Executive summary: September 16, 2009
By Scott Rochfort | smh.com.au | 16 September
Sol Trujillo...gone but not forgotten, especially by shareholders.
CBD
Trujillo's words are like bullets
It is finally time to roll out the "Mission Accomplished" banners for Telstra's former chief freedom fighter, Sol Trujillo.
Sol's dogged campaign to highlight the evils of government regulation and attempts to fend off the meddling federal Communications Minister, Stephen "Saddam" Conroy, finally appear to have borne fruit.
The telco had already fumbled its application to help build the national broadband network. Yesterday the Rudd regime announced its intention to push for the break-up of the telco into two separate companies.
It is just a shame Sol is no longer around to see what could be the biggest split the telco has faced since the traumatic wardrobe malfunction of its former government-basher, Phil Burgess, at a speech in 2007. Let's hope Sol's replacement, David Thodey, remembers to pack a flak jacket at the annual shareholder meeting.
At last year's meeting Sol noted how the break-up of the telco could be the "most value-destructive step the company could take". "Shareholders should shoot management if they ever agree to something like that," he noted.
Thodey will have a lot of grovelling to do in the lead-up to the shareholder meeting in November. But it is good to see he has already got the ball rolling.
"We are actively and constructively engaged with the Government," Thodey said in a statement to the market yesterday, adding that Telstra supported the Government's broadband network vision.
No wonder he's flush
Peter Crowley, the managing director of the Caroma toilet maker, GWA International, has taken out this week's award for the best wage break-out. Crowley received a 18.4 per cent rise in his base pay to $1.38 million.
His total pay rose about half a million dollars to $1.98 million. Crowley's base pay rise was so impressive that it even grabbed the attention of the ACTU secretary, Jeff Lawrence.
"Working Australians fail to understand how CEOs like BHP Billiton's Marius Kloppers or GWA's Peter Crowley can pocket double-digit pay rises at a time when hundreds of thousands of workers have lost their jobs, had their hours cut back or been denied a pay rise because of irresponsible corporate behaviour," Lawrence said.
In what could be the first time a senior toilet executive has been drawn into the international debate over corporate largesse, Lawrence added: "It is essential that this excessive executive remuneration is wound back."
Garden harvest
BHP Billiton's London-based head of base metals, Andrew Mackenzie, must be pretty pleased about the contractual arrangements he signed when he agreed to jump ship from Rio Tinto (and take a year's gardening leave) in November 2007.
To compensate Mackenzie "for part of the value forgone under the at-risk remuneration arrangements" at Rio, BHP paid him a £1 million upfront cash payment, a "conditional right to receive cash sums on two phantom awards" and additional shares under the long-term incentive plan.
This helped leapfrog MacKenzie's pay for seven and a bit months to $US4.96 million. His base pay over the period was $US549,106. One wonders what sort of bonus Mackenzie would have foregone at Rio Tinto (which still has an executive salary freeze), given the miner's disastrous year.
BHP's former chief executive, Chip Goodyear, also appears to have copped a grilling from Britain's tax man following his exit in January last year.
"Mr Goodyear reached an agreement with the tax authorities regarding settlement of the tax liability," notes the BHP annual report. The inquiry "arose" as a result of Chip's role being spilt between the Australian-listed BHP and the British one.
The miner lent $US1.3 million to Chip (who at the time held about 1 million BHP shares) to help him sort out the bill. BHP's chairman, Don "Don't Argue" Argus, also seems to have dodged the slump in commodity prices, with his pocket money rising from $US920,475 to $US1.14 million for the year to June 30.
His retirement entitlement, however, shrank to $US1.53 million. Don't Argue will have to make do on the dividends from his 321,890 BHP shares (worth $12.3 million).
Key indicator
BHP's chief executive, Marius "The Klop" Kloppers, still managed to get 53 per cent of his maximum eligible short-term bonus despite the commodity slump.
In his key performance indicator scorecard the Klop was below target on health and safety, reflecting the miner's "disappointing safety performance", and below target on the group's earnings.
The miner had seven fatalities last year. He scored well, however, on "capital management", something his counterpart at Rio, Tom Albanese, probably didn't do too well at during the year.
Another key performance indicator that did well was his wage. His total remuneration for the year went from $US6.9 million to $US10.4 million.
Got a tip? email srochfort@smh.com.au
Xchange
Edited by Jamie Freed
Primary Health Care asks market for another bandage
Primary Health Care was last night tapping the market for at least $180 million to help get the final sign-off on a $1.2 billion debt package.
The bookbuild, managed by Deutsche Bank, was said to be covered at levels above the $6.03 floor price, which itself represented a 5.5 per cent discount to yesterday's closing price.
Primary shares rose 12c to $6.38 yesterday before it launched the issue after the market closed. It is perhaps surprising it was so easy to complete the raising in light of the accompanying – and also underwritten – sale of 11.6 million shares worth at least $69 million by Primary's managing director, Ed Bateman.
His stake will fall to 7.4 per cent from 10.5 per cent. The raising, meant to reduce gearing to 28 per cent from 34 per cent, was undoubtedly encouraged by Primary's lending syndicate.
Primary last week signed a term sheet with NAB for $1.2 billion of debt to replace a facility expiring in February. NAB signed for a $500 million commitment and has begun co-ordinating a syndication process. Deutsche is understood to have agreed to chip in $125 million.
