KGB Interrogated

Bruce Guthrie quizzes Kohler, Gottliebsen and Bartholomeusz on the sale of AIBM to News Ltd, including why they knocked back an offer from Fairfax.

Alan Kohler, Robert Gottliebsen and Stephen Bartholomeusz tell former Herald Sun editor in chief Bruce Guthrie:

- Concerns about potential needs to raise capital at a low price and diluting their shareholdings were key drivers behind the sale of the business.

- Why AIBM knocked back a takeover offer from Fairfax.

- How Business Spectator and Eureka Report readers have responded to the deal.

- What the KGB think of News Corp's culture, its changes in response to the UK phone hacking scandal, and the differences between Fairfax and News Ltd.

- Why Alan sees no conflict of interest in his role with the ABC.

- Their ambitions for Business Spectator and Eureka Report over the next five years.

Bruce Guthrie: Stephen, Alan, Bob, how does it feel to be millionaires?

Bob, you’re probably used to the feeling, so you don’t have to answer this one straight away, but Alan, why don’t we ask you first?

Alan Kohler: Well, my house was already worth more than a million, so you know, it’s irrelevant, actually.

Stephen Bartholomeusz: The money I get out of it, it’s nice, but it’s not actually life changing.

Robert Gottliebsen: Look, a bit of money was nice, but it wasn’t the main motivating force. I’m actually working much longer than I ever expected, so I have my finances organised by a retirement around, you know, sixty-five.

AK: Just on the money, for me it’s really a matter of being able to live just the way I’ve always lived. It doesn’t change my life at all, but perhaps let me enjoy it a bit more comfortably.

BG: But the money would have to have been part of the attraction, wouldn’t it?

AK: Of course.

SB: Yeah. For us though, Bruce, I think it’s worth saying that the people inside the business – so the employee shareholders, if you like – we had a kind of different view towards this transaction than our financial investors. Alan said all the way along that we didn’t build this to sell it, and we didn’t. But when you’ve got financial investors and someone comes knocking very loudly, you’ve got to listen to them. And when they put a serious price on the table, you’ve got to respect the fact that there are investors in there who need a return on their investment. And so, yes, there’s a certain amount of regret about the fact that this is how the first part of the journey has ended, but a bit of excitement too about what the next bit looks like.

BG: I interpret that rightly or wrongly to mean that the money men drove this, that as journalists you would have preferred to have stayed independent, but because the money men wanted to kind of get their money out, they drove the prices. Is that fair?

AK: That’s saying it a bit bluntly I guess, but you know the fact is that when I started Eureka Report seven years ago, the money men, so called, John Wylie and Mark Carnegie, did put the money in, right. They backed me. They backed my vision for what we were creating and it was fantastic that they did and for that they owned two thirds of the business between them and then I got one third. That was the deal at the time. Now, obviously over time that kind of diluted; we brought in other people like Bob and Steve. But nevertheless, those guys – and Eric Beecher whom they also brought in – became our financial investors, so it is true that they won a return on their investment.

But the other thing is that once they became more sellers than buyers, it meant that we had a constraint on where we were going to get capital from. I mean, they probably would have given us capital, but maybe they wouldn’t because they wanted to sell... particularly if the three of us knocked back a decent bid, they wouldn’t be happy. They weren't going to just kind of be inclined to give us more money when we need it. So really, we felt that the only way we could continue on and provide the service we are currently providing and grow the business was to really just link up with a big organisation.

BG: So, I’m no financial wiz, but was a float ever considered?

AK: It was possible, but the market conditions aren’t ready for that. We couldn’t possibly float at the moment and, you know, maybe in a few years’ time, but really the opportunity was now. You know, we had Fairfax and News Limited both looking to buy us and so now was the time to look at that.

BG: I’ll come to that in a minute about Fairfax and News and, Bob, why one was preferred over the other, but there’s…

RG: Bruce, can I come in now?

BG: Well, there’s just the threshold question, Bob, that I want to get out of the way before we get into the detail and maybe I’ll throw to you first. What do you say to people who reckon you’ve not just sold, but you’ve sold out?

