Flagstaff’s Tony Burgess sues Broadspectrum over Ferrovial

Advisory firm Flagstaff Partners is suing former client Broadspectrum for $3.75m in fees after it ditched its advice.

Documents

Blue-chip advisory firm Flagstaff Partners, headed by prominent banker Tony Burgess, is suing its former client Broadspectrum for $3.75 million in fees after the company ditched its advice in favour of a rival firm amid a lengthy takeover tussle with Spanish suitor, and eventual acquirer, Ferrovial.

The unusual legal feud, played out in the Supreme Court of Victoria, lays bare the usually closely guarded financial details of a corporate adviser and its client and marks a rare escalation in tensions in an industry where success typically hinges upon harmonious relationships and informal word-of-mouth endorsements.

Flagstaff’s case against detention centre operator Broadspectrum, which was delisted last month after Ferrovial secured effective control at $1.50 a share, comes as the firm handles the $6 billion sale of Port of Melbourne alongside Morgan Stanley.

In court documents obtained by The Australian, Mr Burgess and Flagstaff managing director Kent Greig argue the advisory fees were payable because the fresh takeover bid from Ferrovial on December 7, and pitched at $1.35 a share, was submitted just five days before an earlier advisory agreement with Broadspectrum was due to expire.

Yet while that initial bid, priced at a higher valuation of $1.63 a share, failed to gain traction with the board, Flagstaff’s contract stipulated that if its advisory agreement with Broadspectrum was terminated by either party, the fees were payable for up to six months if a transaction was struck with the original bidder.

The question of whether Ferrovial’s second bid at the end of December led to a successful deal represents the key battlefield in this dispute.

In its defence papers Broadspectrum, formerly known as Transfield Services, asserts a takeover was not agreed to until April when a fresh offer of $1.50 per share was submitted. Flagstaff argues this was merely a supplementary version to the original December bid.

The case is set for a hearing before judge Peter Almond in the commercial court of the Supreme Court of Victoria on August 26.

However, the decision by Flagstaff to sue its client is an unusual step.

The Burgess-led boutique was drafted in by Broadspectrum in August 2014 only because the company’s official adviser, Macquarie Group, was caught up in the CIMIC and Leighton Holdings talks.

While Flagstaff had previously enjoyed a role as a much-called- upon adviser, its influence waned after Graeme Hunt took the reins at the detention centre operator in 2012.

Despite the previously cosy relationship Mr Burgess had fostered with the previous management regime, Mr Hunt put the company’s defence advisory mandate out to tender, and then awarded it to ­Macquarie.

So when Ferrovial returned for another tilt, Mr Hunt and chairman Diane Smith-Gander called in the officially mandated advisers.

On December 8, a day after the Spanish giant lobbed in its latest offer, Mr Burgess fired off a blunt email to Mr Hunt, stating “the survival clause applies to the Ferrovial offer announced yesterday”.

In the missive he referred to Ferrovial as “yellow”, an agreed codename, and stressed its “offer on Monday 7 December” was five “days prior to the expiration of the survival clause”.

In a counter claim, Broadspectrum acknowledged it had agreed to pay $3.75m in Flagstaff advisory fees but claimed that on January 21 it advised shareholders to reject Ferrovial’s fresh bid and a new offer was then tabled on April 6 with a board endorsement for the revised bid unveiled on April 28, well after the six-month tail on Flagstaff’s advisory agreement had expired.

But Broadspectrum’s legal submission reveals the scale of the tariffs charged by corporate advisory firms.

The company stated it had agreed to pay Mr Burgess’s firm a “work fee” of $100,000 for the month of August 2014 and “$50,000 per month for each of the months of September 2014 and October 2014”.

While both Flagstaff and Broadspectrum are on course to contest the dispute in the courts next month, a mediation process has yet to be held.

Mr Burgess’s firm has enlisted Zaven Mardirossian of Arnold Bloch Leibler Lawyers to press its case, while Broadspectrum, which is now owned by Ferrovial but which currently remains under the same board and management team, has called on lawyers at Webb Henderson.

The Australian was unable to contact Mr Burgess for comment.