WA News, Gatto, Macquarie Model, sporting sponsors, Rich List and share sales

April 8, 2008

Dear Mayne Reporters,

if this is the last edition you receive of the Mayne Report, you'll know that Mick Gatto or his mates listened to this afternoon's chat with Lindy Burns on 774 ABC Melbourne or read this story in Crikey today.

Mick Gatto is not the answer to Opes Prime's problems, although as Stephen Bartholomeusz reports on Business Spectator, there is an Opes Prime man to catch up with in Singapore who is fronting a company which has cost the creditors more than $100 million.

Moving right along, tonight we've got a detailed update on the battle for WA News as institutions sharpen their pencils in readiness to vote. It's a very fluid situation.

There's also seven additions to the Mayne Report Rich List and a fun new list pointing out the link between extravagant sporting sponsorships and corporate collapses.

We've been selling quite aggressively into the recent rally and all is disclosed in the full edition, plus we've got more on that ground breaking report which I reckon is going to make it very difficult for the Macquarie Model of third party listed funds to survive going forward given the glaring corporate governance flaws.

Click through for the full edition and do ya best, Stephen Mayne

The battle for WA News

We're getting close to the time when institutions need to lodge their votes for the WA News EGM in Perth on April 23, so it is time to publically put a few cards on the tables.

Kerry Stokes is running an aggressive and parochial campaign in Perth, even speaking at the West Coast Eagles president's lunch at the weekend. He has done a wide range of media interviews, speaking to most outlets with the exception of The West Australian itself.

The suggestion of starting a rival newspaper with Fortescue Metals founder Andrew Forrest was perhaps a bridge too far in his campaign, as was the broader attack on the editorial quality of Perth's monopoly paper.

Andrew Forrest's position is interesting because his chairman at Fortescue, Olympic legend Herb Elliott, is currently suing The West Australian for defamation over some reporting about the timing of his share dealings.

If Stokes succeeds, the journalists will be important so perhaps he should have confined his attack to editor Paul Armstrong, who most people believe should be given the flick. Armstrong has certainly cranked up the negative coverage against Stokes since his breakfast speech last week.

The journalists also own a few shares, which could be important in a close vote, although they are not particularly organised or unionised as about 75% of new hires over the past five years have been signed up on AWAs.

Stokes is expected to stay in Perth for most of the next two weeks in an attempt to woo smaller shareholders. Retail will matter because it is likely the institutions will largely side with the incumbent board, thereby negating the 19.4% stake that Seven holds.

The conflicts of interest argument is gaining some currency, especially in the online space, but because WA News has been so hopeless online, the size of its business is tiny. Substantial new investment will be required and how this is done could throw up some other conflicts given the Seven-Yahoo joint venture.

I still reckon Steve Harris is the best option for chairman, although his campaign has not been helped by his presence in Europe as part of a planned break after his departure as Melbourne Football Club CEO.

The best outside chance is Peter Abery, who has an oustanding media and management CV, including an MBA and a stint at Harvard in the International Senior Management Program.

The big questions for institutions relates to what happens if the incumbent board are defeated. My position is as follows:

To ensure that Seven is not able to control WAN without launching a full bid and paying a premium, neither Stokes or his running mate Peter Gammell should be chairman. The addition of two new directors is vital and these should be approved by the independent institutional shareholders.

If Seven does win two board seats, a clear protocol needs to be established to deal with conflicts of interest, including the editorial independence of The West Australian in relation to Stokes' other commercial interests and his associates, such as Andrew Forrest.

Stokes was not regarded as an interventionist proprietor when he controlled The Canberra Times, so this shouldn't be too hard to manage, although he's a strong personality who is used to getting his way.

Finally, Stokes was quoted last week saying he'd spoken to all the outside candidates. He's certainly spoken to a few but my number must have been mislaid. His spinner gets these missives so hopefully he'll give him a hurry up.

Why the Macquarie model is under stress

You don't get too many landmark studies in the corporate governance game but we've seen two beauties over the past few weeks.

Research house Regnan's ground-breaking position paper about the anything goes approach to share dealings by Australian public company directors has added to the ASX's problems and given Labor and ASIC the ammunition needed to move on this front.

Given the vast number of geared director positions we've now learnt about courtesy of the Opes Prime collapse, this whole question of disclosure, trading and margin lending is up for review.

Friday's edition plus this missive on March 24 explained some of the problems Macquarie Group is facing with its third party listed funds model as share prices continue to trade at 30%-plus discounts to net asset backing.

The proxy advisory house Risk Metrics brought out a substantial report on the infrastructure funds model last week, which was neatly summarised by Fairfax Media's Michael West.

The governance of these funds is a complete mess and Risk Metrics has nailed many of the key arguments, including the huge fee heists, conflicts of interest and questionable accounting.

Professor Geof Stapleton was one of the authors of this research which has received a big response in the institutional space. Stapleton's move to an in-house governance role at BHP-Billiton will be a loss for Risk Metrics.