RG: Well, I’ve got a three-year contract with News Corp and the others have got four years. Can I say that a really important motivating factor for me was the fact that when I joined this group the situation was that… Look, we didn’t have a lot of capital. We had enough capital, but it wasn’t a vast amount of capital, but behind this we’d always knew that John and Mark would put extra funds in if it was required. It turned out not to be required. But once they became in a different mode, then if we ran into a downturn in the economy with a tight capitalisation, we could get ourselves into real trouble and have to raise money when at a very low price, virtually wiping out the current equity. So, when journalists start a business like this and develop it like this, you are dependent on the capital sources that you’ve got. And we did it, Alan particularly did it this way. I must say it worked extraordinarily well, but then you're in a new situation. I didn’t particularly want to sell, but I saw real danger to the total enterprise in certain potential circumstances and so in that situation I did become a seller.

BG: So are you saying, Bob, that if you didn’t move now, there was a chance that the business would fail?

RG: Well, it might not exactly fail, but it would certainly have to raise capital at a very low price – which would make my capital, and Alan’s and Steve’s, virtually worthless because they would just have to raise the money to a price we could. And that was not the situation, say a year or two years earlier.

BG: I understand. Now Alan, you’ve written on independence and I’ll just quote a piece that you wrote, 'Why we sold AIBM' (June 20). You said: "We remain passionately independent of commercial interests, but being part of a global media company will give us the support and resources to grow the business.” Now, how can you be passionate about independence and then join a global media company?

AK: We’re independent of commercial interests, by which I mean advertisers, financial product producers, when it comes to Eureka Report. News Corporation is a media business. AIBM is a media business. I mean I don’t think advertisers decide what goes into News Corporation newspapers, you know, as far as I can tell. All media businesses have an arms and legs relationship with advertisers and that’s what I meant. That’s what we have. That’s what we’ll continue to have.

BG: What about News Limited's, or News Corp’s, crater of commercial interests? Aren’t you in danger of at least being seen to be ultimately serving that rather than Eureka’s?

AK: Well, we can only demonstrate, I guess, that we’re not. But look, the business is owned by News Corporation. That’s true. And we are employed by News Corporation. And we’re aware of News Corp’s reputation.

BG: What is that reputation?

AK: Well, obviously the phone hacking scandals in the UK have, you know, kind of highlighted some issues around what’s going on with the company and, you know, it's terrible. I mean, the people who are responsible for that need to go to jail.

RG: Can I cut in here? I’ve worked for News Corp. I worked with The Australian and under Chris Mitchell and David Armstrong. I’ve had no editorial interference at all. I found them in Australia to be very straight and so I was actually more relaxed about joining News Corp than the others, because they hadn’t worked there. And we have the additional situation that Kim Williams has become the chief executive. I’ve known Kim and I know Alan and Steve have, we’ve known him for some years. We’ve talked to him about things we're very comfortable with him as a CEO. And really, they've bought this business. We trade on our independence and if they were to interfere with the business – and I don’t expect they will, but if they were to – then in fact they’ll do it damage. So, I wouldn’t have signed up for a three-year deal if I thought that they were going to cause a problem on the independence front.

AK: That’s certainly true of me. I mean, I did my cadetship at News there with The Australian and strangely enough Rupert never picked up the phone to me when I was a cadet. But it is true that they have bought Business Spectator and the Eureka Report for what they are. They value that; they paid a lot of money. The last thing they’re going to do is destroy the value I would think.

BG: Have you got a job to convince your readers of that, Steve? I’ll just read you some of the comments that were made in response to Alan’s piece and it indicates a fair bit of, you know, scepticism amongst your readers: "Alan, I think your definition of independent must have changed. You would cringe and probably criticise anyone else attempting to argue independence in similar circumstances”, wrote one of your readers.

Another one said, "Congratulations on setting up AIBM and Business Spectator and making them such a success, a true achievement. Commiserations on losing all your credibility in one fell swoop.” Now, that suggests quite a lot of disillusionment, Stephen. Has that been reflected in subscriptions, cancelled subscriptions since the announcement was made, perhaps?

SB: No. And maybe it’s too early for that to show itself up, if it even does show itself up. And you’re right. There’s trepidation amongst some of our audiences about the change and what it might mean, but the proof of the pudding is going to be in the eating. It’s what we do. You know, it’s demonstrating independence of thought and action.

