First strike: Angry shareholders vent at Magellan AGM

Former Wallabies captain John Eales has survived a protest vote at the Magellan AGM but shareholders delivered a first strike on the company’s remuneration report.

If funds under management is a reflection of success then former market darling Magellan Financial Group has a long road back to glory.

Angry shareholders delivered the company its first strike against its remuneration report and a strong vote against director John Eales, who chairs the board’s remuneration committee.

Funds under management has slumped from more than $100bn for the firm under the guise of the seemingly Warren Buffett-style investor Hamish Douglass, to only $34.3bn by the end of October, and its market value has dropped 90 per cent since 2020 to close at $6.98 per share on Wednesday.

Executive chairman Andrew Formica, who only took on the role in August and has already shown its now-former chief executive George David the door, told shareholders finding a new CEO was “a priority”, adding, “we are very pleased with the candidate list”.

As to whether Magellan has now moved from the hunter to the hunted, Mr Formica conceded that could become the case.

“We may well be,” Mr Formica said, “but I can’t worry about becoming a target”, adding instead he needed to focus on “driving value”.

Magellan as a takeover target is an interesting concept. The company has about $300m in cash, some $400m of money invested in its own funds and non-core shareholdings in investment bank Barrenjoey and equities clearing firm FinClear.

As to who would want it, Regal Funds Management has become something of a Pac-Man in the investment sector, snapping up rivals seemingly by the dozen, but the significantly larger Magellan would clearly be a tough bite to digest.

Activist investor Gabriel Radzyminski from Sandon Capital said Magellan needs to undertake a significant capital management plan to bolster its share price.

“If Warren Buffett was running it (Magellan) he would be buying shares hand over fist,” Mr Radzyminski said. “Magellan is a capital heavy business … and shouldn’t be.”

Magellan chair Andrew Formica. Picture: Britta Campion

Mr Radzyminski said the company’s current share buy back was too small and called for the firm to purchase 10 million shares outstanding.

Like other active managers, Magellan is suffering from an exodus of funds as investors move into cheaper exchange-traded products. But it has the added issue of struggling to recover from the sudden departure of its kingmaker founder and stock picker Mr Douglass, and the revolving door of investment staff and chief executives since then.

Shareholders made their feelings clear at the AGM on Wednesday, with 58.91 per cent of shareholders voting against the adoption of the remuneration report, triggering its first strike.

In the past few weeks Woolworths, Qantas and Tabcorp have also received strikes against pay packages of the top executives and board.

A second strike — a vote of 25 per cent or more — at next year’s annual meeting will force the board to consider a spill motion.

Mr Formica defended the reappointment of Mr Eales on the grounds that retaining corporate history was important given the board had taken on four new members including himself over the past 12 months.

“It was important to ask John Eales to remain on the board,” Mr Formica told shareholders. “The combination of fresh perspectives, while retaining essential corporate knowledge positions the board well to guide the company forward.”

Mr Radzyminski voted against the remuneration report and the re-election of Mr Eales – who survived despite a 37.6 per cent vote against him – and said the firm’s long-term remuneration structure was “prehistoric”.

However, he was pleased that Mr Formica had listened to shareholder feedback and had made the creation of a long-term program one of the first steps the incoming CEO would need to take.

“What’s clear is that they have heard the message from shareholders. Andrew has got his feet under the desk and wasted no time,” Mr Radzyminski said.

As for what should be the priorities of Magellan in the next six months, he said the firm needs to appoint a new CEO, whose remuneration package needs to reflect its current smaller size, put together a new long-term incentive program for staff and conduct “meaningful capital management”.

If that weren’t to occur then the company’s future as its own boss would become less clear.

“Based on how cheap the business is, you would have to see them as a target,” he said.

Originally published as First strike: Angry shareholders vent at Magellan AGM