Thursday, 8 September, 2005: Cossie, Rupert, McCrann, IAG, Multiplex and much more
July 14, 2008
Here are Stephen Mayne's seven stories from the Crikey edition on Thursday, September 8, 2005.
By Stephen Mayne, twice failed candidate for the Telstra board
Treasurer Peter Costello had the following exchange with ABC political reporter Jim Middleton during an interview in Indonesia this week that ran on AM yesterday:
JIM MIDDLETON: Now, Mr Trujillo was appointed by the board, but the board, including Mr McGauchie is appointed by the Government. So doesn't the Government bear some responsibility for the powerless situation we now see Telstra in?
PETER COSTELLO: Well, the Government is responsible for appointing directors, along with other shareholders…
Hang on a minute, the government has completely and quite outrageously shut out minority shareholders from Telstra board elections by voting its controlling stake on every single director resolution since 1998. The roll call is as follows:
1998: govt votes 67% stake in favour of incumbents Don McGauchie, Steve Vizard, Ross Adler, Chris Roberts and Elisabeth Nosworthy
1999: govt votes 51% stake in favour of incumbents Malcolm Irving, Bob Mansfield, John Stocker, Ziggy Switkowski and Anthony Clark and against outside challengers Merv Vogt and Ange Kenos.
2000: govt votes 51% stake in favour of incumbents John Ralph, Sam Chisholm, Catherine Livingstone and John Fletcher and against outside challengers Stephen Mayne, Merv Vogt, Ange Kenos, Len Cooper and Garry Waldron.
2001: govt votes 51% stake in favour of incumbents Belinda Hutchinson, Don McGauchie, William Owens, Dr John Stocker and Charles Macek and against outside challengers Peter Strohkorb, Len Cooper, Stephen Mayne, Ange Kenos, Edvard Pregun and Merv Vogt.
2002: govt votes 51% stake in favour of incumbents Tony Clark, Bob Mansfield, Sam Chisholm and Catherine Livingstone and against outside challengers Edvard Pregun, Len Cooper, Francesco Rossi and Merv Vogt.
2003: govt votes 51% stake in favour of incumbents John Fletcher, Don McGauchie, John Ralph and John Stocker and against outside challengers Kevin Bentley, Merv Vogt and Len Cooper.
2004: govt votes 51% stake in favour of incumbents Belinda Hutchinson and Charles Macek and against outside challengers Merv Vogt, Len Cooper and Paul Higgins.
That adds up to 52 resolutions and the government has voted their stake in favour of 27 resolutions supporting incumbents who they hand-picked for the board in the first place and against on all 25 occasions where outside candidates were nominated. If the government believed in corporate democracy as it is usually practised on the ASX, it would have appointed a bare majority of directors and then abstained from voting on the other positions, allowing the minority shareholders to select some directors to represent them.
So what on earth is Peter Costello doing in claiming that minority shareholders are somehow responsible for the performance of the government's hand-picked directors?
Remarkably, the Howard Government has also burnt through another 22 directors since 1996 – most of whom were sacked or encouraged to go such that the controlling stake never had to be employed against them at the Telstra AGM.
Maybe this explains why the current six non-executive directors are taking such a hard-line. Perhaps they are sick and tired of the government hiring and firing Telstra directors willy nilly, harvesting ridiculous dividends and using Telstra as a political football in the bush.
We now have a business that has been exposed as providing a woeful service after massively under-investing in its networks and the only people to blame are the government. For Costello to imply "other shareholders" were involved in these decisions is a joke.
8. Meet the former Minchin adviser who handles ASIC's spin
By Stephen Mayne, tiny Telstra shareholder
The Prime Minister was talking up the blatantly political ASIC investigation into Telstra's profit downgrades last night, refusing to comment on The 7.30 Report about the document released by Telstra yesterday because of this supposedly genuine and important probe by the corporate plod.
When compared with the glacial speed with which ASIC moved on Liberal Party mate and former Telstra director Steve Vizard, this sudden attack on the entire Telstra board and management looks like a convenient government-engineered stunt.
Is ASIC in the pocket of the government, jumping at its beck and call to suit its political ends? It certainly looks that way and there is a very interesting connection that Crikey can today reveal.