I think that, you know there's an important point Bob made a bit earlier. News Limited is going through a huge change. Kim Williams is a significantly different sort of character to the old News Limited team. He’s purging the place. He’s changing the culture. He’s changing the structure. And we know him really well. We’ve got no reason to not trust him when he says that they will keep us at arm’s length. You know, as Bob said, already he’s paid a lot of money for not just our mastheads but our brands. A core part of the value of this business lies with Alan and Bob and me and they’ve actually capitalised that into the sale price and locked us up for some years, so it wouldn’t be rational for Kim to have paid that money and then go and trash the place.

BG: It raises an interesting issue, Bob. Would you have done this deal with John Hartigan?

RG: I think John is a great guy too. I didn’t know John as well as I know Kim Williams. I think that he kept the Australian News Corporation business outside the sort of situations that he ran into in London, but I didn’t know John as well as I know Kim.

Can I say something else about the question of the sale affecting our business? It so happened that our deal was announced on the Wednesday and on the Thursday and then the following Saturday we had five hundred Eureka readers at our inaugural congress in Melbourne and Sydney. I went around and mixed with them personally and it’s true that some of them were a bit edgy and unhappy about the fact that we’ve sold to News Corp, but I think overall – and some people said they were not going to renew; not a lot, but some – but overall what they wanted to hear from Alan and from me, because I like to boast about them both, was "hey, we’re going to continue doing what we’ve done in the past". You know, the most fascinating response was, "hey we think the Eureka is a bit exclusive. If News Corp promotes it too far, too many people will get it". So, there was that was part of it as well. But yes, we’ve got to actually tell our Eureka readers and our Spectator readers that we are independent and we have to act independently.

BG: Given your history, both yours Bob, and yours Stephen and Alan as very distinguished contributors to Fairfax, wouldn’t Fairfax have been a better fit?

AK: Well, we did have a full sale process so the information memorandum went out to a number of parties. About a dozen parties expressed interest in receiving the information memorandum. Then there were a number of people still interested in going on. It came down to Fairfax and News in the end, and our first inclination was to go with Fairfax. We entered an exclusivity period negotiating only with them, with Fairfax, and so for four months we negotiated with Fairfax exclusively and in the end we couldn’t make a deal work for various reasons. One of them was price, but it was not only that, and at the end of that period we went back to the other bidder, News, and started talking to them – and the difference was fantastic. I mean News was, you know, very, very easy to deal with though in terms of our independence and our position going forward working with the business as well as on price. They were fantastic.

BG: Is it true that there was a price put on the table and then Fairfax rethought that price?

AK: I suppose that’s one way to put it. I mean, there was a price that we put on the business to begin with which Fairfax in the end felt it was unable to pay.

SB: It’s worth noting by the way that at the end of the process we actually rejected the offer they had on the table. Because there have been things said and written about that process and our businesses and the reality was we said that Fairfax's wasn't sufficient.

AK: I should say here, Greg Hywood is an old friend of mine and I really admire what he’s doing. I think he’s doing his best with Fairfax and I really wish him well. We’re sorry that we’re not part of them, but you know, that’s life. I think they’re doing the right thing and they’ll be a formidable competitor to News Corp I think, editorially at least and see how they go commercially.

RG: I was excited by the Fairfax bid initially because they were looking at putting some other assets into our business and I thought perhaps that might be a good way for us to actually go to the next stage quite rapidly. But the complexity, that four months that Alan talked about, it went on and on and at the end of that I said as much as I want to join them partly because of those assets coming in. At the end of it I said no. I said, this is not where we were to go. This is going to drive me mad. And yes, the price was obviously clearly a factor. They were too low, but I was actually relieved in a way.

BG: Alan, the past comes back to haunt all of us. I’m going to read you a quote. In 2005 you wrote or said: "News Corp is nothing but a badly performing business mostly run by untrustworthy people. Murdoch is a disgrace." Is that still your view?

AK: Well, I think it was poorly run in the 2005, definitely it was. It’s better run now. It’s obviously performing fantastically well. The company is killing them. It’s great. I mean, you know, as a whole company.

BG: Is Rupert Murdoch still a disgrace?

