Murdoch, Snowy float, Macquarie

5. Collectively mopping up for Rupert

By Stephen Mayne, who spent seven happy years working for Rupert

It must be handy having a media empire at your disposal to mop up the mess when you stick your foot in it publicly. I can well remember as Herald Sun business editor back in October 1995 when Rupert Murdoch made some injudicious comments about the Australian economy and was worried about a backlash from the Keating Government, which was massively subsidising News Corp's Foxtel adventures through Telstra.

Terry McCrann was quickly summoned for an audience with his boss and produced a page two story the next day which began as follows:

The great challenge for all western countries was to rediscover the formula which had produced the huge and continuous rises in living standards of the post-war era, Rupert Murdoch said yesterday. He said it was unacceptable for such countries to accept as normal the joblessness and loss of hope in the future that had seemed to become endemic in the 1980s. Mr Murdoch, chairman and chief executive of The News Corporation, which publishes the Herald Sun, was speaking after the company's annual meeting in Adelaide.

McCrann confided over coffee the next day that Rupert and his offsider, Ken Cowley, had thanked him for getting them out of a perceived spot of bother, although Rupert's preferred mouthpiece wasn't convinced about whether running such a puff piece in the News Ltd papers across the country had actually achieved anything. Indeed.

Fast forward to May 2006 and we've seen another classic example of journalists being summoned to clean up a Rupert mess. The Australian's Dennis Shanahan was given the job of "interviewing" Rupert in New York and his piece in The Weekend Australian included the following lines:

Rupert Murdoch has scotched suggestions he was advising John Howard to quit soon, while he was "on top", and repeated his call for "a terrific prime minister" to stay on as long as he wants.

"Mr Howard has a great record. He's a terrific prime minister and he has strong talent behind him, but how long he stays on as leader is entirely up to him, as far as I can see," the News Corporation chief executive told The Weekend Australian from New York yesterday.

Mr Murdoch said he was surprised at the fuss made about his comments about the Liberal leadership in Washington earlier in the week and believed his comments had been "twisted in some sections of the media".

It was a combination of Barrie Cassidy and Andrew Bolt on the Insiders couch who first generated all the excitement about Piers Akerman's column, demonstrating how initial media reactions can set the tone for everyone else.

It was The World Today and Crikey last Wednesday which did the same with Rupert's White House commentary to Michael Rowland and then we had the lovely spectacle yesterday of Piers Akerman playing down his own column while on the Insiders couch and then another Murdoch employee, The Australian's George Megalogenis, agreeing that the Sun King's comments could have been interpreted any way you liked.

Completing the circle was The Daily Telegraph's Malcolm Farr, who was tipped off about Shanahan's pending story and asked the PM for a comment in Canada before Rupert's recant had appeared anywhere. The PM kept his dignity and stayed above the fray by once again refusing to comment, while a sycophantic Peter Costello and injudicious Rupert Murdoch suffered from the fallout of it all.

Does anyone else sense that Rupert has been annoyed by John Howard's continuing policy favours for Kerry Packer and would like to try his luck with Peter Costello. The PM declaring KP to be Australia's greatest businessman at his taxpayer-funded memorial service also would have rankled Rupert. Costello is more his sort of guy, having declared Rupert to be the greatest of all time.

It really is quite sad what all of this says about power, journalism and democracy in Australia.



9. Rupert and Jeff swap "hubris" insults

By Stephen Mayne

As the former publisher of Jeffed.com (check out this biggest version we've just rediscovered) which alleged vast media conspiracies to go soft on Jeff Kennett, it came as a huge surprise last week when the former Victorian Premier launched an unprecedented attack on Rupert Murdoch.

Kennett has long been cosy with various members of the Murdoch family and once opened a Cabinet lunch for the Sun King by asking him: "So, Rupert, how's your mum?"

The Herald Sun strongly backed Jeff to the very end and there were even detailed discussions in the late 1990s about him joining News Ltd in a well paid executive position.