The current ASIC spindoctor is one Kate Harvey, who just happens to be a veteran Liberal Party staffer, the former girlfriend of Federal Liberal MP Greg Hunt and a former adviser to Nick Minchin, the Finance Minister responsible for the sale of Telstra.
When ASIC faced its own recent PR crisis over Steve Vizard, trouble-shooting Kate sat in the Federal Court all day taking notes. So, did ASIC decide to issue this brief press release at 5.30pm on Tuesday after Minchin called his old staffer? The statement read as follows and, interestingly, another spinner's name was at the bottom of it:
The Australian Securities and Investments Commission (ASIC) today announced that it has commenced an investigation into Telstra Corporation Limited.
ASIC is investigating Telstra's compliance with its continuous disclosure obligations following its announcement to the market yesterday signalling an earnings downgrade.
ASIC is working with the Australian Stock Exchange in relation to this matter.
Contact: Angela Friend
ASIC Media Unit
Neil Chenoweth was right to point out in the AFR today that ASIC's remarkable speed on Telstra was in stark contrast to the slow response to the scandal that was News Corp's decision to extend its poison pill by two years without reference to shareholders as previously promised.
And what about The Australian splashing today's paper with ASIC "raiding" Telstra for internal emails. Since when have the operational aspects of an inquiry been leaked to the press? When it suits the government's political agenda, it seems. The Australian banana republic is alive and well.
By Stephen Mayne, unpaid question supplier to John Laws
The informal alliance between Crikey and John Laws is gaining momentum. A producer for the Golden Tonsils called shortly before he was due to interview Peter Costello two weeks ago and asked for some good questions to raise about Steve Vizard. We suggested a few, some of which were duly asked, as you can see from the program's transcript.
Well, the same producer called yesterday to say thanks for those excellent Steve Vizard questions, now we've got the PM on in 10 minutes, can you suggest a few questions for him on Telstra? Crikey was happy to rattle off a few and you should check out the full transcript of what was an interesting interview. The only one that was taken word for word was as follows, but the full exchange was most enlightening:
LAWS: Okay. Did you or any government minister pressure ASIC to investigate this?
PRIME MINISTER: No, no I certainly didn't and I'd be amazed if any of my Government ministers did.
LAWS: Do you think they should?
PRIME MINISTER: ASIC, well that's a matter for them. ASIC is an independent statutory body and ASIC will make a decision. But any suggestion that we sooled ASIC on to Telstra is wrong, absolutely wrong. ASIC operates independently. It has a charter and I mean it will make its decision, I'm not commenting. It's made a decision in its own right and the question of whether information should be disclosed by Telstra to the market is a matter for Telstra, it's not a matter for the Government.
CRIKEY: That reads like some of those weasel words denials about weapons of mass destruction and children overboard. If ASIC is demanding Telstra provide it with all correspondence relating to the profit downgrade, why shouldn't the government produce the equivalent to prove that there was no political interference.
The PM has just given a blanket denial saying he would be "amazed" if any of his ministers pressured ASIC and it was "absolutely wrong" to suggest the government was involved in any way. How would he know? Has he checked with Nick Minchin to make sure he didn't ring Kate Harvey, his former staffer who is now ASIC's chief spin doctor?
The facts all point to government interference, so ASIC should spell out the exact process which led to Tuesday's press release that created all that "Telstra executives could be jailed" coverage in Wednesday's papers.
10. McCrann's feral attack on the unnamed Crikey
By Stephen Mayne, a former very close mate of Terry McCrann
Now that the professionals are running Crikey (and a very good job they're doing too), there is more time for AGM tilts and presentations on the speaker's circuit, such as this week's big super funds conference in Cairns.
The power point slide which usually gets the biggest laugh at conferences is the quotes of various people sledging Crikey, including Kerry Packer, Alan Jones, Eddie McGuire and Michael Egan. News Ltd's Terry McCrann made the grade for this slide in Cairns with his 6,000 word salvo against Crikey last year, which began as follows: "Stephen, you are what is known in polite circles as a complete f*ck."
There was also this famous attack on The Age for suggesting on its front page that the activities of what McCrann called an "utterly insignificant gadfly" had influenced Rupert Murdoch's decision to move News Corp to Delaware.
