Vic v's NSW, sporting MP's, UniTab, James Strong, ABC Learning

March 23, 2010

Here are Stephen Mayne's five stories from the Crikey edition on Monday, 5 June, 2006.

1. Victoria 1992 and NSW 2006: compare and contrast

By Stephen Mayne, former spin doctor to Victorian Treasurer Alan Stockdale

The $17.4 billion debt binge by NSW over the next four years will put our largest state on a similar footing to the mess left behind by the disastrous Cain-Kirner government in Victoria, but few commentators have yet comprehended the gravity of Morris Iemma's financial crisis.

Jeff Kennett and Alan Stockdale inherited a basket case in October 1992 because Victoria had a $2 billion budget deficit, public sector debt of $32 billion and unfunded superannuation liabilities of $18 billion. In broad terms that was $50 billion in liabilities rising at $2 billion a year.

In balance sheet terms, NSW is not yet that bad because its gross debt is about $22 billion and unfunded super is about $15 billion although we're waiting to see how much the commodities boom and stockmarket surge has improved the situation in 2005-06. However, adding $17.4 billion to debt will put the total liabilities figure above $50 billion.

The NSW budget situation is now actually worse than in Victoria because increasing debt by $17.4 billion over 4 years is the equivalent of running an overall deficit of $4.35 billion a year – more than double what John Cain and Joan Kirner managed in their disastrous third term.

It's amazing that normally economically rational commentators such as Terry McCrann and Ross Gittins keep coming out and saying there is nothing wrong with debt or deficits. Sure, but isn't borrowing more than $4 billion a year at the top of an economic boom utterly irresponsible? The Feds are more than $10 billion in overall surplus - including capital and recurrent items.

The thing that destroyed Victoria's public finances was the reckless spending during the late 1980s boom which left no buffer to handle the downturn from Paul Keating's recession we had to have. Bob Carr has done precisely the same thing and now Morris Iemma is cranking up the spending rather than winding it back as any sensible administrator would do. NSW public finances are in no position to cope with a recession or a major property bust in Sydney.

McCrann wrote in The Weekend Australian that Morris Iemma still has the luxury of owning his state's electricity industry – something which generated "nearly $30 billion" for the Kennett Government. This isn't strictly correct because Victoria fetched $29.8 billion from its state-owned "energy" assets, but this included about $8 billion from gas and the NSW gas industry is already privately owned by the likes of AGL. The great Crikey power industry sell-off list provides all the details.

Similarly, NSW doesn't have the luxury of owning a lucrative compulsory third party insurance monopoly like the Transport Accident Commission – which has literally delivered a $7 billion windfall to Victoria's budget since 1993. The NSW debt spiral also comes after it has flogged off assets such as the TAB and most of its interstate rail assets through Pacific National.

One advantage that NSW does have is a booming coal industry because state royalties have doubled to almost $400 million over the past couple of years and more rises will no doubt be predicted in tomorrow's budget papers.

However, its fundamental problem has come from granting too many public sector wage rises for NSW teachers, nurses, coppers and the like without productivity trade-offs. NSW has led the country in this regard and its budget is now fundamentally stuffed unless some hard decisions are taken – but don't expect those to come from a decaying third term administration with a former Labor Council secretary as state Treasurer.

12. Phil Cleary's second crack at the sport to politics list

By Stephen Mayne

The Age has this morning reported that Phil Cleary, the VFA legend who replaced Bob Hawke as an independent in Wills, is contemplating a tilt at this year's Victorian election either as an independent or with political start-up People Power. Phil is already on our burgeoning sport to politics list but it would be a rare feat indeed if he managed to crack both state and federal politics.

The names just keep on coming and here are another nine:

Don Chipp: The Democrats founder and former Fraser Government minister played three VFL games for Fitzroy in 1947 and was also a very talented sprinter.

Trevor Sprigg: the Liberal MLA for Murdoch in WA played 152 games for East Fremantle, six games for WA and is a former chairman of selectors at the West Coast Eagles who also played first grade cricket for Fremantle.

Paul Gibson: state Labor Member for Blacktown in NSW for more than a decade, who played Rugby League for Penrith and other teams in the 1970s.

