tip off

While young Murdoch loses the plot, Thomas the Tank Engine and Barney the Dinosaur are broke …

Murdoch watch: Son James chucked a wobbly in front of witnesses in the offices of The Independent in London this week. The amazing scene is now in every London newspaper and on the web. All that was missing was the six shooters drawn, cocked and waiting to be fired. Instead of berating and hectoring the likes of the BBC, James has gone off and abused the editor of The Independent over a mildly interesting promotion that took a swipe at Murdoch senior. ”Staff at The Independent newspaper have been stunned by an unexpected and angry visit to their offices by the rival newspaper proprietor James Murdoch, chief executive of News Corp Europe and Asia. On Wednesday afternoon, Mr Murdoch walked into The Independent’s newsroom in Kensington, central London, carrying a copy of the newspaper. He was accompanied by Rebekah Brooks, chief executive of News International, which publishes The Times and The Sun among others,” the FT reported..

This story is true: “The newspaper he was carrying was one of 300,000 Independents being distributed for free in the UK that day with a special wraparound front page advertising The Independent’s claim to freedom from proprietorial interference. The advert stated: “Rupert Murdoch won’t decide this election — you will.” The younger Murdoch reached the busy editorial desk where The Independent’s editor-in-chief, Simon Kelner, was planning the following day’s edition with colleagues, and brandished the newspaper in his hand. “What are you f-cking playing at?”  Murdoch asked Kelner in a loud voice and in front of dozens of bemused journalists. At that point, Kelner invited Murdoch and Brooks into his office where there was a heated conversation lasting about 15 minutes, one of those present told the Financial Times. The Independent boss later told colleagues Murdoch had complained, with the use of further expletives, that the advertisement besmirched his father’s reputation.” Amazing scenes, as Private Eye would have said.

Yes it is: It seems Murdoch and Brooks (nee Wade) had been in the London building where the Independent is based (Northcliffe House) to see executives of the Daily Mail and General Trust. Perhaps it was to give them a touch up after the group told a London conference a few days ago that it would not be charging for its online news. The group’s website is the most popular news site in the UK. James Murdoch is emerging as a somewhat edgy, aggressive executive with a nasty streak. The kid son is rich, very, very touchy, and obviously under pressure to prove himself his father’s son. But dad takes epithets such as The Dirty Digger (Private Eye), in his stride and seems to luxuriate in them.

Default, anyone? Greece; it’s a only a matter of time, no matter how much money is provided as a backstop. The €40 billion-45 billion  rescue of Greece is much, much closer after events overnight Thursday. Moody’s Investors Service downgraded its rating of Greek government debt, market yields on Greek debt soared to record levels as investors abandoned the country. Despite all this the country doesn’t want to be saved, the people are revolting and refusing to accept they are part of the problem and the solution. Now Greece’s 2009 budget gap is much larger than first estimated. The budget deficit last year was 13.6% of GDP, not the 12.7% the government has been telling us for months now. Europe’s independent statistics commission produced the new estimate, among similar reports for all the countries in the EC. Moody’s cut its rating on Greek debt by one notch to A3, four above junk. That was a blow because Moody’s has been hesitant to cut European sovereign debt ratings.

But it’s coming: The news saw falls across the board in Greek asset prices, with the Athens sharemarket badly hit. But bonds took the brunt of the selling and other debt-choked European countries, and increased pressure on Athens to get its hands on the billions of euros of emergency loans from the EU and the International Monetary Fund. Yields on Greece’s two-year government bonds jumped four percentage points to 12.26% at one stage, the 10-year bond yield hit 9.17%, with the premium over German bonds of the same maturity hitting an incredible 6% at one stage. They finished at 8.83%, the highest since 1998 (new highs have been hit on every day this week, so far). The betting now is that the IMF, EC and ECB will reach a broad agreement to allow Greece to start tapping the back stop money to calm markets, possibly by early next week. But what happens when Greece chews up the €40-45 billion it wants from Europe and the IMF, and wants more?

Government talks: So what was the reaction of the government: at least eight hours of talks to discuss the deepening crisis, which came a day into an expected 10 days of talks with the IMF, EC and ECB. The worse budget figures were announced as tens of thousands of Greek nurses, teachers and other public workers staged a one-day strike to protest against the government’s austerity measures. They were ignored. But it was Eurostat, the EC’s statistics group that revealed the deficit blowout, not Greece, which upset some EC governments. The budget deficit of was €32.34 billion or 13.6% of GDP 2009, not the 12.7% previously reported. And the new figure might be raised by between 0.3 and 0.5 percentage points of GDP, because of uncertainty about the quality of Greece’s data and accounting procedures, Eurostat said. The government still wants to cut the deficit by 4%, but not to the previous target of 8.7%, but something north of that, try 10% for starters.