However, we're busily rejigging the slide to take in the latest hilarious McCrann attacks on Crikey in this morning's News Ltd tabloids, which should be on the bearded one's web page this afternoon. His column began as follows:
The Prime Minister was well and truly verballed over Telstra yesterday. Accused of saying something he very clearly did not say. The most disgraceful example came from rent-a-quote activist Peter Morgan – not surprisingly in a trashy daily email that makes the infamous Drudge Report look like the work of Charles Dickens.
Whilst most of the media criticised Howard for his completely inappropriate comments about "talking up" a company, McCrann launched a spirited defence of the PM and concluded with the following paraphrased observations about Morgan and Crikey:
Maybe Morgan thinks that's all wrong: that it's appropriate to walk around publicly trashing your own company.
Or maybe he was ambushed by the people who put out the trashy email. It had started out with an even more ludicrous and disgraceful falsehood about what Howard was supposed to have said. Combined with kindergarten level "journalism".
In direct quotes, the email parroted the Howard quote: followed by - still in direct quotes - "Don't knock the stock, don't talk down the growth story, don't send out bad news, spin it all positively, finesse the share price."
This was a great example of the email's regular MO. Ludicrous exaggeration, distortion and outright falsehoods...
Some of these people used to be journalists.
Check out what Morgan wrote here. It seems we really have got under the skin of ole HMV ("His Master's Voice"), who has still not commented meaningfully on his boss's disgraceful poison pill exploits. And who was one of the worst offenders when it came to talking up a share price and painting a falsely optimistic picture over the years? None other than Rupert Murdoch, of course.
McCrann's rage is such that he couldn't even bring himself to name Crikey, so his readers would have been thoroughly confused given that 5 billion emails are sent around the world each day. And if we're really so trashy, why are more than 300 News Ltd email addresses on the Crikey database and a further 214 Federal Parliament house email addresses, suggesting that the people who run Australia choose to receive our daily missive?
11. Is ASIC throwing the book at Multiplex?
A Sydney commercial lawyer writes:
Stephen Mayne was wrong to say ASIC is doing nothing about Multiplex. ASIC has pulled in a lot of current and former staff and the bottom line is that charges are expected to be laid in November. The focus is the prospectus. My source was pulled in to an ASIC hearing. Some insiders are talking about getting indemnities in return for testimony.
Stephen Mayne writes:
That is very interesting. Could John Roberts be the first Australian billionaire to be tackled by the law for "talking up" the Multiplex share price by not telling the truth about Wembley? He's certainly the most Labor-friendly billionaire we've produced. Graham Richardson once described the colourful Roberts as "my only mate with a quid," although that was before he started working for Kerry Packer.
Roberts also runs Australia's most union-friendly construction company. One of his Perth-based directors owns a pub with Kevin "Fatty" Reynolds, the notoriously militant West Australian boss of the CFMEU.
The key in this investigation is producing documents which prove Multiplex directors knew or should have known that Wembley was blowing out at the time it was raising hundreds of millions of dollars from investors earlier this year. This is the relevent dynamite from the Four Corners transcript:
But an internal Multiplex budget on Wembley from late January is now in the hands of Four Corners. The cover memo says the budget, sent by the Wembley project director, is for discussion with JCR, the initials of John Roberts. It's a complex document but essentially, it contains two very different sets of numbers on Wembley.
First, there's the JCR costs. Next to that is the likely site view. That's typically how site managers see the real costs of a project. Both versions predict heavy operational losses. Multiplex plans to offset these losses by winning claims from subcontractors. The best-case scenario, the JCR view, is a £13 million profit. But the site view is much worse. Without successful claims, it's a loss of nearly £87 million. And even with claims, it's a loss of nearly £48 million. Remember, just 14 days before, the prospectus had left the public thinking that Wembley was on-track. So if the site view's correct, it beggars belief that a £48 million loss could have been suddenly discovered in just two weeks.
Four Corners can't say that a discussion with John Roberts took place or who else saw the document, but no losses were announced to the market. In February, Multiplex's banker, UBS, valued the shares at a heady $6.60.
And there was this later:
TICKY FULLERTON: Sorry, one last question. The accounting group general manager was retrenched. Can you tell us why? He was retrenched in March. Can you tell us why?
ANDREW ROBERTS: Um, I understand that he was redundant but by mutual agreement. I mean, there's...that...If the suggestion is that there was...he was retrenched because he's raised issues, then, absolutely, that's not the case.
