Executive Summary: November 09, 2009
By Scott Rochfort | smh.com.au | 09 November
Greg Goodman ... helping reorganise family assets.
CBD
The West's undoing, as seen by North Korea
It seems investors have been getting carried away with the idea that America and the rest of the developed world are in the early stages of an economic recovery.
The official North Korean news agency has warned that capitalism is actually on the brink of collapse, contrary to the propaganda pushed in Western media in recent weeks.
"The chaotic financial policy of the US aimed at weathering the financial difficulties created by its 'anti-terror war' only facilitated the collapse of the real estate market and deepened the financial crisis," reasoned the update from the Central News Agency of the Democratic People's Republic of Korea.
The report said the "imperialists and reactionaries [who] claimed that socialism failed and its idea was wrong" after the fall of the Berlin Wall were about to get their comeuppance.
"The catastrophic consequences of the 'globalisation' of capitalism and its collapse after the demise of the Cold War are an inevitable product of the unpopular and brutal nature of capitalism.
"This eloquently proves that capitalism based on individualism can never bring a genuine life, happiness and prosperity to the popular masses and it tolls its death knell," the article reported.
It went on to say that it was inevitable that individualism would eventually be replaced by collectivism. It said North Korean soldiers and people were full of "pride and self-confidence, joy of life and creative enthusiasm".
"The army and the people of the DPRK will surely emerge victors in the drive for building a thriving socialist nation true to the noble will of President Kim Il-sung and thus make the dignity and honour of Kim Il-sung's nation shine forever," it reported.
It is unclear what this means for interest rates in Australia.
Busy Goodman
The Goodman Group has noted that its chief executive, Greg Goodman, and his family, have offloaded the bulk of their stake in the company.
Late on Friday the property company described the sale of most of the stake of Greg and his brother Patrick (held through their family company) as "part of a family reorganisation".
The Goodman family company (Goodman Holdings) sold 69.6 million shares in the property group for $46.3 million, or about 66c each.
At least the Goodmans managed to turn a profit from the "family reorganisation". Goodman Holdings bought the 69.6 million shares at 40c each – a total of $27.8 million – as part of the company's recent, heavily dilutive $1.3 billion capital raising to pay down debt.
After taking up its entitlement in September under the one-for-one share offer, Goodman Holdings then sold its original 69.6 million shares (which entitled it to the cheaper stock) for $37.1 million.
It remains to be seen if the Goodmans will make another profit with the planned sale of their family's 66.6 per cent stake in the Moorabbin Airport Corporation.
The corporation took a 99-year lease over Moorabbin Airport from the Federal Government for $8.5 million in 1998.
In Friday's announcement, the company said it was eyeing the purchase (which will have to be approved by its shareholders) of a "substantial business park" owned by the Goodmans in Moorabbin in exchange for scrip.
This transaction will allow Goodman Holdings to retake a sizeable stake in the publicly listed Goodman Group.
The Goodmans will have another chance to have more options thrown their way at the upcoming annual meeting where shareholders will be asked to approve the granting of 8 million "performance rights" (valued at $4.5 million) to Greg Goodman.
Pity the company's shares continued to tank after last year's annual meeting.
At that meeting, shareholders happily approved the granting of 7 million options at $3.07 a pop to Greg Goodman.
All revved up
As ANZ staff were moving boxes in the bank's new $750 million headquarters in Melbourne's Docklands last week, the neighbours were already feeling a little put out.
As part of efforts to secure the top-of-the-range six-star rating for the giant building that houses 6500 staff – more than the population of Cootamundra – there are only 120 car spots.
This is apparently aimed at encouraging the chai latte-sipping, black skivvy-wearing ANZ staffers in Bleak City to ditch the SUV and catch a tram or ride their bike to work.
The problem is, not many ANZ staff have taken up this option. With limited parking stations around, ANZ's new neighbours, Axa Asia Pacific and Medibank, are finding it a little tougher to nab their usual spot.
"There goes the neighbourhood," one Axa staffer sighed as the ATM with legs that features in the ANZ ads was being unloaded off the back of a truck.
Still the ANZ workers, whom CBD recently revealed would have to use a debit card to operate the office candy machines, now have much to look forward to in the summer months.
The brown waters of the Yarra River will be pumped through the building to help with the cooling. "This move is historic because it marks a new era for ANZ," remarked the bank's chief executive Mike "007" Smith in a press release.
Africa calling
Seems the Wesfarmers-owned Coles supermarket chain is not content with the management on offer in Australia.
After already recruiting a Scottish managing director who shares his name with a brand of whisky, Ian McLeod, and a Pommy chief beancounter, Tony Buffin, Coles is sniffing for talent in South Africa.
It appears keen on filling its ranks with more imports right down to store manager level. One CBD informant said Coles had made some very attractive offers to at least 10 South African price checkers to come to Australia.
The spy said they had been given the option to come over and have their return relocation expenses covered if they ended up getting a little homesick after 12 months.
A Coles spokesman, Jim Cooper, confirmed the group was "looking to engage a few people from South Africa".
"We have been looking for talented executives to come into our operational executive team."
But he said in the larger scheme of things it was far from a South African retail invasion.
Noting that Coles had already promoted 125 store managers in recent months, he said the company had 6000 managers in its ranks.
The South African imprint on the retailing sector is already sizeable. Franklins is owned by the South African retailer Pick n Pay.
And the wholesaler Metcash's ranks are filled with South Africans.
