Let’s get Lachy and James in the box
Crikey will be pushing James Packer and Lachlan Murdoch hard at the upcoming PBL and News Corp AGMs about what the hell happened. If Lachlan is up for re-election, it would be worth standing a candidate specifically as an alternative to him given the disasters in Super League, Foxtel, Fox Studios, One.Tel, Colonial Stadium and Open Telecommunications.
The Australian is busily running the articles which claim boardroom deception and shifts the blame to PBL but at least a writ would maybe force the Packer and Murdoch media to face up to some specific culpability for their employers.
If ASIC has already been around to interview James and Lachlan as directors they should surely be required to get on the stand and answer a few questions in public about what happened at One.Tel and what they knew.
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It is interesting that 3000 creditors are owed $600 million and will probably recover less than 20c in the dollar but 1400 staff were owed about $5 million but have now got a pay rise and will get $19 million or some 400c in the dollar.
One.Tel workers have actually got an effective pay rise from the Howard government whilst hundreds of businesses are looking down the barrel of a $600 million debt.
Let’s not mince our words here. One.Tel was a non-union shop that hired lots of cheap young call centre workers on $28,000 a year with no provisions for redundancy.
When the business goes belly up, all these unions that had rarely been near the place suddenly ark up and get the workers a payout they were not entitled to.
This has blown out the workers entitlements payment to $19 million from well under $10 million. So who is going to pay for that? The long-suffering creditors of course.
And it is not as if these workers will struggle to find new jobs. Call centre jobs rose by 17 per cent last year and are projected to rise by 14 per cent this year. Anyone with experience in a One.Tel phone farm should not have too much trouble finding a new gig in a growth industry.
Afterall, someone has got to service the 1 million Australian customers that One.Tel will lose. Some of these workers will now get a nice payout and then go and get a job in a Telstra or an Optus phone farm which many small business creditors will get 10c in the dollar and go out of business.
Jodee Rich and Brad Keeling have both committed to kick in to pay the entitlements so, as John Howard is suggesting without naming names, why shouldn’t James Packer and Lachlan Murdoch do the same?
Afterall, the Daily Telegraph hounded the PM into bailing out his brother’s workers and then The Australian clobbered him for cronyism. All of this was in the wake of the digital decision which went against Murdoch.
And isn’t it amusing watching the politicians queue up to beat up on Rich and Keeling after the mogul sons declared it was open season on them.
Peter Beattie reckons they should pay back their bonuses but convicted Labor rapist Bill D’Arcy should keep his taxpayer funded $600,000 super payout.
If you can run around reversing contracts, then shouldn’t the Howard government pay back some of the $523 million they received from One.Tel for spectrum in 1999. Afterall, it was this deal more than any other that sent One.Tel broke.
Rich and Keeling got their $US4.5 million bonus payments when they satisfied performance criteria in their contracts and got One.Tel’s market capitalisation above $3.5 billion in November 1999. Shouldn’t the tax department pay back their slice of these bonuses too.
Ironically, it was the disclosure of this that ultimately send the company broke because the share price crapped out as the institutions which did not know about the deals expressed their disapproval.
This meant One.Tel could not raise any more equity. The same thing happened to Austar and Hutchison Telecommunications but in their cases their rich global parents wrote out cheques to underwrite the slipping business plan.
The Murdochs and Packer’s reneged on the implied deal that they would not let One.Tel go broke and now have a moral exposure just as Rich and Keeling have a moral exposure to pay back their bonuses.
I know several shareholders who bought One.Tel shares because the Murdochs and Packers were making positive statements about it.
Lachlan is now in damage control and The Australian is running story after story about how Rich and Keeling were telling lies to the board and the market.
Your job as a major investor and director Lachlan was to find out what going on. You should have installed some financial managers from the moment you invested your first dollar. Unfortunately, your management team is thin on the ground, especially when you’ve got a former tabloid editor John Hartigan as your new CEO.
Given that it has been the Murdoch and Packer press who ran the headlines hardest that sparked the politicians into action in calling for Jodee and Brad to pay back their bonuses, maybe we should run an equally vociferous campaign staking out the multi-million pads of James and Lachlan in calling for them to pay $100 million each to compensate creditors and shareholders who blindly followed them into One.Tel.
They are the ones who trashed this business by walking away, thereby instantly destroying any value. An orderly sale would have recovered hundreds of millions more but who cares when you are talking about lots of small businesses getting hurt and can blame Brad and Jodee for everything.
Lucent has also slapped a $1.2 billion claim on One.Tel and injected their own receiver for the Next Generation mobile network that is half built.
The question of succession at News Corp will be under the microscope after this episode. In Crikey’s view, Lachlan is no longer fit to be “first amongst equals” in the succession debate. My call is that he’s blown it and James and Elisabeth are now more suitable successors if you believe in giving the third generation of Murdochs a go at all.
The One.Tel collapse is close to the fastest destruction of $1.5 billion in Australian history. The two moguls have lost about $900 million between them and Australia’s institutions have dropped almost $500 million.
One issue that has not been addressed yet is how much of the $900 million News and PBL recovered in advertising revenue. A couple of their capital injections never actually saw the cash paid into One.Tel because they were just set aside in pre-paid advertising accounts.
How much of this money remains in these accounts and where does it rank?
It is hard to believe that One.Tel’s value peaked at more than $5 billion in November 1999, which is about the time Crikey sold 1000 shares at $2.40 just as News Corp was injecting another $200 million at $1.20 a share. Unfortunately we hung on to the other 1000 to the death.
