Corporate power, Macq v Macq, preselection stoushes and Myer takeover
July 22, 2008
Here are Stephen Mayne's stories from the Crikey edition on Tuesday, 14 March, 2006.
1. Concentrated corporate power getting worse by the day
By Stephen Mayne, competition zealot
Barely a day goes by when some form of deal isn't struck that further concentrates Australia's already notoriously entrenched club of large and powerful corporate players. However, we really seem to be cranking it up at the moment.
Adam Schwab neatly deals with the inexorable rise of ABC Learning elsewhere in this edition, but consider the other developments over recent days.
Firstly, the Howard Government is effectively allowing a free-for-all on media ownership which will only serve to further entrench the power of Australia's two wealthiest families, the Murdochs and the Packers. As usual, the government has taken an approach that puts the interests of the big corporates ahead of the long-suffering consumer.
Then you have the collapse of Paul Stoddart's OzJet yesterday, again demonstrating how difficult it is to take on Qantas with its world-leading 60% local share and all those invaluable international connections.
And don't give me this "Australia can only support two airlines" rubbish. Melbourne-Sydney is one of the busiest routes in the world and OzJet was merely aiming to break the Qantas monopoly on providing a business service on this route. Sadly, it was all too hard, partly due to consumer apathy, the power of the Qantas loyalty programs and its entrenched presence at Australian airports.
Managing regulator and government relationships has long been a vital determinant of business success in Australia and Qantas is one of the past masters. Telstra has also been brilliant at it over the years, although Sol Trujillo's combative posturing might just see it cop a regulatory slap or two in coming weeks.
Graeme Samuel's approval of the revised Toll bid for Patrick is another dangerous development. Patrick and P&O have milked huge duopoly returns out of the waterfront since the 1998 industrial showdown and now this will be folded in with Australia's largest freight and logistics business.
For all the undertakings Toll has given, yesterday's $1 billion boost to the combined Toll-Patrick market capitalisation tells you one thing - investors think profits will surge as customers will be slugged even more by the new powerhouse.
Whilst the sale of Myer is a sad day for those who fret about spiralling foreign ownership of Australian assets, at least the deal reduces the market power of our grocery duopoly, a powerhouse unprecedented anywhere in the developed world.
Wouldn't it be nice to see some similar power reductions through BHP and Rio unloading some of their iron ore assets, Rupert selling a few newspapers, banks getting out of funds management, Leighton demerging its mining operations, Westfield disposing of some shopping centres and Telstra offloading Sensis.
As a small shareholder in most of the companies mentioned above, it's nice to see those surging returns, but let's not lose site of the importance of competition and the consumer in this debate. For too long corporate Australia has been dominated by a service sector oligopoly that does little more than live off the fat of cosy government concessions and a captive domestic market.
6. The Gray family takes over Myer
By Stephen Mayne
Gunns director Robin Gray never much liked Brian Quinn after the founding executive chairman of Coles Myer threw his considerable influence against the then Tasmanian Liberal Premier when he refused to liberalise shop-trading hours in the Apple Aisle almost 20 years ago.
Quinn finished up being jailed for fraud over renovations to his home but the sweet revenge was completed yesterday when Ben Gray, the son of Robin, fronted the press as the managing director of Newbridge Capital, the new owner of Myer.
Tasmanians should be very proud of their boy who joined a very exclusive club when he finished in the top 1% of his Harvard MBA intake. This led to a stellar career at CS First Boston which included working on some of the huge wealth-creating deals for Graeme Hart, such as the Burns Philp takeover of Goodman Fielder.
Whilst some analysts are saying Newbridge paid too much, they have played the politics very nicely. What should have been a media debate about an iconic Australian brand falling into foreign hands was instead portrayed as the Myer family reclaiming their baby.
Sadly, this is not actually particularly accurate. The Myer family already owned about 5% of Coles Myer, which after yesterday's surge to a record high of $10.49, is worth $650 million.
The family could very well have sold their stake in Coles Myer and bought back the 61 Myer stores on their own, but instead they've only dipped their toe in the water with an equity investment of "up to 10%" which will set them back "$50-$60 million". One seat on the board will give them sod-all power, yet it's a nice line for the media.
Finally, it's worse dwelling on Solomon Lew who must be feeling awfully stupid for not spending real money buying more shares to save his board seat during the 2002 proxy fight.
