Babcock & Brown

Infobox_Company
company_name = Babcock & Brown Limited
company_
company_type = Public (asx|BNB)
company_slogan =
foundation = 1977
location = flagicon|AUS Sydney, Australia
key_people =

Michael Larkin (CEO)

Elizabeth Nosworthy (Chairman)

Jim Babcock (Co-founder)
industry = Real Estate, Infrastructure & Project Finance, Structured finance, Private Equity, Corporate Finance, Operating leasing
num_employees = 1,000
products = Listed property funds, Listed infrastructure funds
revenue = $1.29 billion AUD (2006)
homepage = http://www.babcockbrown.com/|

Babcock & Brown (asx|BNB) is a global investment and advisory firm based in Sydney, Australia. It is best known in financial markets for structured finance deals. The company has 28 offices and in excess of 1,500 employees worldwide. Although headquartered in Sydney, it has a significant presence in Europe and the United States. Nicknamed the "Mini Macquarie", [ [http://www.abc.net.au/lateline/business/items/200608/s1723593.htm Lateline Business] - Australian Broadcasting Corporation] [ [http://www.abc.net.au/pm/content/2006/s1648695.htm Babcock and Brown CEO salary deal attracts investors] - PM, ABC Local Radio] [ [http://www.smh.com.au/news/Business/Bad-hair-day-for-Lend-Lease/2005/02/17/1108609347040.html Bad hair day for Lend Lease] - Business, The Sydney Morning Herald] [Whitney Fitzsimmons - Midday Report, ABC TV, 1 August 2007 ] it is a company frequently compared with larger competitor Macquarie Bank. As at December 2006, it had a market capitalisation of just over $8.5 billion. 45% of its shares are owned by the executives of the firm.

History

The Company was founded in 1977 by James Babcock and George Brown in San Francisco. Babcock remains the company's Executive Chairman. He opened a Sydney office in 1982 and largely operated as a corporate advisory firm focused on aircraft and other equipment leasing until the early 1990s. It entered the real estate market in Sydney at that time enjoying considerable success.

Its focus from advisory work to the investment management continued until a German bank Bayerische Hypo und Vereinsbank invested US$120 million in return for a 20% stake. It used those funds and third-party funds they raised from clients to invest directly in a wide variety of investments, as both co-investor and principal.

Organisational Structure

The investment firm now regards its three business functions as financial advisory, principal investment on its own account and funds management. It is a global business with 33% of its revenues coming from the United States, Australia generating 31% and Europe 36%.

In 2005 its Real Estate Group generated 36% of the company's net revenue, this division makes investments on behalf of the company itself and also property focused managed funds that it has organised. It has had considerable success in property investments in Japan and Germany.

In infrastructure and project finance, an area in which Macquarie Bank is probably best known in Australia it has emerged as a significant investor in a range of power, transport, water and Public-private partnerships. Starting out in England with PPP projects, this part of B&B's business now generates 24% of the company's net revenue. In 2004, it established Prime Infrastructure, an ASX listed infrastructure fund containing coal distribution and related assets.

It also has an operating leasing business (Babcock & Brown Aircraft Management) which generates 24% of net revenue and manages around 300 leased commercial jets for airline clients, in a portfolio worth approximately US$8.1 billion as at 1 June 2008, one of the largest portfolios of commercial jets in the world.

B&B's "bread and butter" business has been its role as an adviser in structured finance, including leases, debt placement for large leases, hedging, securitisation for businesses looking to lease equipment essential to their business in the most tax effective and low cost way possible. In addition to its operating leasing business which actually finances such equipment, B&B is one of the world's leading advisers in that space as well, putting it in a strong market position. It is considered the market leader in the United States and the United Kingdom in this area. The structured finance advisory business generates 23% of the company's net revenue.

The company had a highly successful listing on the Australian Stock Exchange in 2004 where it raised over $550 million in new capital.

Acquisitions

In August 2006, managed fund Babcock & Brown Capital announced that it had completed a 65% acquisition of Irish telecommunications company eircom Group plc., with its partner the eircom Employee Share Ownership Trust Limited (ESOT) holding the remaining 35% of eircom Group.

In March 2007, Babcock & Brown led a consortium to attempt to buy the Australian energy company Alinta Ltd. The takeover by a scheme of arrangement was supported by the Alinta Board.

In August 2007, Babcock & Brown acquired over 49 percent of Benex, a subholding of Hamburger Hochbahn, Benex operates public transport buses and trains outside the Hamburg region. The Hamburger Hochbahn, fully owned by the federal state of Hamburg thus separated its original business from new contract business outside. Benex is to expand. [ Babcock & Brown steigt bei BeNEX ein [http://benex.de/index.php?id=21&language=1] Benex press release (15. August 2007) (German) ] .

In the Irish Independent [ Irish Independent Article (20-July-07) [http://www.independent.ie/national-news/owners-of-eircom-to-net-euro18bn-in-breakup-1040455.html] ] it has been reported that eircom's owners Babcock and Brown are planning to break up eircom Group plc. Retaining the core backbone Network Wholesale Division and selling the eircom Retail and Mobile (Meteor) Divisions. It is reported that the retail arm of eircom could be worth €1bn and Meteor could be anything around ~€800m.

Debt problems

Babcock shares fell 27% on June 12, 2008 due to fears about the debt levels of it and its various satellite funds. The plunge triggered a debt covenant when its market capitalisation fell below $2.5 billion (roughly equivalent to a share price of $7.50), allowing its lenders to review the company's financing arrangements. [cite web|url=http://www.news.com.au/business/story/0,23636,23851655-31037,00.html|title=Babcock & Brown shares plunge on debt woes|publisher=news.com.au|date=2008-06-12|accessdate=2008-06-20] [cite web|url=http://www.forbes.com/feeds/ap/2008/06/16/ap5120162.html|title=Babcock and Brown faces bankers|date=2008-06-16|accessdate=2008-06-20|publisher=Associated Press] Some of the satellite funds, who have suffered similar falls in share prices, have responded by cutting their dividends and selling assets in order to repay debt. [cite web|url=http://business.smh.com.au/fresh-blow-for-babcock-as-funds-slash-payouts-20080619-2tks.html|title=Fresh blow for Babcock as funds slash payouts|date=2008-06-20|accessdate=2008-06-20|publisher=Sydney Morning Herald]

On August 19, 2008, the company's stock price was down 23.5% due to speculation about being forced to sell assets to cover bad debts, and caused the company to place itself into a trading halt and receive a price query from the Australian Stock Exchange. The company then announced board and management changes, including the stepping down of CEO Phil Green, and noting a sharp 30% drop in profit and the announcement of no dividends [cite web|url=http://business.theage.com.au/business/babcock-down-green-out-20080821-3z6o.html|title=Babcock down, Green out|date=2008-08-21|accessdate=2008-08-21|publisher=The Age] . On August 21, 2008, its share price collapsed a further 36% to end at $2.22 , a record low.

The company (September, 2008) is in the process of selling some of its non-core businesses and assets as well as reducing its workforce in order to streamline its operations.

References

External links

* [http://www.babcockbrown.com B&B's Corporate Websites]
* [http://www.iht.com/articles/2006/02/22/bloomberg/sxbab.php B&B Move On Eircom]
* [http://sg.biz.yahoo.com/060314/15/3zcs5.html Possible Takeover Bid for Eircom]