But Greece is not alone. According to Eurostat, even if Greece’s deficit ratio rises to about 14% or a bit more, Ireland will still have the highest deficit-to-GDP ratio in Europe at 14.3%. But the markets trust Greece because it is taking the tough measures to cut spending and recapitalise its banks, and doing so transparently. After Ireland and Greece, the UK ratio was 11.5%,  Spain’s deficit-to-GDP ratio was 11.2%, Portugal’s was 9.4% and Italy’s was 5.3%. Many of these countries, such as Greece, the UK, Italy, Portugal have been running deficits for years, which were boosted by the impact of the crunch and the recession.

Watch Japan: And it’s not just Greece and some of the other black holes of Europe causing waves. In Asia, Japan is the king of the debtors, and on Thursday Fitch, the third biggest credit rating group, put the country on notice over its still soaring government debt. “Japan’s sovereign creditworthiness (is) at risk from rising government debt,” which is now running about 200% of gross domestic product, Fitch said. And, “In “the absence of sustained economic recovery and fiscal consolidation, public debt will continue to grow, providing incentives to lower the ratings over the medium term.” Last year Fitch gave Japan’s long-term debt an “AA” rating, third on a scale of 22. Based on fiscal 2010’s nominal GDP of ¥475 trillion ($A5.5 trillion), Japan’s debt is estimated to reach ¥950 trillion ($A11 trillion). About 90% of the debt is held by domestic investors, meaning low, low interest charges. Japan’s household savings are heavily invested in financing the government (and services, etc, provided by Government). With only 10% held offshore, the power of the bond market vigilantes to “do a Greece” is limited. Instead of a rapid strike, Japan faces a slow financial strangulation at the hands of the government and themselves.

Ausrich: All those pay TV subscribers around Australia paying over more than $83 a month to the US-controlled Austar have had another bad joke played on them. They are paying too much to a semi-monopoly that remains very, very profitable. The March quarter results of Austar show a company rolling in cash, so much so that it’s time for another share buyback. The notice of meeting for the 2009 AGM confirms that it is making super profits. The company wants shareholders to approve a buyback with of $400 million this time, against the previous one of $300 million, which wasn’t filled because of the credit crunch and the fact that no one would lend to highly geared companies such as Austar (you borrow the money to pay the cash to shareholders accepting a buyback, thereby reducing taxable profits and stiffing taxpayers).

Ausveryrich: Now times are better in the markets and with Austar reporting a 22% lift in quarterly pre-tax profit with churn (cancellations) down, stronger revenue and a fall in operating expenses, borrowing will be easier, if need be. Austar said revenue in the quarter rose 7% to $174.29 million. It had a gross profit of just over $95 million, up 5% on a year ago. That’s a gross profit margin of 54%. Operating expenses (excluding programming and communications costs) fell 2% to $34.80 million. Pre-tax profit was $34.42 million. Average revenue per user rose 5% to $83.85 a month. That’s about $1000 a year. A veritable cash machine. The company is 54% controlled by John Malone’s Liberty group. That level of control will rise with the buyback and could jump to near 75% if the all $400 million of shares are bought back. Liberty is like Kerry Stokes in the Seven Network, just sits there and allows shareholders to be paid the money they already own for their shares. Not a penny comes out of the pocket of Malone and his companies.  Just how many shares will be bought back is an open question; in the previous buyback was for $300 million, but only 68 million shares were purchased, at a cost of $72 million.

HIT flops: And finally a report to warm the hearts of all rational investors. HIT Entertainment, owners of such valuable kids brands as Thomas the Tank Engine and Barney the Dinosaur, is all but broke. Hard to believe, isn’t it? London media reports saying that HIT has been forced to write-off $US 500 million (£325 million pounds) because of losses and a fall in the value of the brands. The London Telegraph reported this week that the results to July 2009 revealed a pre-tax loss of $US569 million compared with a loss of $16.3 million in the 2007-08 financial year. And further, that the loss ”confirmed the write-down of goodwill of $US503 million effectively meant the £489 million investment made by Apax, the UK’s largest private equity firm, to acquire the company in 2005 was now worth zero.” The company said gross profit had fallen from $US136.1 million to $US128.3 million, on a rise in revenue from $US238.4 million to $US249.2 million. The killer was the interest cost of $US482 million in debt. So Apax followed the same script as private equity geniuses have been writing for the past three years, write down the value of the company to nil, force a renegotiation of the debt and stiff  creditors and investors. Will Apax return any of the fees it charged its investors (and dividends) taken on this deal in the good times? Another triumph for the private equity industry and its shrills to boast about?

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  • 1
    Alex Clarkin
    Posted Saturday, 24 April 2010 at 6:04 pm | Permalink

    Tick. Tick. Tick….

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