Unlike Kerry Packer and PBL, News Ltd refused to hand over a six-figure defamation settlement when the Victorian Premier went looking for a bit of extra cash. However, when The Australian successfully defended an action in 1998-99, the Murdochs went soft on Jeff by not pursuing him for costs as was their right.

So why on earth did Jeff ring Michelle Grattan last week and unload on Rupert, challenging the old man's right to pontificate on domestic politics, especially given his own grubby practices such as the News Corp poison pill?

I've got three theories. Firstly, Jeff hates Peter Costello with a passion and would far rather see John Howard stay in power, given that they have a reasonable relationship these days. He interpreted Rupert's comments as backing Costello and immediately moved to counter them.

Secondly, Jeff was upset by the quite unfair attack launched by Andrew Bolt in the Herald Sun last month when he was contemplating a comeback. He was expecting the full Murdoch machine to fall in behind his resurrection.

Thirdly, Jeff still holds a grudge because Rupert didn't eulogise his government after its shock defeat in 1999. Indeed, Jeff used exactly the same insult that Rupert used against him shortly after leaving office in November 1999.

Rupert was in town for the 1999 AGM and gave a detailed interview to Finola Burke from The Australian in which he dismissed Kennett as follows: "He was showing a dangerous amount of hubris."

So what did Kennett say about Rupert when he rang Michelle Grattan?

Mr Kennett told The Age Mr Murdoch would have known the ramifications of what he had said. His comments would have been deliberate and perhaps mischievous and were "clearly a statement of hubris".

My old Heinemann school dictionary defines hubris as "arrogant pride inviting nemesis" and the Macquarie says "insolent pride or presumption".

Sounds like they're both right.




19. How Snowy can bring cash in the door fast

By Stephen Mayne

The phones are running hot this morning as punters pre-register for their copy of the Snowy Hydro float, but we're still yet to see the structure of the offer or the company's profit forecasts and balance sheet.

However, it is clear that the sale proceeds will probably not arrive before the end of the financial year so NSW Premier Morris Iemma won't achieve his goal of declaring a cash budget surplus for 2005-06 financial year to hide the incompetence of Bob Carr's fiscal record.

That is, unless Iemma and his advisers do something which is eminently sensible given Australia's constitutional tax arrangements and investment banking fee structures.

Snowy Hydro should be gearing its balance sheet up by paying a special dividend of up to $1 billion to its three government shareholders before the float. For all we know, they could already have done this, which might explain why the rhetoric is shifting back to a "$2.5 billion float".

The rationale behind such as move is that a privatised Snowy will have to pay full federal tax at the 30% company rate, whereas at the moment it can deliver tax-free dividends to the Victorian and NSW governments, which together own 87%.

The tax holiday for state-owned enterprises actually creates a strong incentive not to privatise. For instance, the Victorian Government could have creamed off 100% of all those Tabcorp profits if they'd kept the business in public hands. Instead, Jeff Kennett floated it in 1994 for just $675 million without any debt and the Federal Government has so far collected a windfall $1 billion in extra company tax revenue, plus all the dividend tax earnings and capital gains tax that have flowed from a $2.25 share zooming up to $15.64.

For this reason, it would have made more sense to take $400 million of the proceeds by way of debt and then float the business for about $300 million. Taken to its logical extension, Snowy Hydro should be loaded up with as much debt as the market will bear to minimise the future tax revenue for Canberra.

This would work well at another level because corporate advisers tend to get paid based on the equity proceeds of a float. The Federal Budget revealed that Macquarie Bank (well done Bob Carr), UBS and Goldman Sachs JB Were will be sharing in $110 million from the float. They would struggle to justify such huge fees if Snowy carried $2 billion in debt and the equity raising was only worth $1 billion.

However, have you ever met an adviser who advised a structure that reduced their fees? All this needs to be considered when we finally get to see the prospectus in the next couple of weeks.

