Flush with cash, News is cut loose

Here in newspaper-land, we do not luxuriate in billion-dollar government handouts, as do the big car makers Ford, Holden and Toyota.

Here in newspaper-land, we do not luxuriate in billion-dollar government handouts, as do the big car makers Ford, Holden and Toyota.

There is no solace for us in a $380 billion Reserve Bank bailout fund, which is the good fortune of ANZ, CBA, NAB and Westpac. Neither are we rusted together with the apparatus of state in the cosy shelter of a Marxist-Leninist monopoly, as is the delight of the ASX.

We do not pay 0.0001 per cent tax on each billion dollars of revenue like Google Australia, while the $40 billion broadband highway is unfurled. No, we have our pride. You will not see a newspaper company putting on an Oliver Twist routine for corporate welfare dole-outs. Not on your nelly. We battle on in our rows, like child labourers in a Bangladeshi textile factory, with nary a skerrick of self-pity.

And they are introducing "hot-desking" too, which is great because you do not know if the person that used to sit next to you has been dead for three weeks.

Over at the rival sweatshop, Rupert Murdoch's News Ltd - where the commentary is more Dickensian than the labour conditions - the New News Corp shares began trading this week, on a deferred basis. It is called New News because that is where all the old world media assets reside, the newspapers.

And you could have knocked us down with a feather; all the New News columnists really loved the deal. Fancy that.

At age 82, Rupert is determined to be the last man standing in newspapers. The Sun King has furnished New News with a war chest of $2.5 billion in cash, and no debt. Its assets, which include Foxtel, The Wall Street Journal and newspapers in Britain and Australia (75 per cent of the market here), may be "ex-growth" but they are veritably spitting out the cash.

Under the quid pro quo between Rupert and his US chief executive Chase Carey, News Corp's entertainment spinoff, 21st Century Fox, gets to trade on a higher multiple without the drag of old world assets. Makes sense. The stock, now two stocks, beat the market this week.

Also, Carey and the US institutions were never going to countenance the allocation of capital to the rust belt of old media.

The note that was missing in the upbeat cantata from the Vienna Boys Choir of News Ltd commentators was the risk to earnings from hacking, bribery and perversion of the course of justice.

A settlement is expected shortly with the US Justice Department, mooted at $850 million, for alleged violations of the Foreign Corrupt Practices Act.

The impending trial of Rebekah Brooks and the potential fallout from the Wendi Deng divorce are the two other "known unknowns", though the latter should be quarantined from the stock.

The liabilities do not all lie with New News though. The newspaper group shoulders the criminal risk and Fox takes the civil costs. Even with the spectre of a few payouts then, and accounting for the mooted $300 million to $400 million in restructuring costs, New News has a handy balance sheet for Rupert's next round of acquisitions.

Question: What does $80 million in liquidators' and lawyers' fees buy?

Answer: Nothing.

The settlement that was supposed to have been struck this very week, after five years, between Lehman Brothers Australia and the councils, churches and charities has collapsed in a smoking ruin.

As if the sheer magnitude of the fees to the insolvency privateers from PPB and their platoons of pettifoggers were not grotesque enough, the deal collapsed due to the most extraordinary turn of events. Even the lawyers themselves were calling it shameless.

An operative from Lehman Brothers in New York, one Abhishek Kalra, bought some proofs of debt from another Lehman entity in Hong Kong a couple of weeks ago.

These debts made Kalra a Lehman Australia creditor to the tune of $130 million, more than enough to derail the deal with the councils, churches and charities that had toasted hundreds of millions buying Lehman's financial products.

Here's the catch: Abhishek Kalra was one of the Lehman investment bankers who concocted this toxic rubbish in the first place; including the infamous Federation CDO (collateralised debt obligation) that blew up in short order. Having been responsible for the losses of the not-for-profits, he has now scuttled their settlement in a sneaky bid to get a piece of it himself.

It does not get much lower than that. What did his lawyer, Philip Hoser from Jones Day, think about the ethics of this?

"There is no question of our client, Lehman Brothers Holdings Inc, or our firm, acting unethically or improperly in any way," he said.

Why did not PPB and its $30 million worth of legal advice see this coming? The councils, churches and charities bought more than $1 billion in toxics from Lehman during the boom, and quickly incurred huge losses.

Lehman bit the dust in September 2008; PPB was appointed liquidator of Lehman Australia. Instead of doing a deal with the creditors they fought them to the High Court.

By last August they had racked up $62 million in fees, of which $28 million went to law firms. Since then the fees have ratcheted up another $20 million as they prepared the scheme settlement for this week.

And get this, the scheme docs that were to have been voted on before Kalra turned up include a release for the liquidators covering claims relating to their conduct.

Memo to ASIC: Dear Team, how can liquidators give themselves a release from doing their statutory duty - that is, acting in the interests of creditors?

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