Mac the knifed: tax whopper eats away at earnings

Fast food chain McDonald's had its Australian earnings fried by tax last year, although its reduced $184 million profit could still buy everyone a Big Mac meal each, plus change.

Fast food chain McDonald's had its Australian earnings fried by tax last year, although its reduced $184 million profit could still buy everyone a Big Mac meal each, plus change.

Prior to applying tax, McDonald's Australia's earnings were up $4 million at $260.88 million on $1.54 billion worth of revenue.

The revenue gain was more than 5 per cent, and the results were consistent with comments by its incoming global chief executive Donald Thompson last month that the Australian operations have been suffering from the "tightening" of market conditions.

Costs were up significantly, chewing away at the sales performance, including the "service fee" that gets paid back to its US-listed parent McDonald's Corp, and equates to about 21.8 per cent of revenue, or $336.5 million last year.

A little less than $1 billion of McDonald's revenue came from flogging its patented two-all-beef-patties-special-sauce-lettuce-cheese-pickles-onions-on-a-sesame-seed-bun and other products.

Another $335 million was rental income from its franchisees, who also paid close to $140 million in service and licence fees.

Whatever views you might have on the nutritional value of the restaurant chain's food offerings, its Australian boardroom puts pretty much every other public company in this country to shame - it has, shock, horror, a majority of women.

Four out of six directors in the multi-billion dollar business are women, including of course the managing director, Catriona Noble, and the chief operation officer, Helen Nash. Dang those Americans and their progressive ideas.

BIG BITE

Commonwealth Property Office Fund's units have hit their best levels in more than three years as the elevator rumour mill continues to guess at Dexus Property Group trying to prise control from Colonial First State.

Speculation that Dexus's recently-appointed, ex-Colonial, chief Darren Steingberg might try to liberate the fund from his former employer has been running for some time. Conspiracy theorists might like to ponder that Steinberg even nicked Colonial First State's investor relation man, David Yates, last month.

In sharemarket terms, Dexus is a little less than twice the size of the Commonwealth fund, which has a market worth of $2.5 billion based on its $1.04 unit price, but a takeover would be a big bite.

As with all such gossip, it is often hard to separate the wishful thinking of under-employed investment bankers, who always have a package of bright ideas for new chief executives such as Steinberg, from a company's own acquisition ambitions.

Property funds have been sought by investors keen on reasonably reliable, but certainly not spectacular, yields. Both Dexus and Commonwealth are now showing gross yields of about 5.5 per cent, reflecting their rising unit prices and flat payouts over the past five years.

Perhaps Steinberg will instead return to his retail roots and opt instead to pick up a loose Centro shopping mall, or two.

GONE UNDER

Small surprise, but no joy, to see the Queensland miner Kagara calling in the insolvency specialists yesterday after suspending mining operations last week.

The appointment of voluntary administrators comes after some two years of what to Insider's mind appear to be ill-conceived corporate strategies - most all of them falling into the category of company management batting well out of its league in spending shareholder money.

Last financial year, when Kagara posted a loss of almost $33 million, almost $4 million went into the pockets of directors and management for their services.

There is one easily saleable asset, its 62 per cent stake in Mungana Mines, although even that dropped 13 per cent in value on the news of Kagara's filing yesterday as the market re-priced the shares on uncertainty and the stock overhang.

A few days back, Kagara was saying their Mungana holding, already being marketed, was worth $45 million, although it is now priced at less than $40 million - and the question is whether such a large slice of the company will or can go in one lump without a discount.

CLEAN SWEEP

The Spotless chairman, Peter Smedley, and his board, clearly reluctantly backed the revised offer from Pacific Equity Partners yesterday - becoming the latest victims of the "take the money and run" attitude of major shareholders.

Canny bidders have been capitalising on investor impatience - or, more accurately, fund manager underperformance fears - for the last couple of years, as equities markets continue to retreat or, worse, stagnate.

Private equity buyers know that by throwing what is undoubtedly a good cash offer on the table now, they will be leapt upon by the managers of superannuation and other investment funds who have been struggling to generate positive returns and retain investment mandates.

Of course, private equity organisations are not benevolent institutions, and they know well that by slicing costs they can maximise their return as corporate performance improves. Time your bid right, and you can ride the returns from previous managers' strategies - which is likely to be the case where Spotless is concerned.

It is hard to argue, though, that accepting shareholders are much better off thanks to the PEP bid. The shares were languishing at $1.80 before the bidder arrived in November, so extracting $2.62 a share and a mostly-franked 4? a share special dividend is a comparatively better outcome.

In a curious way, the very presence of the takeover offer capped the value of Spotless because of the cost of dealing with it.

As Smedley described the due diligence process: "It's like 400 of your in-laws in the bedroom when you are trying to put the baby to bed."

NO DEAL

How retro: Aurora Oil and Gas launched yesterday a takeover the old-fashioned way, offering to buy shares on-market in rival US shale play Eureka Energy.

The broker Euroz was instructed to pay 45? to all comers, or a 36 per cent premium to Friday's closing price of 33?, valuing Eureka at $107 million.

Only problem? Euroz did not get a single share because Eureka opened at 47.5?, peaked at 48?, traded down to 46.5?, and closed again at 47.5? - on big volumes with 7 per cent of the stock changing hands, most likely hedge funds punting a revised price.

Bell Potter's Johan Hedstrom - who doesn't cover either stock, but was an interested observer - pondered whether Aurora had meant to copy Beach Energy's aggressive $94 million cash bid for Adelaide Energy, announced in November and done and dusted in January.

Hedstrom tips that Aurora will come up short, noting Eureka was undervalued, strategically attractive and "most takeover offers are done at bigger premiums".

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