Executive Summary: November 10, 2009
By Scott Rochfort | smh.com.au | 10 November
CBD
Stokes strokes his pals at Consolidated Media
The bulldozer salesman and Seven Network executive chairman Kerry Stokes could barely contain his excitement yesterday over the blossoming of one of his new investments – and friendships.
When describing his company's 21 per cent stake in the 43 per cent Packer family-owned Consolidated Media Holdings, Stokes got all gooey.
"I'm pleased to report our two companies are united in our support for Consolidated Media's plans for the future," Stokes told Seven's annual meeting of the 25 per cent owner of Foxtel.
So any hatchets with CMH's fellow shareholder, James Packer, seem to be buried. Notwithstanding the recent exchange of four-letter words between Packer and the Seven chief executive, David Leckie, at a lunch.
Stokes reflected that, apart from a tiff with James Packer about 10 years ago, his relationship with Packer had been a good one.
As for the recent blue between Packer and Leckie at former Channel Nine boss Sam Chisholm's 70th birthday lunch, Stokes said Leckie was passionate about the business, and he noted "it gets him into trouble now and then".
Joint statements
Also at the Seven Network meeting, Leckie responded robustly to questions about his health after a report his dicky knees have put a two-year deadline on his career as chief executive.
"My health's fine," he growled, before he relayed the Sunday morning phone call from his news head, Peter Meakin.
"He said, 'If your knees are giving you a pain it's nowhere near as much pain as you are giving us'," Leckie recounted.
The Seven chief has bounced back strongly from an incident last year when he was put into a coma after getting a serious infection following an operation on his left index finger.
He had caught the finger in a garage door. His middle finger was not injured.
Too c-amp–ese
Melbourne is not so Aussie rules-centric after all. The Melbourne Docklands-headquartered AXA Asia Pacific Holdings was well prepared for a takeover bid from AMP yesterday, when it came out of the blocks with its defence (dubbed internally) as Operation Rugby.
AXA Asia Pacific's fund management partner AllianceBernstein Australia also packed down with its use of rugby terms.
It's chief executive, Michael Bargholz, rallied his team at the group's Governor Phillip Tower office yesterday morning. But Alliance seems to be using a few technical code words that could bamboozle its Melbourne-based friends at AXA Asia Pacific.
The Craig Dunn-headed AMP has been given the codename Campese (after the 1980s goose-stepping Australian rugby star), while AXA Asia Pacific's French shareholder AXA SA has been given the name Blanco (after the French winger).
In turn, the Andrew Penn-headed AXA Asia Pacific has been codenamed Lynagh, after the Wallaby goalkicking legend of the 1980s.
Daiwa Securities, however, has stuck to using Japanese sporting terms.
The Daiwa analyst Johan Vanderlugt said in a note AXA Asia Pacific and its French parent, AXA SA, "have been what in judo terminology is known as kansetsu waza, a joint locking position".
Packing light
The Webjet board must be preparing for an expensive overseas holiday. The online travel website yesterday disclosed its chairman, Allan Nahum, had offloaded the bulk of his remaining holding, or 700,000 shares, for $1.27 million.
A fortnight ago Webjet's managing director, David Clarke, made about $420,000 after exercising 570,000 options.
Clarke made the transaction the day after his company issued an excitable notice to the market: "Webjet growth rockets!". Webjet shares hit an all-time high of $2 and closed 10 per cent higher that day.
Clarke exercised all his 250,000 options priced at 70 cents a share and 320,000 of the 750,000 options priced at $1.34 that are not due to expire until March 2012.
"Whilst overall industry and economic data remains uncertain it is clear our current marketing activities are resulting in a trend which is massively better than the general travel market," blurted the Webjet announcement, just the day before Clarke exercised his options.
Another Webjet director, Chris Newman, sold down his stake from 1.17 million to 1.1 million shares in August, cashing in $100,990.
Court disagrees
Drillsearch Energy yesterday won its latest legal challenge, with the NSW Supreme Court throwing out a statutory demand over three bills charged from an adviser appointed by the company's former managing director David Williams.
The Max Carling-headed Carling Capital Partners had slapped Drillsearch with a hefty bill for services provided to its former management.
One invoice, billed at $450 an hour, was for helping draft and complete an 18-page PowerPoint presentation which the dumped Drillsearch chairman Peter Simpson gave at a conference in April.
The 36 hours the "boutique corporate adviser" spent on drafting the presentation for the "Excellence in Oil & Gas" conference cost a total $17,820.
Then there was another bill for $217,250 and 30 million options (with a strike price at 2.71 cents) in relation to Carling Capital's work as a "strategic adviser" in Drillsearch's aborted takeover for 3D Oil.
A third invoice of $33,000 was for general corporate advice from March 15 to May 15.
Two weeks before being ousted, Simpson, according to evidence tendered to the court, came to an agreement with Carling to pay the bulk of the invoiced fees.
"Max, I think you're being very reasonable and I'm surprised you didn't ask for more," said Simpson, according to Carling's account of the conversation.
Carling attempted to finalise the payment the day before a Drillsearch shareholder meeting. Simpson resigned at the meeting.
"I think it is only fair that this be finalised by Tuesday 9 June 2009 and CCP [Carling Capital] have been very patient and have continued to provide advisory services," said an email from Carling.
However, yesterday's judgment said the original conversation did not "record an agreement". Meanwhile, Simpson remains the chief executive of the 79.5 per cent Drillsearch-owned Canadian gas explorer Circumpacific.
Well, until its November 26 annual meeting anyway, when Drillsearch votes him off the board.
Less is less
Ten Network's executive chairman, Nick Falloon, meanwhile took a haircut on his pay after deciding to go part-time last year.