AK: Oh, no. Look, you know, I’ve always been the sort of writer who gets this out there. You know, I’ve expressed myself robustly over the years and he probably wouldn’t…

BG: So you’ll apologise to him when you see him?

AK: If I see him, I won’t apologise, but you know if he wants to have a chat about that column, well I’m happy to talk about it.

BG: Have you gone back to your old columns, Stephen, and done a word search for words like disgrace?

SB: I’m not as intemperate as Alan is, so I don’t think I’ve got too much concern. But if you're talking about what we do in future in relation to this, I wrote a column yesterday about News and I wrote exactly what I would have written last week or last month or last year or ten years ago in terms of the approach I brought to it. The only difference in terms of that column to what I would have done two weeks ago was I said to Alan "I’ve written a column about News" because Alan is editor in chief and he deserves to be forewarned before something goes on the site. But other than that there was no self censorship in that.

RG: Can I come in on that?

BG: Yes. Please do, Bob.

RG: Rupert obviously he’d read that and probably remove it. And yet News Corp, which is good for him, it’s his division obviously, bought us. And I think that tells you something about a difference in that company, that I find hopeful. That they would in fact buying somebody would say those sorts of things about them. I’m not suggesting that Alan would say that again in this situation, but I can imagine some people thinking that News Corp proprietors, when somebody wrote that about them, they would never, ever even contemplate buying this group – and yet News Corp did buy us. And I think that tells you something: that this is a group that is really looking to change its image and it has in fact been affected by the events in London and affected in ways I don’t think we fully appreciate yet.

BG: But Bob, you’ve expressed concerns over News Corp governance in the past in some of your writings. I mean, do you think they’ve addressed that issue appropriately?

RG: Oh, I think in terms of us, I’ve got no problems. They’ve done it very well. I had no problems with News Corp governance when I was at The Australian, as far as I was concerned. Look, News Corp is a family company or has been a family company dominated by the Murdoch family and that is starting to change just because Rupert has got very old and so it’s a new company that’s going to emerge. And now there's the move to split the company. There are all sorts of things taking place within this company. Now, that was going to happen anyway simply because you can’t live forever, but I think the events in London have accelerated the way News Corp do things, as they would for any company. Any company that’s been through the sort of exercise that they had in London will look at its navel and look at itself and say "hey, how did we do these things, how did these things go wrong?" And I’m totally certain that that’s what’s happened at News Corp.

AK: I do think it’s a credit to Rupert Murdoch that when Kim Williams has picked up the phone and said I want to buy this company and employ Alan Kohler, Rupert didn’t say absolutely not ever, never hiring this bloke.

BG: He does have a history of forgiving though, doesn’t he?

AK: Well, I mean it’s because if you’re in the journalism business, you have to. I mean if you dish it out, you’ve got to take it, you know, and I think that Rupert is a journalist in many ways.

BG: I’m not sure he’s going to forgive me, but anyway that’s another issue.

AK: You wrote a whole book.

BG: What did you think of Kim Williams’ announcements last week, particularly the coverage of those announcements in News Limited publications?

AK: I would have preferred to have seen less of a cheerleading coverage in the News Limited papers, I guess. It was, you know, I personally would prefer companies, publishers to cover themselves straight and not, you know, in a cheerleading way I guess.

BG: And you’d have to acknowledge that Fairfax tends to do that sometimes to their detriment, don’t they?

AK: Well, maybe. Do you mean that they’re…

BG: I mean as a former head of a paper there...

AK: Yes. They’re too sceptical about themselves, do you think?

BG: And sometimes they’re too willing to criticise management and, you know, as a former editor, both of us.

AK: Look, I think it’s very difficult to get it right. I mean it’s a really tricky area, I think. But you know I was an editor under Conrad Black. And he was…

BG: So was I.

AK: And even as you’d remember he was particularly interested in that stuff. I mean, if anyone criticised the company he’d be right on you like a tonne of bricks and so there was quite a lot of angst at the time which we had to defend as editors.

BG: Yes. Stephen, have you got any thoughts on that?

SB: Oh look, I agree with Alan. I thought that was a little bit too gushy and positive. But I came out of a Fairfax environment where the Fairfax journalists are far more… are looking for opportunities to be ferocious towards their management.

BG: Bob, is that true that at Fairfax they tend to go looking for reasons to be ferocious towards management and at News Limited they tend to look for reasons to celebrate management?

