KPMG rep thakes another hit. The Age reported yesterday that creditors of Bill Express (and creditors including the ANZ Bank) are considering legal action against former auditors KPMG and Pitcher Partners after is was alleged that the company was insolvent as far back as 1 January 2008. In reviewing Bill Express’ December Financial Statements, KPMG noted that:

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Bill Express Limited is not in accordance with the Corporations Act 2001, including:

  •     giving a true and fair view of the consolidated entity’s financial position as at 31 December 2007 and its performance for the half year ended that date; and
  •     complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations 2001.

The financial report which was reviewed by KPMG claimed that Bill Express had net assets of more than $66 million. Fast forward six months and it has been revealed that the company was probably insolvent at the time and currently has a net debt of $181 million. The reports further adds to KPMG’s reputational woes, with the Big Four firm already reeling from its association with WestPoint, MFS, Allco and City Pacific. KPMG was paid $287,000 by Bill Express in 2007 for audit services as well as $167,135 for “other services” during the year. For Bill Express shareholders, that wasn’t money well spent. — Adam Schwab

ABC Learning still talking the talk. Eddie Groves battle against the inevitable continues, with the pugnacious CEO of ABC Learning Centres refusing to step aside, despite the company last week announcing a shock $213 million write-down and a forecast loss of $437 million for 2008. While the company’s share price has slid from $8.80 in December 2006 to only 68 cents, Groves still claimed that ABC is “a very good company. We made a mistake in a year out of 20 years. I don’t think that’s too bad. I am not saying that lightly.”

Notwithstanding Groves’ optimism, ABC’s entire business plan is under serious question. It was revealed by Crikey last month that ABC had been using its own overpriced scrip to pay exorbitant amounts for only marginally profitable childcare centers. Much like WorldCom or Tyco, ABC relied on continued acquisitions to boost revenue, at the same time, the company recorded anemic return-on-equity and diminishing profitability.

Further, Groves’ credility must be questioned. On 22 April this year the company stated that “ABC expects strong underlying centre EBITDA growth by addressing [various] factors and a number of key initiatives.” A mere two months later, on 30 July 2008, ABC shocked the market by announcing the additional $213 million in write-downs. Of most concern was the fact that $15 million of the write-down was not at all extraordinary. Rather, it was an operating write-down, spurred by higher wages and lower occupancy levels. That means the company can’t even meet basic operating targets, let alone vindicate the hundreds of millions of dollars worth of intangible assets that sit on its balance sheet. Eddie Groves is wrong. ABC is not a good company. It is a terrible company which earns appalling returns and is poorly managed, blowing hundreds of millions on advisor fees, ill-fated overseas adventures and overpriced acquisitions — all the while, receiving billions of taxpayer dollars. — Adam Schwab

Texas pacific not playing by the rules. The hostile LBO bid by Texas Pacific and Global Infrastructure Partners for Asciano is a far cry from the old fashioned leveraged buy-out – the barbarians aren’t merely at the gate, they have taken over the village.

While not the first person to ever conduct an LBO (or “bootstrap acquisition”, as they were once known), the father of the modern-day LBO is Jerome Kohlberg. Kohlberg was insistent that private equity firms like KKR run LBOs as entirely friendly affairs. In most cases, the PE firm would team up with management, conduct painstaking due diligence, and acquire the company. KKR assiduously avoided deals without management, while hostile LBO bids were not unheard of (the infamous Barbarians at the Gate takeover of RJR Nabisco (by KKR) was initially a hostile deal made in response to an LBO by Shearson Lehman and existing RJR management), they were a last resort.

The fact that Texas Pacific has jumped head first with a low-ball offer for Asciano (Asciano shares were trading at $11 last year, compared with the offer of $4.40) is confirmation of a huge dereliction of the guiding principles of LBOs – that is, a friendly deal with complicity management and the use of debt and stringent management to improve efficiencies at the target company. Texas Pacific’s bid is an opportunistic attempt to snare control of a company for a bargain price. Jerome Kohlberg would be shuddering. — Adam Schwab

Twiggy to give away fortune.  AUSTRALIA’S richest man and the boss of Fortescue Metals plans to give away nearly all his fortune before he dies. Iron ore magnate Andrew “Twiggy” Forrest has risen rapidly through the nation’s rich list as shares of his Fortescue Metals Group have catapulted ahead with first exports this year from its Pilbara mines and ports.

“I don’t aspire to great wealth and I don’t admire it and I don’t intend to leave this earth as a rich man,” Mr Forrest said at the Diggers and Dealers conference in Kalgoorlie. “I intend to give it away.” If Mr Forrest, who has an estimated $8 billion, gave away 95 per cent of his wealth, as software tycoon Bill Gates has vowed to do, he would still be wealthy by most measures. — Matt Chambers, The Australian

Costly computers. Consumers have lost almost $US8.5 billion over the last two years to viruses, spyware, and phishing attacks. But computer security problems have been good for the computer business — consumers replaced some 2.1 million computers due to malware infections. Consumer Reports published these findings in its September issue as part of its annual State of the Net survey. The data is based on a survey of 2,071 online households conducted by the Consumer Reports National Research Center.

Among other notable data points: consumers have a 1 in 6 chance of being victimized by cybercrime, down from a 1 in 4 chance in 2007; 19% of respondents said they didn’t have anti-virus software on their computer; and 75% of respondents said they didn’t have an anti-phishing toolbar.

Consumer Reports also lists what it considers to be the seven most common online blunders. These include failing to keep anti-virus software up-to-date; clicking on e-mail links to access financial Web sites; using a single password for all online accounts; downloading free software; assuming that Macs are safer than Windows PCs; clicking on “scareware” pop-up ads that claim your computer is at risk; and shopping online without taking extra precautions. — Thomas Claburn, InformationWeek

Peter Fray

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