It is no secret that James Packer and outgoing Channel Ten executive chairman Nick Falloon aren’t the best of friends. Falloon was a vocal (and justified) critic of Packer’s decision to invest in Jodee Rich’s fledgling One.Tel, which ended up costing PBL more than $300 million after the company collapsed. The younger Packer soon had his revenge, with Falloon being sacked as managing director of PBL in 2001, not long after he had been granted a $9 million options package by shareholders.

Shortly after leaving PBL, Falloon was appointed executive chairman of Ten in February 2002 and for several years, did a reasonable job of managing the low-cost network. However, Ten’s performance in recent years has been poor. While its share price rose from $2.24 in January 2003 to $4.50 by 2005, it has been weak ever since, dropping to only 62 cents during the GFC, as major shareholder CanWest was forced to sell its stake in the network.

Ten’s share price has recovered somewhat to $1.49, but still sits well below what it was when Falloon was appointed.

Despite Ten’s somewhat insipid share returns, Falloon has been extraordinarily well remunerated, receiving more than $26 million during his tenure. Despite moving to a “part-time” role in September 2008, Ten’s annual report (released yesterday) indicated that Falloon was paid $3.7 million in 2010 (including an unexplained $900,000 payment by CanWest in relation to its sell down of its 50.06% stake in Ten).

In 2009, Falloon was paid $1.9 million for his part-time role. One shudders to think what Falloon would have received had he been a full-time employee and had Ten not been a serial under-performer.

Not only was Falloon paid $3.7 million for a part-time role, but Fairfax reported last week that he had “been secretly working on a management buyout of the television network before James Packer pounced on 18% of the shares in a lightning sharemarket raid”. It was alleged that Falloon had been working with his predecessor at PBL, Brian Powers (now at San Francisco-based private equity firm Hellman & Friedman), to buy Ten from shareholders.

Management buyouts create an almighty conflict of interest. As anyone who has read Barbarians at the Gate will attest, management (in this case Falloon) would have been trying to minimise the buyout price (to maximise their own profits). By contrast, shareholders will wish to receive the highest possible price for their shares. That means shareholders are paying management millions of dollars each year to use their time to act against their very own interests. In this respect, private equity mogul Henry Kravis, who was a key player in the 1989 buyout of RJR Nabisco (which was dramatised in Barbarians at the Gate), famously claimed that Nabisco CEO Ross Johnson was “trying to steal the company” with a low LBO price.

It was this conflict of interest between executives and shareholders during a buyout that led to the departures of former Alinta chairman John Poynton and CEO Bob Browning after the pair teamed with the company’s investment adviser, Macquarie Bank, to try to privatise the business in late 2006.

Regardless of the bad blood between Packer and Falloon, the latter’s alleged LBO plotting, coupled with the extraordinary remuneration received, meant that his position at the struggling network was untenable. Packer’s arrival merely hastened the exit.