Smart investors reap windfall from power meters
He once sold newspapers but a career switch has been lucrative for Cameron O'Reilly and some rich chums, write Su-Lin Tan and Michael West.
The roll-out of smart meters in Victoria may have been costly for consumers but it has proven an impressive money spinner for a handful of Australian entrepreneurs.
Cameron O'Reilly, the scion of the Heinz food empire and former chief of media group APN, along with John B. Fairfax, the Smorgon family and Kerry Stokes are a few of the high-profile names to have made a killing from the sale of smart meters. They were major shareholders of Landis & Gyr, which amassed 56 per cent of the market in deals to supply the electricity distributors in Victoria. Their big payday came in 2011 when O'Reilly sold Landis & Gyr to Toshiba for $US2.3 billion ($2.2 billion).
An investigation by BusinessDay has found Australians have been paying roughly twice the amount for smart meters than consumers in the US and Europe. Further, there has been poor transparency in the process even though the metering devices had been mandated by the government.
That the costs of the roll-out in Victoria have already blown out from $800 million to $2.3 billion presents a salutary warning to NSW which is now deliberating on a roll-out of its own, albeit optional rather than compulsory.
The success of Landis & Gyr has confirmed O'Reilly as one of the most savvy businessmen in Australia. The O'Reilly family had controlled regional media group APN and just as the fortunes of old media were about to take a battering last decade, O'Reilly was already moving deftly into a new space.
He started with Bayard Capital in 2002, garnering seed money from friends and business acquaintances. Kerry Stokes and JB Fairfax pitched in $20 million apiece, and the Smorgon family another $5 million. O'Reilly soon sold two thirds of his APN shares and chipped in a further $5 million.
He raised $100 million in seed capital, then Bayard went on a $1.5 billion spending spree, acquiring Landis & Gyr, a Swiss company and metering industry leader .
The Toshiba sale made Bayard's seed investors a handsome multiple of their investment, although it is only possible to piece together estimates of profits from the public materials.
The Fairfax family would make roughly $203 million, through Marinya Holdings, and the Smorgon family's Escor Investments, $36 million. John Curtis, former chairman of St George Bank, made $24 million and the private equity group Propel Investments some $405 million.
Propel and Curtis came on board through a series of capital raisings before the Toshiba sale.
Other shareholders in Bayard were Temasek Holdings, the investment arm of the Singapore government, the former Lion Nathan chairman Doug Myers and fashion designer Carla Zampatti.
Once O'Reilly had acquired Email Metering, the Enermet Group of Finland, Hunt Technologies and Cellnet Technologies in the US, and Landis & Gyr, Bayard was the number one player in the world market.
Landis & Gyr, to which Bayard then changed its name, dominated Victoria and managed to fetch perhaps the highest prices in the world for its devices.
According to eMeter Corporation, a meter data intelligence department of Siemens, the average cost of smart meters sold to utility companies in the US is $221, and in Europe $272.
A spokesperson for the Australian Energy Regulator (AER) confirmed the Victorian distribution companies paid an average of $346 to their suppliers. Powercor paid the highest at $423.
Landis & Gyr meters are widely used across the US and Europe. It is the sole supplier of the E350 model to SP Ausnet and has a contract to supply 80 per cent of Citipower and Powercor's E350 smart meters.
A spokesman for Citipower and Powercor said that there were at least 32 respondents to the tenders. It was a "highly competitive process" with 16 detailed proposals lodged, according to Citipower and Powercor.
Landis & Gyr's PR firm claimed the prices negotiated in Victoria could not be compared to those overseas as specifications changed from country to country.
The other major supplier of smart meters in Victoria is Secure Meters, previously known as PRI Australasia. Secure Meters supplies the i-Credit 500 model. It is headquartered in India.
Last month, the O'Farrell government announced plans for a market-led rollout of smart meters for NSW. One distributor, Essential Energy, said it had been reviewing Landis & Gyr and Secure Meters as potential suppliers.
As crunch time approaches for power consumers in NSW the state would do well to deliver a more transparent and accountable outcome - and of course a lower price, seeing it is the customer who has to pick up the cost while the greater benefits, according to most independent observers, fall to the distributors rather than the customers.