The advisers clearly didn't win the argument on the poison pill and 10% shareholder cap because this politically driven xenophobia will clearly reduce the proceeds for taxpayers because no takeover premium will be built into the price. Silly stuff. The Jeff Kennett model of selling to the highest bidder from anywhere in the world should have been adopted here.

Then again, we're talking about the NSW Government which managed to sell the NSW State Bank for a net $300 million when it is today worth about $3 billion. The reason then Colonial finance director Paul Batchelor claimed he'd pulled off "the greatest bank heist in history" was that John Fahey put all these ridiculous restrictions on who could bid. Only politicians could come up with rules that see less cash returned to taxpayers from a public asset. Back to Top




20. How ABC transmission towers have made Macquarie Communications rich

By Stephen Mayne, proud owner of six Macquarie Bank shares

As a small investor in several Macquarie Bank satellites, the huge fees, tax planning and accounting treatments never cease to amaze. For instance, how is it that the old ABC and SBS transmission towers business Broadcast Australia can earn huge profits while its 100% owner, Macquarie Communications Infrastructure Group (MCIG), continues to declare losses.

This is the way it works: Broadcast Australia is very profitable with growth in revenue and profits exceeding 20% most years thanks to lucrative contracts with the ABC and SBS. EBITDA margins are about 60% as this is a monopoly and taxpayers have nowhere else to go for transmission because the only other tower owner in capital cities is TXA, which is owned by Channels 7,9 and 10.

BA earns monopoly-like profits, which MCIG uses to make huge payments to stapled security unit holders (we're not actually shareholders). These payments, which come out of pre-tax profit, plus huge depreciation charges, mean MCIG declares a loss and hence doesn't pay tax!

This clever accounting means the Federal Government has a lower tax take from something that should pay tax. The payments to unit holders are set at a level so that the yield is double the market average. MCIG briefs analysts in this way and even forecast future payments at the IPO for the first three years.

The long term nature of the ABC digital contracts (ten years plus two five year options) means certainty in revenue streams for BA and MCIG. However, MCIG is literally giving the farm away – instead of investing some of the profits for the future when analogue shuts off, they are lavishing it on the unit holders. Virtually all the free cash flow goes to unit holders which has led to a rapid increase in equity valuation. The original float was priced at $2 and the stock is now $5.40, so investors are very happy and the Federal Government is looking silly for selling too cheap and then not clawing enough back through the tax system.

While stapled security holders are doing well, so is Macquarie Bank, which has pocketed huge performance fees in addition to the management fees because Broadcast Australia simply does what it is supposed to do.

The MCIG directors have also done well. Chairman Gerry Moriarty, a Kiwi who was poached from Telstra, has bought a vineyard and property in New Zealand as his retirement business with some of his bonus money, and BA managing director Graeme Barclay has upgraded into Killara's millionaire row on Sydney's North Shore.

Only four BA executives are millionaires who are on the payroll of Macquarie Bank. Everyone else is an employee of BA and on industry average wages plus 4-8% bonus. Graeme Barclay has a business philosophy of “sweating the assets” and he just loves the glacial conversion to digital because this means poor old Aunty and SBS have to pay BA twice to broadcast the same channel in analogue and digital for seemingly years into the future.

The more the moguls manage to delay digital conversion, the more Macquarie Bank makes because the ABC has already signed long term contracts to roll out digital broadcast services – even if no-one is watching digital TV. The ABC could be broadcasting to less than a hundred digital set top box owning homes in some regional areas yet be paying up to $100,000 per year for that transmission service. Digital TV transmission fees vary between $25,000 and $100,000 per site, and when we're talking 600 sites around the country, it's extremely lucrative.

However, has anyone considered the long-suffering taxpayer in all of this? No wonder there's no money left for local drama and the Federal Government keeps topping up Aunty for specific digital commitments. As new ABC managing director Mark Scott comes on board, he should consider how much of his budget has finished up in big mansions and a nice New Zealand winery for the lucky few inside the Millionaires Factory.

Copyright © 2022 The Mayne Report. All rights reserved

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