RG: I think that’s probably been true in the past, but I’m not sure that the Fairfax of the future is going to be like that. This is a company whose share price has fallen dramatically and when that occurs there’s only a limited amount of punishment you can take and suddenly the actual existence of the company comes under threat. Now, when the share price at Fairfax was $5, then of course that’s what you do and that was the Fairfax tradition. But if you go back far enough, if you go back into the days of Max Suich, when we were worried about Fairfax, we had to submit our copy, Fairfax copy had to be submitted...

AK: That’s true.

RG: …and the tradition sort of cut out more recently and not all the way back. But I think you’ll find that Fairfax needs to spruik its situation because of the share price, and you may see under this new management quite a different situation to what it’s been in the past.

BG: One last question for you , Alan, particularly but you’re welcome to come in on it, Stephen and Bob. Should you still be allowed to appear on the ABC in your current role?

AK: Obviously there’s a bit of a range of opinion about this. I’ve said many times -- and you know, I keep saying it -- that when I started at the ABC I worked for Fairfax, did so for seven years while also working for the ABC. I was a contractor to both organisations. Everyone was happy. No problem. There was a bit of noise about it on Media Watch from time to time.

And then I started my own business, Eureka Report, another media business. No problem with ABC management. And now, I’m with another organisation and also with the ABC. So look, I’ve never worked for the ABC only. I’ve always worked for somebody else, sometimes my own business, sometimes another large organisation and I’m not the only one who does that. The ABC management are very happy with the arrangement.

People are entitled to their opinion. But I don’t fully understand the conflict of interest claims about it. I just don’t really get it when, you know, if you really examine it. I think it’s easy to fling accusations around, but when you get down to it, what is the problem? And I don’t think there is one to be honest. If there was a problem for me, there will be a problem for Phillip Adams, who also works for both organisations. Gerard Whateley works for both organisations. I mean, there are obviously a few people and I presume that, you know, if something happened to me or they drew the line with me, then that would affect the other people as well.

BG: I guess the difference with Gerard Whateley and that Phillip Adams is that they’re not analysing the functions and performance of their companies. They’re principle employers which you’re paid to do and I guess that’s two hats that sometimes sit unevenly.

AK: Well, News Corporation is a listed company. That’s correct. And occasionally I’ll report its share price on the news. That’s true. So, that’s an interesting question. If I report News Corporation’s share price, do I need to disclose that I work for them? I don’t know. I think I might get advice on that.

BG: Maybe it’s principally a question for the ABC?

AK: Well, it is. And I mean obviously if I was to interview someone from News Corporation, I would have to fully disclose that I work for them. But I wouldn’t actually interview them. I wouldn’t do it. I never interviewed anyone from Fairfax on the ABC while I worked for Fairfax -- and I won’t do it with News Corp. It’s just too hard.

BG: One final question, maybe for you Stephen and you Bob. If we do this interview in five more years, if we come back in five years, what will Business Spectator and Eureka Report look like?

SB: Hopefully, I’ll still be here.

BG: Hopefully, I will still be here too.

SB: That will be twelve months after the initial contract ends. If it goes according to those plans, Business Spectator will be significantly larger, have much more depth. It will be a much more mature product, have a much larger audience and be commercially very successful. And when I say much larger, I mean much, much, much larger than it is today. Eureka will have an audience that’s two or three times what it is today. That’s our ambition. And hopefully there will be other products in that suite that we manage.

BG: And, Bob, if Rupert goes ahead and splits News into two divisions, which division will you be sitting in, the entertainment division or the publishing division?

RG: Oh, I think that we’ll be in the publishing division. You know, I think we’ve actually started something here that can really go. It needs capital and that’s what we didn’t have -- and I’m in the business of… I like building businesses. I did it with Fairfax. And now, I’m doing it with our own group and with News Corp. I enjoy being part of that and that’s really why I’m still here in part. I enjoy the interest of Business Spectator and Eureka and okay, we’ve got a new owner, I’m signed up for three years and in three years’ time if it looks okay, I’ll still be going... because I enjoy it. I really do.

BG: Thanks, Bob. Thanks, Alan. Thanks, Stephen.

AK: Thanks, Bruce.

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