Mike Horan: Parramatta Eels rugby league first grader 1967-69 and former Australian Universities (union) captain. Elected National Party MLA for Toowoomba South in 1991, Health Minister in the Borbidge Government and touted as a future opposition leader after the merger fiasco. Mike's sporting prowess was overshadowed by his son Tim, Wallaby legend and now rugby commentator.

Bob Cheek: former Liberal opposition leader in Tasmania who was a ruckman for Clarence Football Club in the old TFL and even made its Team of the Century – albeit on the bench. Was also in the State side in 1969.

Murray Thompson: the son of former Victorian Premier Lindsay Thompson and Liberal member for Sandringham played for Richmond from 1973 until 1976.

Two more who failed to cut the mustard

Adair Ferguson: the Democrats candidate for the Federal seat of Ryan in 1990 was a rowing world champion who polled a very respectable 19%.

James Roxburgh: played for the Wallabies but became best known not playing for the Wallabies when he was one of seven Australian players who refused to play against the all-white Springbok team on their controversial tour of Australia in 1971. Stood as a Democrat candidate for the federal seat of Hume in 2001.

Once this list is finished, it will be interesting to whether there is another developed democracy which has made so many sporting stars politicians. Keep the additions coming to smayne@crikey.com.au and feel free to start on a comparative international list.

23. Unitab rejects Tabcorp as anti-pokies push gathers momentum

By Stephen Mayne, shareholder in Tattersall's, Unitab and Tabcorp

The board of Unitab has this morning come out swinging against Tabcorp's $14.25 a share takeover offer on the grounds that, unlike with its merger of equals with Tattersall's, a hostile bid against a competitor with big synergies should deliver a decent premium for shareholders in the target.

Tabcorp CEO Matthew Slatter was openly stressing on Business Sunday and Inside Business yesterday that this is definitely not a final offer, so the Unitab board is obliged to go through the process of rejection until that increased offer materialises.

Tattersall's doesn't have the financial firepower to match it with Tabcorp and is also severely disadvantaged by the heavy scrip component of its offer which will expose Unitab shareholder to the vagaries of Victorian politics in an election year when the renewal of its $2 billion pokies licence is rapidly becoming a hot political issue.

Only yesterday Sunday Age columnist and former ABC broadcaster Terry Lane ripped into Victoria's excessive dependency on gaming revenue and today's Herald Sun carries a very strong column from Sally Morrell, a veteran journalist and Andrew Bolt's wife, which began as follows:

I know exactly what Victorian Opposition Leader Ted Baillieu needs to do to lift himself from inevitable loser to a real contender. Just promise to get rid of the pokies. Yes, it's a big call. But I don't think our politicians realise quite how angry we are in the 'burbs about these horrible, horrible machines.

Hmmm, if the next Victorian Parliament follows that advice from the highest penetration newspaper in the world, Tattersall's will quickly be a $1 stock. Today it is down another 4c to $2.94 as it again approaches a record low.

In a strange way the takeover battle for Unitab, coming at the same time as the Bracks Government reviews duopoly pokies licences held by Tatts and Tabcorp after 2012, is actually going to crank up the political pressure against pokies in Victoria because the value of the licences will be widely debated and a whole lot more information is coming into the public domain.

For instance, check out the 252-page explanatory memorandum for the Tattersalls-Unitab merger and you'll find all sorts of useful information for anyone planning to campaign against poker machines at the Victorian election. I'll certainly be using it come election time as will Gabi Byrne, the most prominent reformed pokies addict in Australia, who this morning has been confirmed as the candidate for start-up party People Power in the upper house region of Eastern Victoria.

People Power is holding a function on 15 June with a range of interesting speakers such as Phil Cleary, Jack Reilly and Les Twentyman - and they've even got South Australian No Pokies kingmaker Nick Xenophon on the flyer, albeit in a "to be confirmed" capacity.

I've never before seen a situation quite like this where a multi-billion dollar takeover battles intersects with a state election campaign. As we saw with the Snowy, politicians can wilt under mounting public pressure but if the Bracks government is going to bend from its commitment to maintain 30,000 poker machines in Victoria, it had better do it before the takeover battle for Unitab wraps up as it would be monumentally material information.