Remember the famous Terry McCrann column headlined "The rent pays off for the wisdom of Solomon" when he calculated in February 2003 that by renting rather than buying 45 million shares at $6.30, Solly saved himself $20 million when the shares hit $5.80.
Hmmm, after yesterday's record Solly was $189 million out of pocket from that blunder, yet still he has the temerity to use a spokesman to denigrate the Myer deal, claiming that it should have been worth $2.6 billion. Solly, you had the money to retain board control but you wimped it.
McCrann was also chipping Coles Myer CEO John Fletcher last week because he wanted to sell Myer and Target in 2002 but was stopped in part by the Solly campaign. Terry, because it was a demerger proposal, the value would not have been lost to Coles Myer shareholders. Most demergers have created enormous value for shareholders and that proposal could very well have done so too.
16. Colourful Labor connections and preselection stoushes
By Stephen Mayne
The AFR's Neil Chenoweth, one of Australia's best investigative reporters, has been following the colourful characters of Sydney for a couple of decades now.
His latest book, Packer's Lunch, is a cracking read pulling together a vast amount of anecdotes and loose ends from those who have sought to snare the odd crumb from the table of Australia's richest family over the years. However, it also delves into some lovely political tales. For instance, given all the drama of the recent Victorian Labor preselections, consider this passage from page 187:
Just after midday on Monday 5 September, the state secretary of the Labor Party, John Della Bosca, sat down for a feed with that estimable fellow, Phuong Ngo. The lunch was a thank you for Ngo's sterling work marshalling votes in the recent election for the Communications Workers Union, the union for which Graham Richardson's father had once worked. Indeed, it was Richardson, together with Leo McLeay, who had identified Ngo as an emerging force in Cabramatta the year before and persuaded him to switch over to Labor after he had first dallied with the Liberals.The Victorian ALP is being accused of all sorts of thuggery and dirty tricks, but they've never got anywhere near matching the NSW machine. All this talk about Sussex Street giving Kim Beazley three months to perform belies the fact that NSW is the most rotten and factionalised ALP branch in Australia and it has failed to produce a new crop of talented Federal MPs.
"Everyone wanted to believe in Ngo," an ALP source later tried to explain to The Sunday Telegraph. "He had this quiet way of talking and bowing his head – he oozes sincerity."
When Della Bosca had lunch with Ngo in September 1994, and the two men discussed Ngo's aspirations for a seat in state parliament, Della knew that Ngo was involved in a feud with the sitting member, John Newman. What he didn't know was that, nine hours later, Ngo would drive two men from the Mekong Club to Newman's home; then wait around the corner until the Member for Cabramatta arrived home and the men shot him.
Bill Shorten, Richard Marles and Mark Dreyfus will strengthen federal Labor. What contribution is Sussex Street making to Labor renewal?
24. Macquarie v Macquarie in AGL slug-fest
By Stephen Mayne, Macquarie Bank, AGL and Alinta shareholder
John Durie got stuck right into AGL this morning for launching its own too-cute-by-half takeover bid for Alinta which The AFR's Chanticleer columnist claimed was motivated by little more than ego.
As we remarked yesterday, it's very rare for two companies to agree that a merger is compelling but then fail to reach an agreement to accommodate the ambitions of the boards and management of both outfits.
It does indeed look like AGL is motivated to protect its $24 million investment in new CEO Paul Anthony and preserve the tenure of chairman Mark Johnson.
Then again, why would Johnson care about chairing a boring energy company when he is one of the co-founders of Macquarie Bank, is worth more than $100 million and knows all too well about the need for takeover battles to deliver good outcomes for shareholders?
Even more extraordinary is the fact that Johnson, as chairman of Macquarie Bank's investment banking division, is now engaged in an unseemly war with his own colleagues who are advising Alinta.
Sure, much of this wheeling and dealing is being driven by Alinta's ambitious American boss Bob Browning, but surely his Macquarie advisors could have got in Johnson's door to reach some sort of accommodation.
AGL yesterday sacrificed its CFO Greg Hayes by proposing that Browning would run the combined $4 billion infrastructure business, presumably from Perth, if its takeover and subsequent demerger proposal succeeds.
This presumably will give Hayes a juicy farewell cheque whilst avoiding the more embarrassing payout that Paul Anthony would have collected within weeks of arriving in the country.
We all remember Tom Park walking away with $10 million after just a few months' work at Southcorp because of the Rosemount reverse takeover, but giving Anthony $24 million would have topped that and reflected very badly on the AGL board which opted for the generous deal in the first place.
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