Crikey had a swing at
Mayne CEO Stuart James last week for the all-round incompetence that
saw its hospital division sold for $800 million in late 2003 and then
re-sold by the new owners for $1.4 billion earlier this month.

Word
now reaches the bunker about the process that led to the botched
hospital sale. In early 2003, the Mayne board received a review of each
of the divisions. Normally this is a great idea, but in this case it
wasn’t made by the heads of these divisions but rather by some
corporate M&A types. Stuart James got across exactly the message he
wanted – dump hospitals, grow pharmaceuticals.

The Mayne board
obviously thought they didn’t need to see the heads of the divisions,
who were hardly consulted. So the story around that time was that
Mayne’s impressive new hospitals boss, Dr Robert Cooke, never presented
to the board on his view of hospitals exploring what sort of turnaround
was possible. Is it a surprise that a hospital operator knew what was
ahead of him and was one of the reasons he took the risk in an MBO?
Only question is, does the $600 million profit on the sale of his
business 18 months later make him look clever, or rather make Mayne
look stupid?

Stuart James has also driven Mayne’s strategy of
buying GP practices, radiology groups and pathology groups, with only
the latter performing well. The other two have been a wasted investment
for Mayne, driven by James and his former CFO, now “development man”,
Peter Jenkins. The GP business doesn’t lose money any more, but is not
a big earner and the radiology business is a long way behind industry
averages in performance.

James and Jenkins are also two of the
three people (the other being former CEO Peter Smedley) who decided to
buy FH Faulding in 2001 for its pharmacy distribution business, and
have since tried to flog that division, thereby destroying value. The
only part they didn’t want at the time has become their primary
strategy – pharmaceutical sales and manufacturing – and that has done
well.

Europe and Australia are good, but the US division is
struggling. Evidently their results to date have come mainly from
Faulding’s pipeline of products, although no-one can explain how Mayne
will be able to make better acquisitions than bigger, more experienced
pharmaceutical companies.

People around James don’t admire or
respect him because when Mayne had the terrible year, and the hospitals
business collapsed, he was the COO. The CEO went, the Hospitals GM
went, but James survived and was made CEO. Being a COO normally mean
you’re responsible for business performance. The disbelief at his
promotion still exists.

The rumbles about a break-up of the
whole business are getting noisier. Of course, that would be the
ultimate admission of failure for a once proud and successful Melbourne
establishment company. Can shareholders ask for a refund from the board?

Peter Fray

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