make DUET a stronger and simpler investment proposition for security holders.
This simplification initiative was flagged at the time of the management internalisation proposal in July 2012 and it is something that both analysts and investors view favourably.
The simplification proposal creates a simpler, clearer corporate structure with clearer accountabilities and decision making processes.
It creates an entity that is easier to understand, less complex to run and cheaper to administer. These objectives have long been supported by both our investors and the analyst community.
2. Please explain why the entities were increased from four to six then reduced back to four again? Why didn’t you just stick with four?
Duet: To effect the internalisation of DUET’s management arrangements efficiently, DUET acquired the two management entities that were previously externally owned.
This resulted in an increase in the number of stapled entities within the DUET Group from 4 to 6.
The current Proposal requires a number of steps over and above those required for the internalisation, including the Schemes, which require court involvement, applications to various tax and stamp duty offices (including offices of state revenue) for rulings in relation to certain stamp duty matters, and obtaining consent from third parties. If these steps had been part of the internalisation, DUET Group considers that the implementation of the internalisation would have been significantly delayed. In addition, linking the internalisation and the simplification proposal would have increased the cost of the internalisation without knowing if the internalisation would be approved by Security holders (in which case the simplification would not have proceeded).
Consistent with the Boards overall strategy to simplify the Group, Macquarie and AMP were appointed to review the DUET structure with the aim of achieving simplification. That review has concluded that DUET is able to reduce the number of stapled entities in the Group to 4.
The simplification proposal creates a simpler, clearer corporate structure with clearer accountabilities and decision making processes. It creates an entity that is easier to understand, less complex to run and cheaper to administer. These objectives have long been supported by both our investors and the analyst community.
3. Please explain how the professional fees can be justified: Allens $1.3 million for ‘due diligence on legal matters’ – what does that mean?
Duet: This relates to the legal work conducted since July last year required to provide advice to the DUET Due Diligence Committee and Boards on a number of simplification and restructuring options that were considered. In addition, Allens assisted in the preparation of the necessary Schemes documents and meeting materials required to implement the proposal under the Corporations Act.
DUET has conducted this process in a manner consistent with appropriate governance processes to ensure the Group is in a position to meet all its obligations to regulatory bodies, the courts and to protect the interests of security holders.
4. PwC’s $1.6 million for tax advice, independent valuations in accordance with APES 225, financial model review and legal services? The tax advice? It is understandable but PwC’s financial model review is a curious addition. Why would there be any need for a review? And isn’t the financial model a thing which management and the plethora of expert directors on the two Duet boards supposed to know about?
Duet: The professional external advice received is consistent with good practice to provide security holders with the level of due diligence required to be undertaken by the Due Diligence Committee and Boards when considering proposals of this nature.
5. Who did the review to ‘review up’ the entities from four to six just six months ago, only to have them ‘reviewed down’ again now?
Duet: The internalisation proposal was approved overwhelmingly by DUET Security holders.
6. Likewise the work on Independent valuations. How do you justify independent valuations seeing as not much has changed, nobody is buying or selling anything apart from six intangible entities becoming four. Why can’t it be one?
Duet: Independent valuations are regarded as good practice when new securities are being issued to security holders. Independent valuations are required to support the valuation of the shares being issued to security holders under the simplification.
The Directors considered a number of alternatives to the Proposal put forward including: (a) reducing the number of stapled entities (including the removal of the stapled structure altogether and the operation of the DUET Group through a single holding company or single holding trust);(b) making no change to the current DUET Group structure; and (c) making no change to the current DUET Group stapled structure and creating the corporate and funding arms under the current structure.
The Directors consider the Proposal to be superior to the alternatives considered. The Independent Expert, KPMG Financial Advisory Services (Australia) Pty Ltd has also concluded that the Proposal put forward is in the best interests of security holders.
7. Ernst & Young is there for audit and providing accounting structuring due diligence services in relation to the proposal. Isn’t E&Y auditor anyway? Where are the accounts to be audited in this event? And what exactly is ‘accounting structuring due diligence services’?
Duet: E&Y is the DUET Group auditor. Its scope of work for the simplification is separate to the preparation and auditing of the Group’s annual financial statements.
As part of the scheme materials, pro-forma accounts are published in the Scheme Booklets (see page 39 of the Meeting Booklet). As part of the due diligence process As part of the due diligence process, these pro forma accounts are reviewed by an appropriately qualified accounting professional.
Given E&Y’s extensive knowledge of the stapled DUET structure, it was determined that E&Y were best placed to provide accounting advice in relation to the range of alternatives being considered.
‘Accounting structuring due diligence services’ is the provision of accounting advice to the Boards which allows them and security holders to assess the impact of the proposal on the financial position of the DUET group as a result of the proposed restructure.
8. Do you think this deal and its fees reflect the general state of the market for professional services for big ASX companies that advisers and boards have simply lost their way and, as they are dealing in other people’s money, simply forget to show discipline and restraint?
9. What do you think of the view that all these people probably think they are doing the right thing but are actually rationalising this shareholder waste?
Duet: The costs of regulatory compliance are certainly increasing but that is not for DUET to opine on. The Board will always comply with its obligations and act in the interests of security holders.
The Boards are unanimously of the view that the proposal is in the best interests of security holders, as is the Independent Expert.
10. What is the purpose of this transaction? why simplify? is that an admission that you stuffed up in the first place? where is the recompense and restraint for shareholders?
Duet: The simplification proposal creates a simpler, clearer corporate structure with clearer accountabilities and decision-making processes. It creates an entity that is easier to understand, less complex to run and cheaper to administer. These objectives have long been supported by both our investors and the analyst community.