Michael Pascoe writes:

When Crikey wondered last Monday what was
really going on with Australian Pharmaceutical Industries, the mob who couldn’t
release their result for a month because their abacus was broken, even our
fevered imaginations didn’t run to yesterday’s fantastic explanation. While we
were thinking “takeover games” (and still are), the main event was cyber
unreality.

As widely reported, API announced it has
lost $17 million – half of its profit. Apparently the money has just
slipped into a crack between different computer systems. It would never have
happened if they’d stuck with the abacus.

There’s also a little matter of CEO Jeff
Sher no longer being with the company, but API chairman Peter Robinson is not
explaining either loss in a form that makes any sense – and he effectively
admits it. Pete hopes to be able to tell shareholders something about what’s
happening with their company by the AGM next month. At present, he says he
doesn’t know himself.

API shares have been suspended from trading
since 11 July and will no doubt be caned if they resume on Thursday after the
publication of some heavily qualified accounts.

The amazing thing is that API staff and
outside forensic accountants have been crawling over the computer systems for
well over a month now trying to understand what’s happened to the missing $17
million. It seems there was $17 million extra profit in the bank under the old
computer system, but when they switched to a new system, it was no longer
there.

On the information so far supplied by API,
the solution to their problem is obvious: Throw out the new computer system and
keep using the old one – it obviously gives much better performance.

And that could be just the start. API has a
brilliant opportunity to diversify out of drugs into accounting software. There
must be hundreds of ASX-listed firms that would like to double their profit by
using such a magical computer. The only problem might be obtaining the rights –
I guess they might have to negotiate that with the estate of Ken Lay.

Meanwhile there’s another little issue
ticking away for API – will the weakness brought on by the board and management
not knowing what’s in the bank mean it could be easier for Woolworths or maybe
Coles to mount a takeover?

The replacement of Sher with Stephen Roche
as CEO might add fuel to that speculative fire. Roche’s title since joining API in April last year had been head
of strategic development. “Strategic
development” can sometimes mean finding the best takeover bid – an event that
can trigger very nice retirement packages for CEOs.

Some folks reckon Roche has prior form in
facilitating takeovers from his time as Faulding when it was purchased by Mayne.
After the takeover, Roche became Mayne’s group general manager of health services.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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