CRIKEY: This man is the key to ASIC securing a prosecution against the Roberts.
12. Time for some honesty in insurance losses
By Stephen Mayne, Crikey's business commentator
Insurance Australia Group chief executive Michael Hawker gave an impressive presentation at the big super funds conference in Cairns yesterday, where he was very open about the fact that the Business Council of Australia is badly split about issues of climate change and a carbon tax.
But he also made some comments about IAG's approach to continuous disclosure which were quite disturbing.
"We lost $100 million in 25 minutes during the Melbourne storms in February this year," Hawker said, before gloating that this was never disclosed to the market because it could be absorbed within the company's overall underwriting margins.
The storms hit on the weekend of February 2-3, and you'll see here that no announcement was made to the ASX. Surely this is unacceptable. The AFR noted the following about IAG this morning: "IAG boss Michael Hawker made his first big stumble when IAG's full-year profits didn't live up to expectations last month. With the shares having slumped close to $1.50 from their February high of $6.95, the former rugby international has some work to do to regain market confidence."
When something happens that wipes out about 20% of your operating profit for a reporting period, it should be immediately disclosed to the ASX. ASIC needs to censure IAG for this lack of disclosure of what was clearly price-sensitive information.
QBE is doing exactly the same thing at the moment with Hurricane Katrina. A full eight days after Katrina first struck, QBE finally put out a brief weasel words statement on Tuesday which read as follows:
This letter is in response to numerous requests from investors, analysts and the media for information on QBE's exposure to Hurricane Katrina.
We confirm that, following a review of our exposures, QBE's estimated net claims from Hurricane Katrina are within the substantial allowance for large losses and catastrophes included in our insurance liabilities held at 30 June 2005. In addition, we confirm that our expected insurance profit to net earned premium margin of $15-16% for 2005 announced on 17 August remains unchanged.
QBE's net exposure to large catastrophes has been significantly reduced in the past four years. This, together with the substantial premium QBE receives to cover large catastrophes and the extensive reinsurance purchased to protect its operating profit and balance sheet from such events, enables us to withstand a number of large losses and catastrophes in any one year, as was evidenced in the second half of 2004.
For goodness sake, just give us a forecast of what the most expensive natural disaster in history will cost Australia's biggest global insurer. This is certainly one for the AGM in October. I'll eat my hat if QBE doesn't drop at least $100 million on Katrina, so it should just fess up now. And given all the speculation, even if the cost is only $20 million, QBE should put a figure on it.
26. Game on: Gunns accepts the Crikey nomination
By Stephen Mayne, confirmed candidate for the Gunns Ltd board
News Corp might have rejected the Crikey nomination to run for its board, but our very good friends at Tasmanian tree-lopping giant Gunns Ltd have done the decent thing and accepted the nomination. The following was sitting on the fax machine on arriving home from Cairns yesterday:
Dear Mr Mayne,
I acknowledge receipt of your nomination for election to the Board of Directors of Gunns Ltd and confirm it is in accordance with the Company Constitution.
I will confirm the content of your supporting statement with you prior to finalisation of the notice of meeting.
The 2005 Annual General Meeting will be held on Thursday 27 October 2005 at 110 Lindsay Street, Launceston commencing at 10.30am.
Yours Sincerely
Wayne Chapman
Company Secretary
Gunns Ltd
Gunns shares have been on the slide of late, so the AGM promises to be quite interesting, especially given the proposed $1.1 billion pulp mill in the Tamar Valley which presents considerable risks for shareholders.
It is interesting that Gunns executive chairman John Gay chose not to head off the Crikey tilt by accepting the compromise offer of himself finally standing for election on the regular three year cycle.
With Rupert Murdoch now gone from Australia, John Gay is the only prominent executive chairman left who refuses to put himself up for re-election. I'll be standing for the Gunns board every year until Gay either submits himself for election or appoints an independent, non-executive chairman.
It will be interesting to see how he enjoys the first contested election in the 18 year history of the company on the ASX. Whilst Gay himself holds 5.19% of the shares, he's only the fifth largest player on the register so the result will be determined by the four institutions listed below who collectively own 37% of the stock:
Perpetual Trustees: 14.19%
Concord Capital: 8.62%
Deutsche Bank: 8.23%
AMP: 6.35%
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