Sports-linked business flops

When a business develops an association with a sports franchise, inevitably it seems to lead to trouble. Here are some prominent examples and the Herald Sun's John Beveridge deserves a credit for kick-starting the idea.

Opus Prime: recently came to the rescue of the two-car IndyCar team Conquest Racing. Additionally, they sponsored HSV V8 Supercar team and few other minor racing sponsorships.

Eddy Groves
: his forced departure as a major ABC Learning shareholder coincided with the sale of the Brisbane Bullets basketball team.

Craig Gore
: this Motorsport mad millionaire has recently sold his two licences to run V8 Supercars and an associated fund has frozen a $24.8 million mortgage fund relative to its dealings with the troubled City Pacific.

Norm Carey: once sponsored motor racing great Dick Johnson who was left high and dry without a sponsor when Norm's Westpoint collapsed.

: this now collapsed property business once sponsored Sydney to Hobart yacht Fincorp More Witchcraft.

MFS: sponsoring a rugby team and their annual $5.5 million association with Golf Australia are in the past now for this battling Gold Coast financier.

HIH: coincidedly collapsed into a $5.3 billion black hole after developing an association with the Collingwood Football Club. This union involved sponsorship and HIH associate Brad Cooper was vice-president.

Alan Bond
: famous backer of a couple of America Cup campaigns and once was the president of Richmond Football Club for about 8 weeks, and then his empire collapsed spectacularly.

Bob Ansett
: his grandfather started Ansett, but Bob was involved with Budget Rent-A-Car which sponsored North Melbourne, where Bob was president and part-owner before being ousted.

Elders-IXL: with John Elliott in control, it poured hundreds of millions into Fosterising the world, including vast sums on the Grand Prix circuit, plus plenty for Big Jack's beloved Carlton.

Christopher Skase: before escaping to Spain, he was heavily involved in bankrolling the Brisbane Bears.

FAI Insurance: this failed insurance company was a major sponsor of the Manly Sea Eagles.

Tom Hedley: the Cairns-based developer and hotelier had a big interest in horse flesh which is now being sold up as his empire dwindles.

Hutchison Telecommunications (Orange): Has lost billions in Australia and has poured plenty into Essendon and the Australian Cricket team. Go here to see the extent of their losses.

Firepower: this fuel technology company was dumped by the South Sydney Rugby League Club as a sponsor, following investigations by the corporate regulator.

: once provided the primary sponsorship of Australian Olympic team for the Winter Olympic Games which was reneged following the collapse of the company.

: they once sponsored the Essendon Footbal Club and the former managing director Alan Raymond Dawson, was convicted on two charges brought by ASIC.

Another seven for the Rich List

The new names continue to pile up on the Mayne Report Rich List which is now more than 900 names, quickly approaching our goal of 100 names. Here are another seven:

John Doran: the ROC oil CEO has a growing share wealth in the company of more than $9 million.

Will Jephcott: deputy chairman of Roc Oil has a share wealth of $4 million and made plenty more as an investment banker working along side Mike Tilley at Lloyds and Centaurus during the 1980s and 1990s.

Paul Jury: an executive director of Resource Pacific has a share wealth north of $30 million.

Malcolm McCusker: a well-known Perth legal family with a a large shareholdings - including West Australian Newspaper.

Hans Mende: an executive director of Felix Resources and recently floated Whithaven Coal, his combined share wealth is more than $600 million.

Robert Moltoni
: co-founder and non-executive director, of the Perth based demolition and scrap metal group the CMA Corporation has recently sold off about 20% of his holding, which netted him $2.6 million but still has a share wealth of more than $8 million.

Nathan Tinkler
: an executive director of Macarthur Coal worth upwards of $300 million.

Check out all the Mayne Report business lists here.

Selling into the recovery

The seven day run of stockmarket rises came to an end today, but it was quite a handy bounce that provided a much-needed opportunity to lighten up on the following exposures and get the margin loan on a $170,000 portfolio down to about $20,000.

April 7

Sold 13 Sims Group at $33.95
Sold 120 Austbrokers Holdings at $4.70
Sold 50 Acqulia Resources at $11.50

April 3

Sold 2,056 Allco Equity Partners at $1.95
Sold 1,500 Infomedia Ltd at 40c
Sold 125 Albidon Limited at $3.69
Sold 2,000 Avexa Limited at 32.5c

April 2

Sold 600 Linc Energy at $1.21
Sold 1,500 Carnegie Corporation at 31c
Sold 100 News Corp at $21.98
Sold 2,000 CP1 Ltd at 24c

March 31

Sold 200 New Hope Corporation at $2.70

March 27

Sold 125 AJ Lucas Group at $3.87
Sold 500 Citic Australia Trading Limited at 96c

March 25

Sold 220 Wellcom Group at $2.12
Sold 300 Po Valley Energy Limited at $1.85

All disposals registered minor gains, except Allco Equity Partners and News Corp which together cost about $250.