Lead Manager

SECTION 3
BUSINESS OVERVIEW
Case study Carillon
Carillon Development Limited (Carillon) was a small, publicly listed Australian company with a portfolio
of diversified assets including a self-storage business, a chain of stationers, a share-investment portfolio
and a series of development property investments.
Carillon’s shares traded infrequently and at a significant discount to intrinsic value. The company’s
corporate structure was complex, with the controlling stake held in a series of cascading public and
private unlisted companies, controlled by a family. The family was a willing seller but required the
transaction to be structured efficiently from a capital gains tax perspective. A number of parties
interested in acquiring the company had approached the controlling shareholder but were unable to
structure a transaction that met its tax requirements, while complying with the Corporations Act.
Babcock & Brown was able to design an innovative acquisition structure which met both the vendor’s
requirements and those of the Corporations Act. In July 2000, Babcock & Brown made a $58 million cash
takeover offer and gained full ownership in October 2000. Babcock & Brown’s bid was more than 60%
higher than the last pre-bid trade while still being well below intrinsic value. Babcock & Brown was able
to acquire the company at this discount as its acquisition structure delivered sale proceeds to the vendor
family in a capital gains tax efficient manner.
Babcock & Brown financed the transaction with bank debt and its own funds, which were both repaid
within six months with proceeds from the liquidation of the company’s share portfolio and the sale of
operating businesses. This left Babcock & Brown with the excess cash in the company, and property.
Funds Management
The Group’s Funds Management activities are focused on partnering with high quality fund managers in niche
sectors, as opposed to forming vehicles in which Babcock & Brown will take an active management role, such as
Prime Infrastructure.
Babcock & Brown has taken an opportunistic approach to developing its business in this area by investing modest
amounts of capital to seed funds and then assisting the fund managers to raise additional capital, from Babcock &
Brown’s private investor clients.
Examples of funds that Babcock & Brown has co-founded are listed below:
Alpha Funds Management
Babcock & Brown is a co-founder and co-owner of Alpha Funds Management, a wholesale equities fund with
investments in listed Australian companies. Alpha had approximately $3.0 billion of funds under management as at
30 June 2004 and has outperformed its benchmark index since inception in October 1998.
Optimal Japan Fund (OJF)
In 1999, OJF was launched as a hedge fund to invest in Japanese-listed equities, taking both long and short
positions. As of 30 June 2004 Optimal Fund Management managed approximately US$434 million. OJF has
returned an annualised 13%, net of fees, since inception versus an annualised decline of more than 6% for the
benchmark Topix index over the same period. OJF’s performance consistently ranks at or near the top of its
category of hedge funds.
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