THE DISTILLERY: APN clean sweep

The bloody APN News & Media boardroom cleanout has come at the urgings of two men – Independent News & Media billionaire Denis O'Brien and Allan Gray fund manager Simon Marais. APN chairman Peter Hunt, less than five months into the job, has gone. Joining him is chief executive Brett Chenoweth, along with three other directors. This morning, Australia's business commentators investigate.

The Australian Financial Review's James Chessell recalls that assurances of a steady boardroom were given almost a year ago when Pierce Cody, who sold his business into APN in 2001, abruptly resigned.

"Cody took the unusual step of going public with his concerns: ‘Unfortunately I have found it necessary to resign due to unresolved concerns I have had with some ongoing areas of corporate governance.' The APN response was just as direct. ‘There is no basis to question the corporate governance at APN,' said a spokesman before accusing Cody of sour grapes.”

The Australian Financial Review's Chanticleer columnist Tony Boyd says two events have triggered the radical change, perhaps brought about in part by a difference in debt tolerance between APN and its major shareholder.

"INM's public attack on Chenoweth, which was accompanied by a notice calling an extraordinary general meeting. The second event was INM's fully fledged support, then sudden rejection of, a $150 million capital raising. INM…does not see APN's $500 million in consolidated debt as a problem, despite the grim outlook for its revenue and profits. APN has the highest ratio of debt to earnings in the media sector but compared to the heavy debt load at INM, it is relatively conservative. The debt to earnings at INM is about eight times – or more than double – the level of APN.”

Fairfax's Elizabeth Knight similarly reports that worries about the debt ratio were on the minds of the directors that now find themselves out of a job.

"The talk in the ether suggested APN had a near-immediate need to raise cash or risk being in breach of loan covenants – which are agreements the company has with its lenders on several metrics. In this case, the concern was about the ratio of debt to earnings before interest, tax and depreciation. Most of the now-sacked board – those that were not associated with the major shareholders – suggest the ratio of three times was too high. It certainly is one of the highest among its peers, but analysts are not suggesting it was at risk of breaching bank covenants imminently.”

The Australian's John Durie looks ahead, reporting that now is the moment for shareholder activist Marais to pick the right person for the chief's job at APN, as well as the other vacant board seats.

"APN is a minnow in corporate Australia, but its circumstances are unique with the chairman and chief executive and half the board being dumped. The kingmaker Marais from Allan Gray has stood on a point of principle, that being he thinks the company is better off trying to trade through its problems rather than proceeding with a massively diluting equity issue. Given the blue sky dominating the present stockmarket trading, one of the myriad ironies in this position is that just maybe Marais is right, but his actions will ensure the company gets no credit.

The Australian Financial Review's Andrew Cleary adds that initial instincts pointing to just another O'Brien tilt for control could be off the mark. Many other shareholders are not happy with the company's management and O'Brien's criticism has centred on the capital raising.

Fairfax's Adele Ferguson checks the pulse of earnings season so far and finds that a bunch of companies have surpassed expectations.

The Australian's Barry Fitzgerald ponders the potential end to the 12-year bull market that has encased the gold price.

Still in resources, The Australian Financial Review's Matthew Stevens writes about the growing confidence levels at BlueScope Steel, which through a long slog from chief Paul O'Malley has restructured in a way that'll make it sustainable for the long term – albeit with 5500 fewer jobs.

And finally, The Herald Sun's Terry McCrann hits the government for the mining tax… again.