KEY POINTS:
Are the top Tourism Holdings executives being given an incentive to work in the best interests of all shareholders? This is a question shareholders in the tourist attraction company are entitled to ask after revelations that chief executive Trevor Hall and two other executives stand to share an $800,000 bonus for the successful takeover of the company by Australian company MFS Living and Leisure.
This isn't the standard executive change of control clause, to the effect that if the company is taken over executives receive a payout. Instead, this bonus is related to a takeover specifically by MFS.
According to the target company statement: "An understanding exists to the effect that certain senior executives of Tourism Holdings will receive bonuses to compensate them for work done in respect of the offer and in respect of an earlier proposal to sell a division of Tourism Holdings." They will also be a paid a smaller, but unspecified, bonus if the takeover fails.
That gives Hall and the others an obvious incentive to support the takeover bid.
True, it's the independent directors who decide whether to recommend a takeover to shareholders - and in this case they've told Tourism Holdings shareholders to accept.
But in assessing an offer, the directors rely not only on the report by independent experts, but also on management for updates on how the company is performing and its potential.
This is not to suggest that Hall and others have done anything untoward. Indeed, those who've sought information from Tourism Holdings management say they've played it straight down the line.
And the fact that the bonus was disclosed obviously reduces the chance that the conflict of interest would be acted on. But it still doesn't seem quite right.
Investors should never have any reason to doubt that those managing the companies they've put their money into are doing anything but trying to increase earnings.
The disclosure of the bonus is unlikely to assist MFS in its takeover bid. Being conditional on winning 90 per cent of the Tourism Holdings stock, the bid is an easy one to block.
Already, fund managers don't find the $2.80 a share offer - below the midpoint of Ferrier Hodgson's $2.67 and $3.07 valuation in its independent report - compelling. One privately suggested this week that the revelations of the incentives might be enough to sway him to reject the bid. Others may follow suit.
Even putting aside the potential conflict of interest, why were Hall and chief financial officer Ian Lewington and chief operating officer of the Tourism Leisure Group Grant Webster being paid to do this work?
Hall argues they put a lot of extra hours into assessing a proposal that it sell some of its leisure operations to MFS and working on the takeover bid, which they should be compensated for. But they are arguing that they were effectively doing a second job. Surely they were already working flat out doing their best for Tourism Holdings.
