Most powerful editor, Patrick takeover, Virgin Blue and world's best shareholder activist
July 22, 2008
Here are Stephen Mayne's four stories from the Crikey edition on Tuesday, 18 April, 2006.
1. Patrick takeover creates $843 million over Easter
By Stephen Mayne, small Toll, Patrick and Virgin Blue shareholder
For those who believe that "the market knows best", the Toll and Patrick boards certainly did the right thing in reaching an accommodation last Thursday afternoon.
Toll shares today jumped $1.25 to $14.40, lifting its market capitalisation by $416 million to $4.8 billion – only marginally above the company's pre-bid price last October, despite the overall market surging almost 20%. Patrick has enjoyed a similar surge with its stock rising 62c to $8.65, lifting its market value by $427 million to $6.07 billion.
In crude terms, Toll has created almost $2 billion in value for Patrick shareholders, which will see chairman Peter Scanlon and chief executive Chris Corrigan walk away with almost $600 million between them. During the depths of the 1998 docks dispute – another momentous decision taken at Easter – the two saw their combined stake in the then Lang Corp plunge to barely $30 million. They have a lot to thank the Howard Government for, in particular Peter Reith, and with WorkChoices now available to employers, these stunning union-busting profits for Patrick provide a tempting precedent.
Scanlon was the master-strategist behind the rise of John Elliott and Elders IXL, but he was technically bankrupt after the 1987 stockmarket crash, just when Elliott wanted to crank up his push for The Lodge. Prime Minister Howard ended up being just as benevolent as Prime Minister Elliott would have been because Scanlon's $400 million pay day all comes back to the lucrative duopoly position Patrick carved out on the docks.
It will be interesting to see whether Scanlon and Corrigan stay for the ride or cash out their entire Toll stake on the market. The other interesting element will be the nature of any non-compete deals that are part of Thursday's surrender.
The Kennett Government unsuccessfully tried to encourage a third stevedore to break the P&O/Patrick duopoly and Toll is widely expected to try and push through various price increases to generate a return on its $6 billion Patrick investment. Excessive gouging might tempt major customers to back Corrigan and Scanlon in re-entering the fray, provided they are not constrained.
AFR Chanticleer columnist John Durie gave Toll boss Paul Little a hefty cuffing today for paying over the odds, but he and co-founders Peter and Mark Rowsthorn wouldn't be too worried given they have created more than $1 billion in value for themselves by quitting Mayne Nickless and later pursuing a $2 million management buyout of Pilbara-based Toll Holdings (revenue $18 million) almost 20 years ago. As for Mayne, it is now a demerged pharmaceutical and healthcare concern that would have been far better off installing Little as CEO.
A stunning 46 takeovers in 17 years have been beautifully executed by Toll, so there's no reason to think they can't do it again. That said, this is twice as big as all of them combined and more than a dozen senior Patrick executives will be millionaires from their option plays, so it might be difficult to persuade them to stay on, particularly given the loyalty that Corrigan and Scanlon generated.
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6. The most powerful editor in the country
By Stephen Mayne, former Herald Sun business editor
Media buyer Harold Mitchell has made a career and a fortune out of swimming with big advertisers and media moguls, so it was interesting that he declared Herald Sun editor Peter Blunden to be the most powerful editor in the country when chatting to Virginia Trioli on 702 ABC Sydney last week.
The Australian's media gossip column dropped a couple of names who attended Blunden's 10th anniversary dinner two Fridays back, but it wasn't until the fluff of Lillian Frank's Easter Saturday column in The Hun that we saw a fuller list of those who came to pay homage under the fetching headline, "Salute to the chief":
I've notched up a few parties in my time, but Peter's, at the RACV, had a guest list an old charity hand such as myself would kill for. Luminaries included Prime Minister John Howard, Federal Treasurer Peter Costello, Premier Steve Bracks, opposition leader Robert Doyle, Lord Mayor John So, Police Commissioner Christine Nixon, Dame Elisabeth Murdoch, Lachlan Murdoch, Janet and John Calvert-Jones, Tina Clarke, Jeff and Felicity Kennett, Peter's mother Patricia, and his daughter Kirsty, son Chris, Anna Brodie and her son Marcus and daughter Amanda, Eddie and Carla McGuire, AFL chairman Ron Evans, Tony Peek and Tony Beddison. Phew!Lillian spared us the detail that Anna Brodie is Blunden's secretary-turned-partner but she deserves a bonus for extracting the following out of the PM in the early hours of Saturday morning:
Peter is most admired for his tenacity, courage and fairness. He knows what people want to know about their city and he gives it to them, and that's why the Herald Sun is such a good newspaper.That's quite an interesting study in power and ego. Clearly, both the Murdoch empire and Blunden himself are keen to make a statement about who calls the shots in Melbourne, but all those politicians were not there because the 30-year Murdoch loyalist and son of a Sydney cop is a great guy.