Its chairman, Carlos dos Santos, lives in the rainbow nation and its chief executive, Andrew Reitzer, and finance director Edwin Jankelowitz hail from Johannesburg.
The clothing retailer Country Road is majority owned by South Africa's Woolworths International.
Athlete's Foot franchisee RCG Corp's executive chairman, Ivan Hammerschlag, and beancounter Michael Hirshowitz also hail from South Africa.
Still, this columnist has not yet seen any biltong on sale at his local grocery yet.
Got a tip? email srochfort@smh.com.au.
Insider
Edited by Jamie Freed
All eyes on Orica's demerger strategy
Orica will signal this morning whether it thinks the timing is right to proceed with a $1 billion spin-off of its consumer products division or if the market outlook remains too uncertain.
Orica had put plans for the demerger on ice indefinitely last November in light of the global financial crisis, but in recent weeks it has hinted the option could be resurrected sooner rather than later.
It will be expected to provide an update when it publishes its annual results today. After all, CSR now thinks market conditions are strong enough to allow it to proceed with a planned demerger of its sugar division in March.
Notably, Goldman Sachs JBWere and Lazard are advising on that deal.
Last year GSJBW had advised Orica on its planned demerger, and perhaps its recent work with CSR could help convince Orica the timing is right for the consumer products spin-off as well. Orica's consumer products division includes Dulux and British Paints and the Selleys range of home-repair products.
A recent survey of the paint market conducted by JP Morgan found the division's performance remained resilient in uncertain economic times.
Although sales had shifted towards do-it-yourself buyers and away from trade buyers, its customers remained loyal to its major brands.
In addition, Orica had at least maintained, if not improved, its market share in the past 12 to 18 months because Nippon Paint's entry into the Australian market had primarily hurt Taubmans and Wattyl.
JP Morgan expects the consumer division's earnings will have declined by only 3 per cent this year.
Orica is expected to provide an optimistic outlook for its core explosives business in light of a recent rebound in mining – particularly coal.
However, its North American division, which largely services the struggling domestic coal market in the US, is not expected to perform as well, and the higher Australian dollar could also prove a headwind.
Bumpy roads
Transurban Group has not been the only beneficiary of a $6.8 billion offer from Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan.
The $5.25-a-share bid, deemed too low by most analysts and fund managers, has turned the spotlight on potential hidden value in another toll road operator, Macquarie Infrastructure Group.
MIG shares rose 7.5c, or 6 per cent, to $1.375 on Friday. MIG is about to split into Mature (good) MIG and Active (bad) MIG.
The jewel in the crown of the good portfolio, Canada's 407 tollway, has a concession that lasts until 2098 and is entitled to market-based tolling.
Therefore, UBS thinks good MIG should trade at a "material premium" to Transurban, whose concessions on its Australian roads expire within 20 to 30 years and have pricing agreements linked to inflation.
Transurban and MIG co-own an asset, the Westlink M7, which would potentially give MIG a pre-emptive right over Transurban's stake if it was taken over by the Canadian funds.
The M7 is expected to fit alongside the 407 in good MIG, whereas all of MIG's other assets will be left under Macquarie Capital's management in bad MIG.
But even if MIG is given the opportunity to exercise a pre-emptive right over the M7, most think it would be unlikely to do so.
MIG had made an unsuccessful attempt to sell its then-50 per cent stake in the road to Transurban for $805 million earlier this year.
Instead it sold half of its interest in the road to Queensland Investment Corp's infrastructure fund for $402.5 million.
Merrill Lynch thinks MIG's inability to sell its entire stake at that time means it is not expected to be a likely buyer of Transurban's 50 per cent stake in the road, while Macquarie Equities notes it is unclear how the purchase would be funded.
J.P. Morgan has assumed that MIG will leave only $50 million of cash in good MIG after the split, the remainder being placed in bad MIG to help with upcoming refinancings along with a 10c a share distribution to shareholders.
MIG is expected to complete its split and the changes to its management structure after a shareholder meeting in January or February.
ConnectEast shares also rose on Friday, to close 2.5c, or 6 per cent, higher at 42.5c on speculation that the proposed offer for Transurban could lead to corporate activity.
However, UBS warned that idea was likely to be overplayed.
Shopping spree
Now that it appears the worst is over in the US shopping centre sector, some think Westfield Group could shift its focus from development projects to acquisitions.
Deutsche Bank said it was likely that any portfolio on offer would include a proportion of assets with low strategic value or growth options, but added that should not be an impediment, subject to due diligence and pricing.
There has been plenty of speculation that Westfield and its rival Simon could be interested in buying assets from the US mall owner General Growth Properties, which is trying to emerge from bankruptcy.
GGP published its quarterly results on Friday and reported tenant sales were down 4.6 per cent in the September quarter compared with the same period the previous year.
But in September tenant sales rose 0.8 per cent from the like-for-like figure in September last year.
In addition, it has been able to bargain down the price of cleaning and security contracts.
In a possible catalyst for a relatively quick sale or recapitalisation, GGP's management team will be given large bonuses if they can get the company out of bankruptcy by next June.
Simon's recently published third-quarter earnings results were also deemed encouraging after the company beat consensus expectations by 3.7 per cent.
Simon's results are typically a good proxy for Westfield's performance in the US.
About 30 per cent of Westfield's portfolio is in the US, with the rest in Australasia and Britain, so any turnaround in North America will prove a boost to the company.
Westfield is due to publish its third-quarter update on Thursday.
First published by Smh.com.au on November 09 2009
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