This valuation was also what triggered the $15 million bonus to joint MDs Jodee Rich and Brad Keeling.
So what happened to the $1.5 billion that was injected by the moguls and institutions? Lucent is due to receive $1.1 billion for building the Australian mobile mobile network and Canberra picked up a cool $523 million for spectrum in mid 1999.
The rest was blown on marketing and opening offices in 7 countries. Rich and Keeling got $50m.
So, did anyone make money out of One.Tel? Ironically, HIH/FAI invested $475,000 and pulled out $60 million. Frank Lowy’s family made $15 million selling out near the top. The smart players in Sydney’s eastern suburbs always know where the exit is.
Rodney Adler made more than $10m selling shares he held personally and neatly timed his resignation from the One.Tel board on April 12 this year.
James Packer and Lachlan Murdoch have told the market they were “profoundly misled” by Rich and Keeling. But how can this be so when they’ve been on the board for two years. Lachlan never turned up to the last two AGMs that Crikey attended.
Interestingly, One.Tel dumped Nelson Parkhill as auditors last October and brought in Ernst & Young, the, the accounting firm of choice for the Packers.
It was the auditors who gave News and PBL the bad news after they punted Rich and Keeling and committed to a $132 million rights issue on May 17.
There is a real sense of de51 ja vu in recent weeks. Jodee Rich was one of the 1980s entrepreneurs whose computer company Imagineering went under. Rodney Adler’s dad Larry was another one of the highest flying entrepreneurs in the 1980s. Then there is Joe Gutnick whose Centaur Mining & Exploration went broke after the 1987 crash and has just gone broke again with losses of $500 million.
So how much did Jodee Rich and Brad Keeling pull out of One.Tel. Recent media reports have suggested about $50 million from salary and share buybacks. Will they have to sell their tropical islands, aeroplanes, fast cars and waterfront mansions now that the whole thing has exploded? You bet.
Lastly, here is a letter sent to Crikey by a media proprietor who is commenting on the failures of the mogul sons Lachlan and James.
Failure of the sons
So now One tel goes into “administration” – read receivership – with hundreds of millions of losses. Chalk up another loss for the poor old News Corp and PBL shareholders thanks to their over-promoted and inexperienced chairmen.
Really, when is someone going to stand up to Rupert and Kerry and demand they sack their sons? Nepotism is one thing but the James and Lachlan show has cost shareholders billions as these two clowns lurch from disaster to disaster. NRL, Fox Showgrounds, Foxtel, News Interactive and now One Tel – you name it, these kids have burned it. Even their key franchises are slipping badly with Nine’s ratings now falling behind Seven – a previously unthinkable development – and large circulation falls at most of News Ltd’s mass-circulation daily titles.
Jimmy and Lachy are now trying to blame mate Jodee for One Tel but it’s not good enough. They were directors and they should have known what was going on. Better still, they shouldn’t have made the investment in the first place. They were totally unprepared for the risks of going up against telco heavyweights and couldn’t even be bothered managing key staff sufficiently to stop Rich and co ripping out millions in unjustifiable management fees.
I doubt whether even James and Lachlan, despite all their apparent carelessness, would allow this sort of gross mismanagement at their own companies. Now it is time they went themselves. If the “independent” media and institutions don’t demand some accountability in these public companies now, will they ever?
Australia really has been a disaster for News Corp. They’ve blown about $500 million on One.Tel, $500 million on Super League and $150 million on Fox Studios,
News also sold out of Seven at about $4.50 when the stock is closer to $6 now. The smartest move they did under Lachlan was selling a 50 per cent stake in Ansett to Air New Zealand for about $600 million two years back.
But would you buy a share from News Corp. They dumped the 40 per cent stake in PMP at about $2.50 a share three years back and the stock is now wallowing at 60c. Pity poor old PBL which just bought 5 per cent at more than $1 a share. Ouch.
Finally, this is the statement the mogul sons put out pointing the finger at everyone but themselves.
James and Lachlan point the finger
Publishing & Broadcasting Limited (“PBL”) and News Limited (“News”) today announced that the Directors of One.Tel have advised that the company is insolvent.
This follows due diligence investigations which led the two independent and two management directors of One.Tel to resolve that the $132M rights issue would be insufficient to assure the solvency of the company. The PBL and News directors abstained from the vote.
The One.Tel directors also resolved to appoint Mr Steve Sherman and Mr Peter Walker of Ferrier Hodgson as Administrators.
The Chairman of PBL, Mr James Packer, and the Chairman of News Limited, Mr Lachlan Murdoch, said today: “Like all shareholders we are angry.”
“We have been profoundly misled as to the true financial position of the company.
“We intend to explore all remedies available to us.
“We welcome the Administrators’ assurance that One.Tel would continue to trade as a going concern and that they would seek to identify the best ways of maintaining One.Tel’s value for the benefit of all shareholders and creditors.”
Mr Peter Yates, Chief Executive Officer of PBL and Mr Peter Macourt, Deputy Chief Executive Officer of News Limited, of One.Tel, said the due diligence investigation revealed that the financial position of the company was not as reported to the Board on May 17, nor at earlier Board meetings as they understood it
“The Board was advised on May 17 that the proposed $132 million rights issue was prudent but not essential. However ten days later, due diligence by the company’s auditors revealed that the $132 million rights issue would still be significantly insufficient to assure the company’s solvency,” they said.
Media enquiries for PBL: Mark Rudder: Cosway PR: (0411) 362 362.
Kris Neill or Wendy George (ex Bob Carr spinners now at News Ltd): 02 9288 3274