Ten's accounts show Falloon's base pay slipped from $2.17 million to $1.12 million for the year to August 31, while his overall pay went from $4.19 million to $1.89 million.
In July last year Ten announced Falloon would reduce his "time commitment" to the company by 50 per cent.
Ten's head of TV, Grant Blackley, saw his overall pay fall from $1.87 million to $1.5 million in the period.
This is a tad below the $4 million Ten's on-air personality Rove McManus pocketed in the past year, according to BRW magazine.
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Insider
Edited by Jamie Freed
Myer's listing casts a big shadow
There are plenty of parallels between the floats of retailers Myer and Kathmandu, but lead managers Goldman Sachs JBWere and Macquarie Capital will be hoping that initial trading performance is not one of them.
The all-important institutional book-build for Kathmandu starts today and finishes tomorrow, with an indicative range of $1.65 to $1.90.
The process will also determine whether the private equity owners, GSJBW and Quadrant Private Equity, keep a small stake in the company or, more likely scenario, get out completely, as in the case of TPG and Blum Capital at Myer.
After the disappointing performance of Myer, institutions may be wary of bidding too high, even though the price/earnings ratio range is more reasonable in the case of Kathmandu.
A Wilson HTM analyst, Jacqueline Fernley, has given the pricing range a tick of approval, valuing Kathmandu at $1.80 with a target price of $2.05 based on its high returns and establishment of new stores.
However, she thinks the company's strong margins will a erode a bit over time as it opens more stores in Australia – which has lower margins than New Zealand – and warns that cannibalisation is already taking place due to its rapid growth.
Fomenter
Investment bankers don't just assist with deals, they often create them. Such was the case with AMP and AXA SA's agreement for a joint $12 billion bid for AXA Asia-Pacific.
Insider hears that Deutsche Bank, which is acting for AXA SA, was the unnamed "third party" discussed by AXA SA's Japan and Asia-Pacific regional chief executive, John Dacey, when he was asked yesterday how the deal evolved.
It will be worth watching where it goes from here. The deal appears unlikely to get any traction at the current price, particularly because the complex three-way structure makes a scheme of arrangement by far the most preferable option, and that would require the recommendation of the AXA Asia-Pacific board.
AXA Asia-Pacific is being advised by Macquarie Capital. Under the current structure, AMP, advised by UBS, is putting up about $215 million of cash and will also receive a $500 million boost to its Tier 2 capital from subordinated debt provided by AXA SA.
Most of the complaints about value have so far centred on AMP's mostly scrip purchase of the Australasian business rather than AXA SA's cash purchase of the Asian division. AMP will be unable to add much more in the way of scrip without making the deal too dilutive to earnings to be palatable, which means that it may need to dig up some cash.
Goldman Sachs JBWere said the current price on offer from AMP could be justified, but added an increase could make things "quite tight" on the financial side.
In that case, the deal would need to be justified on strategic grounds.
Pillar talk
One knock-on effect of AMP's attempt to grow its business significantly by buying AXA Asia-Pacific's Australasian business is to make itself a more likely takeover target.
Over the years, there have been plenty of rumours about the big four banks being interested in bidding for AMP. But despite the open share register, none of them have made a formal move.
AMP's decision to bulk up and form a "fifth pillar" could prove a catalyst for the banks to take another look.
The thinking is that the addition of AXA's local operations to the AMP stable will make the combined entity too large for any of the big four to buy for competition reasons.
So if the banks want to prevent the formation of a strong fifth pillar competitor, they will need to move on either AMP or AXA's Australasian business now or risk losing out on either forever.
With a market value of about $12 billion, AMP would represent a big buy for any purchaser. However, the local banks would presumably be able to do a scrip deal.
The question is whether they would want to. All of the big four already have sizeable wealth management businesses, particularly after recent deals in which NAB bought Aviva Australia and ANZ bought the 51 per cent of ING's local business that it did not already own.
Ready, set ...
Orica was coy yesterday about the timing of its planned $1 billion-plus demerger of its consumer products division beyond ruling out a listing this year.
So in that context it is interesting that Orica changed the name of the holding company of its planned consumer products float from Orica CP to DuluxGroup less than a fortnight ago.
Orica made the DuluxGroup name public for the first time yesterday alongside its results presentation, leading many market observers to expect that the division would be demerged sooner rather than later.
After all, Orica revealed it had already spent $15.3 million on fees associated with the DuluxGroup demerger last year, despite the lack of a green light.
Orica's managing director, Graeme Liebeldt, indicated the continued shakiness in debt markets for medium-sized companies was one of the primary reasons it had not yet gone ahead with a listing.
Last year UBS estimated the consumer products division, which includes brands like Dulux and Selleys, could carry about $300 million of debt.
One of the main hurdles for the demerger will be getting the lenders to agree to split the debt between Orica and DuluxGroup.
CSR, which is trying to demerge its sugar business, recently raised $375 million, in part to facilitate approval from its lending syndicate to reallocate its debt across the two planned companies.
Briefs
Coal
Meijin preferred Rocklands Richfield says a $200 million takeover bid from Meijin Energy of China is superior to a rival offer for the coke producer from Jindal Steel and Power of India.
Pay vote
'Lazy' institutions Kingsgate Consolidated has accused institutional shareholders of "lazy acceptance" of voting directions from governance advisers after a vote on its remuneration report scraped through at its annual meeting.
Media
Salary halved Ten Network's executive chairman, Nick Falloon, took a 55 per cent pay cut after the company posted an $89.35 million loss for the year to August 30.
Telstra
Moffatt to go Telstra's head of consumer relations, David Moffatt, will leave the company at the end of this month.
First published by Smh.com.au on November 10 2009
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