Blunden is well known for being Australia's most ruthless editor when it comes to criticism or scoops. If you dare co-operate with The Age or criticise his paper, expect to be banned.
Indeed, Carlton President Ian Collins has just experienced the full force of Hurricane Blunden after he struck a membership circulation deal with The Age.
It appears that some heavy arm-twisting went on and Collins got rolled by his own board so The Age deal was scrapped and it was only a few weeks later that "Collo" resigned, a story gleefully reported on the Herald Sun's back page last Friday which included the following:
Some of his (Collo's) clout at board level was eroded last month when club directors overturned his decision to enter into a commercial agreement with The Age newspaper.The sub-text of all this is pretty clear: don't mess with the editor of Australia's biggest selling newspaper because he wields a lot of power and is more than happy to use it against you.
Disclosure: I'm one of the many people or institutions who've been blackballed by Blunden, although my six-year ban is longer than most and dates back to criticisms of the paper for being too soft on Jeff Kennett during the 1999 state election campaign.
21. Virgin Blue almost back to float price
By Stephen Mayne
Just as oil prices pushed through a staggering $US70 billion a barrel, Virgin Blue shareholders are suddenly enjoying the prospect of getting back to a break-even position on the December 2003 float at $2.25 a share. Virgin Blue shares rose 4c to a high of $1.91 this morning and when you factor in last year's 25c special cash-stripping dividend, investors are almost treading water.
Patrick Corp first became vulnerable when it was perceived to have blundered by launching a hostile $1.90-a-share takeover bid for Virgin Blue in January 2005 to emphatically seize control from Richard Branson. Patrick received more acceptances than they wanted and lifted its stake from 46% to 62% just as an unhedged Virgin was getting walloped by the successful introduction of Jetstar and soaring oil prices.
In hindsight, Branson would have been smarter to sell his entire 25% Virgin Blue stake into the Patrick bid and then immediately launch with Toll at a weakened Patrick. The passage of time has changed the perception of Virgin Blue and Toll is certainly no longer talking about handing back control to Richard Branson at just $1.40 a share, even if that means paying a $12 million break-fee on the underwriting agreement that came with the original Toll bid for Patrick.
It is hard to imagine Branson paying more than $2 a share when he was happy to sell out at $2.25 a share just two and a half years ago, so this raises the prospect of Singapore Airlines finally avenging Qantas for the $500 million it dropped when Ansett and Air New Zealand both collapsed in 2001.
Qantas is currently attempting a backdoor takeover of Air New Zealand through another code-sharing deal that will lessen competition and boost profits for both airlines flying across the ditch. However, Qantas shares tumbled 8c to a six month low of $3.37 this morning as investors contemplate developments over the weekend, particularly Paul Little's plans to possibly keep Virgin Blue and stop giving Qantas tens of millions in airfreight business.
The emergence of a logistics super power like Toll-Patrick raises more questions about the decision of Qantas and Australia Post to pay $750 million to philanthropy king Greg Poche for Star Track Express three years ago.
And if Toll and Singapore get together to launch a pincer movement on Qantas, Geoff Dixon will need to use all his government connections to fend them off. For instance, Singapore could quite easily take a stake in Virgin Blue and start flying the lucrative Pacific route. If that happened, you can bet that Qantas would lobby hard to retain the overall 51% limit on foreign ownership of our airline duopoly.
Qantas has to operate with the same restriction so Singapore would need to take out Richard Branson if it wanted to end up with control of Virgin Blue. Given that a cash-hungry Toll and minority Virgin Blue shareholders would also have to be accommodated, this would be no easy feat.
23. World's best shareholder activist under attack
By Stephen Mayne
David Webb, a wealthy Englishman who lives in Hong Kong, is without doubt the world's most effective individual retail shareholder activist in any market.
In 2003 he was narrowly elected to the board of Hong Kong Exchanges and Clearance Ltd, the rock's equivalent of the ASX, and since then he has pioneered a number of important reforms in a market not known for its high levels of corporate governance and facing ever-increasing encroachment from mainland China.
As someone who has failed in 22 attempted tilts at public company boards, I would love to one day produce a firsthand account like this, detailing how three of the six incumbent broker-directors recommended by the board were rejected by shareholders in an extraordinary palace coup.
However, after three years on the HKEC board, Webb is now facing an election challenge from a vocal group of stockbrokers who want to turn back the governance clock and exact their revenge. Check out this summary of Webb's campaign which will culminate at the AGM in Hong Kong on April 26.
Webb has an impressive CV and has attracted an equally impressive running mate in Christine Loh, a former Hong Kong politician who now runs a think tank called Civic Exchange.
His support will come from investors who want to see better governance in Hong Kong, not brokers who thrive in less transparent environments. To this end, I was bending the ear of Axa Asia Pacific Holdings CEO Les Owen after the AGM last Wednesday, because his outfit has the biggest presence in Hong Kong of any Australian-based institution.
We'll keep you posted on Webb's progress but it would be a real shame if he went down.
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