24. Why James Strong will bail from Woolworths

By Stephen Mayne

The re-appointment last week of James Strong to the Qantas board and as chairman of the Australia Council makes the current chairman of Woolworths and Insurance Australia Group arguably the nation's number one professional director. For starters, there are only five remaining blokes who chair two top 100 companies in breach of the ASX corporate governance guidelines:

Charles Goode: Woodside Petroleum and ANZ
Don Argus: BHP-Billiton and Brambles
James Strong: Woolworths and Insurance Australia Group
Rick Allert: Coles Myer and Axa Asia Pacific
Mark Johnson: AGL and Macquarie Infrastructure Group

Peter Willcox, Graham Kraehe and John Morschel have bowed out from this list in recent times after vacating the chairs at AMP, NAB and Leighton respectively. And former Wesfarmers CEO Michael Chaney will replace Charles Goode on this list when he assumes the Woodside chair next year, given that he's already chairing NAB.

However, does anyone else sense that James Strong is preparing to retire from either Woolworths or IAG? His workload is ridiculous when you consider he also chairs the privately owned Rip Curl, the Australian Brandenburg Orchestra Board, the Sydney Theatre Company and the Australia Business Arts Foundation. Oh, and he's also a director of the Australian Grand Prix Corporation and an outfit called Dorna Sports SL.

The reason that I reckon Strong will bail from Woolworths is the increasing odium surrounding its insidious grog and pokies operation, something which doesn't sit comfortably with being Mr Community swanning around with the A-list at opening nights.

Woolworths has a 75-25% hotels and pokies joint venture with controversial Victorian hotelier Bruce Mathieson, who gloated in BRW's 2006 Rich List edition that it is worth $4 billion, although the magazine didn't buy it because Bruce was only valued at $850 million.

Woolworths is certainly top heavy with Victorian political risk based on these extraordinary figures quoted by The AFR's Chanticleer columnist John Durie last week:

Woolies has about 83 pubs in Victoria, making it the biggest single operator out of 1850 pubs in the state. More to the point, its sites house some 42% of the poker machines outside Crown. This means it collects about $250 million of the $2.4 billion in poker machine profits.

I'm contemplating a simultaneous tilt at the Woolworths board and state parliament in November this year on this vehemently anti-pokies platform but suspect James Strong won't be around to defend the destruction caused by this "product".

25. Getting ready for an ABC Learning showdown

By Stephen Mayne

With Kerry Packer dead, Rupert Murdoch scurrying off to America and John Singleton resigning from the board of STW Holdings, the ranks of Australia's public company boards are thinning somewhat if you're an activist chasing feisty exchanges with colourful heavy hitters.

This partly explains the rationale for flying to Brisbane on Wednesday for an extraordinary general meeting of shareholders in ABC Learning, which wants to ratify a $600 million capital raising to confirm it as the world's biggest childcare company.

ABC Learning CEO Eddie Groves is emerging as a head-kicking Rich Lister who is happy to tolerate conflicts of interest (his shareholding in Austock), sue regulators (this court case in Victoria) and hire politicians (former Children's Minister Larry Anthony) in a pattern of "whatever-it-takes" behaviour.

However, voting shareholders have an interesting dilemma on Wednesday because the placement was at $7.30 a share and the share price had fallen back to $7.07 this morning. If you had committed to buy stock for more than it is worth would you be tempted to vote against the capital raising? Of course, recipients of the new shares are not permitted to vote but how is this governed and who checks the voting?

Australia's corporate voting system is already incredibly sloppy because of the cumbersome manual processes and systems used by the registrars. Voting on placements is the best way to demonstrate the flaws in the system because in many ballots the new shares are not all excluded from the vote as the law requires.

At the other end of the spectrum you have the situation where all portfolios controlled by a fund manager are banned from voting when only one of its funds might have participated. For instance, hypothetically speaking, why should all ABC Learning shares held by Colonial First State on behalf of six industry superannuation funds be banned from voting if only three of them actually participated in the placement?

While placements are inherently corrupt in some senses because not all shareholders receive an equal entitlement like in a rights issue, shareholder ratification of placements are generally not controversial except in smaller company territory when they are used to dilute independent shareholders or entrench control.

Major shareholders certainly are not expected to vote against ABC Learning's issue on the basis of a share price wobble, but the poor counting serves to highlight how bad the registrar's procedures are in determining who has an interest, something which is a major concern in controversial matters such as last year's GPT/Lend Lease vote.

Check out the ABC Learning notice of meeting here and email smayne@crikey.com.au if there is a particular issue you want raised with Eddie, who sits atop a $2.5 billion company.