THE DISTILLERY: Centro questions
Jotters lament the early end to the Centro court case and weigh in on how Billabong's new boss can avoid a wipeout.
Firstly, the AFR’s Chanticleer columnist Tony Boyd lays out the challenge that faces the new Billabong boss.
"O’Neill’s replacement, former Target managing director Launa Inman, faces a tough task to revive a company that has fallen in value by 63 per cent in the past year to $2.30. Adding pressure on Inman is the fact the stock is trading at a 30 per cent discount to a private equity offer of $3.30 made by TPG in February. Inman, who is now one of the handful of women CEOs in Australia, can be confident that TPG won’t be back soon. It ran a mile when Billabong’s founder and member of the board, Gordon Merchant, declared in the midst of the private equity talks that the stock was worth at least $4 a share. However, there is still the possibility of a corporate play. That will depend on Inman’s execution of the strategy laid out by O’Neill earlier this year when the company sold half its interest in Nixon for $US285 million. That sale was an emergency action taken to stabilise the balance sheet and avoid a capital raising. It was designed to give the company the capital and breathing space to clean up its retail network.”
Fairfax’s Ian McIlwraith acknowledges Inman’s strong reputation, but points out that Target might swim in the same pond as Billabong (retail), but that doesn’t mean they’re the same species of fish.
"Inman ran the discount-but-not-downmarket department store group for seven years, under both the old Coles Myer structure and later with Wesfarmers, which means she brings a whole range of retailing skills – sourcing, supply chains, brand marketing – to the job. They are also the sorts of skills with which (chairman Ted) Kunkel is familiar from his former life running brewer Foster's. Target's customers are, though, mostly female. They roam crisp, fluoro-lit, polished lino and chrome-racked worlds. Billabong's shoppers might no longer be Kombi-driving, sandy-footed surfers but they do include teens and once-were teens who want to dress to give the impression they know one end of a surfboard from the other – and they are mostly male. The only fluorescence they want to see is in their clothing.”
Meanwhile, The Age’s Michael West says the Centro settlement raises more questions than it answers.
"This week's deal is no joke. It puts a rocket under auditors and directors. There is a price on failure. The ramifications of this settlement will be an improvement in the vigilance of directors and auditors. Yet too much is left to the imagination. Had the case proceeded all the way, through the appeals courts to the High Court, important precedent might have been set. The law would have underwritten causation – that is, who is to blame and in what measure – and the calculation of shareholder losses for years to come. And even though the judge Michelle Gordon rubbished the PwC defence team for spurious legal arguments, contending that the individual auditor was to blame rather than the firm, there is no precedent otherwise. What now? When a corporate client signs up Ernst & Young, Deloitte or KPMG to conduct its audit is it buying the blue chip imprimatur of the firm? Or just some audit partner shooting the breeze?”
And Fairfax’s Leonie Wood says the class action might have been settled, but the issue isn’t.
"Sitting in the front row of Justice Michelle Gordon's court over several days last month were members of the Australian Securities and Investments Commission's investigations team. No doubt their boss, Greg Medcraft, took a keen interest. And that is because for the past year Medcraft, who next week marks his first anniversary as chairman, has been banging away about gatekeepers' duties and responsibilities.”
Understandably there is a handful of commentators that are still throwing in their two cents about the federal budget. The Sydney Morning Herald’s Michael Pascoe equates the latest surplus obsession with religion. We believe in it, but we don’t like the implications of adopting such dogma. The Australian’s Glenda Korporaal says the Gillard government’s latest budget merely confirms that corporate Australia will have to cope with a government that’s got no long term plans for distribution of mining wealth. The Australian’s Scott Murdoch argues that scrapping the tax discount on interest income earned from savings was a mistake, because it decreases the ability of banks to get off expensive overseas funding. And the same newspaper’s Asia-Pacific editor Rowan Callick points out that Labor is relying on the Asian growth story without really investing in our regional diplomatic footprint that helps ensure that relationship."
The Australian’s John Durie argues that the superannuation industry needs to refresh the way it sells itself to the country, while The Age’s Malcolm Maiden says there’s only so far the Australian dollar can fall if Europe doesn’t completely go to hell.
In company news, The Sydney Morning Herald’s Ian Verrender believes that James Packer has continued to "borrow” Echo Entertainment stock, enhancing his position in the event that the NSW government allows Crown to take more than 10 per cent of the company. The same paper’s Elizabeth Knight argues that the management shakeup at David Jones might help in the peripheral, but what it really needs is a shift in the consumer mindset away from saving and on to spending.
And finally, the AFR’s Matthew Stevens looks at the ludicrous requests from the unions in relation to the BHP Billiton-Mitsubishi Alliance Norwich Park site closure.