Primary will look to raise up to $20 million from retail investors via a share purchase plan as part of the raising. There appears to be few obvious recapitalisation candidates remaining in the health-care sector following Sigma's $297 million raising last week.
However, Sonic Healthcare, which has $405 million of debt due in April and is looking for acquisitions, could be one notable exception.
Chance for Foxtel duo
What is bad for Telstra could be good for its co-owners in Foxtel, News Corp and Consolidated Media (CMJ).
Or at least that is the way the market interpreted the Federal Government's telecommunications reform announcement yesterday, with Telstra shares falling amid plenty of special crossings between institutions and News and CMJ shares both rising.
If Telstra does not decide on a structural separation, which could take the form of a demerger, it will not be allowed to hold onto the Foxtel stake and the hybrid fibre cable network if it wants to get access to additional spectrum for advanced wireless broadband.
That would make it a likely seller of those assets, and the Government has set a 12-month timeframe for those divestments. The Government remains open to the possibility of Telstra keeping those assets if it voluntarily separates its retail and network divisions.
But some market players think that in that situation, as part of Telstra's attempts to reinvent itself, it might still see better value in selling the Foxtel stake and the cable network for cash since they are effectively peripheral assets.
News and CMJ own a combined 50 per cent of Foxtel through a joint venture which has preemptive rights over the remaining half held by Telstra. They are both likely to be eager to increase their exposure to Foxtel and would therefore end up as 50/50 partners if Telstra sold its $2 billion stake.
News has plenty of cash. And CMJ's major shareholders, James Packer's Consolidated Press and Kerry Stokes's Seven Network, could easily stump up the funds to support a CMJ rights issue.
Foxtel would then be a logical buyer of Telstra's cable network, estimated to be worth about $2.2 billion, because that would allow the pay TV provider to bundle TV and broadband internet services like operators do in other markets such as the US and Britain.
Alcan in the can
After two years of attempting to offload the $US4 billion ($4.7 billion) Alcan engineered products business, Rio Tinto has finally had a small victory.
It has sold 56 per cent of the cable division to Platinum Equity from the US, marking the first time it has entered an agreement with a private equity partner. When Rio first put the Alcan engineered products and packaging divisions on the market, it was expected that both could go to private equity.
But the credit crunch meant it was able to sell most of the packaging division in two separate chunks to trade buyers Amcor and Bemis only very recently.
The sale price of the majority stake in the cable business was notably absent from Rio's announcement yesterday trumpeting the deal, so it is fair to say it was sold for peanuts compared to Rio's other asset sales.
Alcan's financial disclosures before it was bought for Rio said that the cables group was responsible for about 10 per cent of the engineered products group's revenues. On that basis, the chunk of the cable division offloaded by Rio would represent just $US120 million or so of the engineered product division's sales last year.
Rio will consider the sale of other engineered products divisions on an individual basis, but that isn't an easy task now.
FIRB woes for Ramelius
Investment applications from state-backed Chinese entities aren't the only ones that are being processed rather slowly by the Foreign Investment Review Board.
The locally listed Ramelius Resources's application to buy shares in Dioro Exploration as part of a takeover bid has had to be resubmitted after the FIRB failed to make a decision within 30 days, so as not to trigger a 90-day extension. The reason? Canada's Sprott Asset Management owns more than 15 per cent of Ramelius.
Sprott isn't linked to the Canadian Government, so the delay in processing the application appears baffling. Ramelius said it was told the FIRB was simply dealing with a backlog of other applications.
The FIRB has recently asked China's Yanzhou Coal to resubmit its application for permission to buy all of the coalminer Felix Resources. It also made China Non-Ferrous Metal Mining resubmit its application for a 51 per cent stake in the rare earths miner Lynas Corp for a third time.
xchange@smh.com.au
BUSINESS FOCUS
China reacts to US tariff
China has filed a complaint with the World Trade Organisation and said it will investigate whether US chicken and car products are being dumped in China at below-market prices or receive unfair government subsidies after the US imposed import duties of 35 per cent on tyres imported from China. The US President, Barack Obama, said his decision to impose the tariff would not threaten trade between the countries.
Sino Gas in weak debut
Beijing-based Sino Gas & Energy debuted on the Australian Stock Exchange at a discount to its IPO price yesterday. The stock closed at 18.5c, after the group last week raised $7.9 million through the issue of 31.6 million shares at 25c.
Copenhagen cash call
Copenhagen Airport, 27 per cent owned by Macquarie Airports, will have to invest more than $100 million a year for the next five years in infrastructure and facilities as part of a deal with the Danish Government. The deal allows the airport to increase charges to users by 1 percentage point more than the local rate of inflation for four years after March 2011.
Eircom deal approved
Eircom shareholders have voted to support a capital return of $134 million - equal to 80c a share - by the ASX-listed fund. The move comes a day after the former telecoms investment arm of Babcock & Brown agreed to a takeover deal from ST Telemedia, part of the Singapore group Temasek, which is worth a further 53.5c a share for investors.
Housing starts tumble
The number of new housing starts has hovered near eight-year lows for the second straight quarter as the building sector continued to feel the pressure of high borrowing costs. Starts in the June quarter fell 3.7 per cent to 30,411 units, from an upwardly revised 31,566 units in the March quarter, the Bureau of Statistics reported.
First published by Smh.com.au on September 16 2009
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