THE DISTILLERY: Corporate couplings

Suddenly, a multitude of riches for the chatterers and jotters to wrap their keyboards around; gone the fixation on the parity-seeking dollar, the pricing of Queensland's choo choo train and 'rate rise looms' (although the latter reappears with the release of the Reserve Bank minutes later this morning). If there is a common theme this morning, it's partnerships, corporate marriage, if you like and the ending of them. There's divorce, BHP Billiton-Rio Tinto-style, greed, KKR-Perpetual-style and separation, Tabcorp-style, which is really a case of the split the company had to have, according to the commentary this morning.

News Ltd tabloidist, Terry McCrann says the Tabcorp split move "has thrown a huge rock into the Australian gambling pond and a pretty sizeable stone into the local media pond as well. Before the ripples settle, the ownership of the rivers of gold that flow through gambling in Australia could be completely changed, along with the gambling industry's very structure and operating dynamics." Strange how the timing of this announcement didn't leak out into the market, unlike so many others.

Fairfax's Adele Ferguson said in her daylight comment yesterday: "The demerger proposal, rolled out at the same time as a $430 million accelerated renounceable equity issue, reflects the need to overhaul the Tabcorp business, its board and strategy. It was a step shareholders had called for at least two years ago, given the continued erosion of value in the group's various businesses, market share and earnings." And this morning she wrote: "The decision by Tabcorp to split into two separate entities and tap its long suffering shareholders for $430 million in fresh equity is no coincidence. It is also expected to put a light under the share price after it returns to trading on Wednesday as hedge funds and investors punt on a takeover for the casino, gaming and wagering businesses. Such shareholders as Perpetual and Paradice Investment Management have been lobbying the company for years to split on the basis that the parts are worth more than the whole." Spot the irony, Perpetual pushing for a split at Tabcorp, then over the back fence comes bounding KKR waving a fistful of dollars at Perpetual's board offering a new style of marriage, one based more obviously on greed. Perhaps the Perpetual pushers at Tabcorp should have been looking closer to home?

And Fairfax's Stuart Washington says that one of the big selling points of Tabcorp, that it was a diversified gambling business, wasn't in evidence yesterday: "There was nothing about the strength of a diversified business yesterday, when Tabcorp announced it was splitting its casinos from its wagering and gaming business. Indeed, it is easy to portray the wagering business as a big headache that a demerger is designed to cure." The Australian Financial Review said this morning "How nice to have a deal where everyone wins. Everyone, perhaps, except outgoing Tabcorp chief executive Elmer Funke Kupper." Well, he might be leaving, but he's odds on to return to sit on one board and be chairman, according to market chat.

The Australian's Tim Boreham makes a good point about valuations: "After three years of mulling such an option, Tabcorp plans to demerge its high-growth, high-capital casinos business from its yield-oriented wagering and gaming side. To say that wagering is in a state of flux is an understatement: the totes are under attack from corporate bookies and betting exchanges and have been involved in the hoo-ha about who should pay what to keep the entertainment – the nags on the track – rolling. But the biggest unknown is whether New Tabcorp (the wagering/gaming side) will retain its Victorian retail wagering business, after its licence expires in August 2012. Vic wagering last year contributed 20 per cent of Tabcorp's non-casino EBITDA of $649 million. Given the pokies franchise (definitely gone from 2012) contributed 40 per cent, the wagering becomes more important in the New Tabcorp." So there's a fair bit of blue sky in the proposal, or, in other words, the split is a punt, which is appropriate for the company's chief activity. And that's point made by The Australian's Bryan Frith: "In taking the plunge to demerge its casino operations from its wagering and gaming businesses, Tabcorp is taking a gamble. A gamble that this is one of those cases where two ones adds up to more than two. It's probable that investors will endorse the strategy, as there has long been speculation of just such a demerger. And Tabcorp yesterday admitted that it had been considering the move for the past three years and considered that now was the right time to move."

Business Spectator's Stephen Batholomesusz also wrote that the KKR move on Perpetual was not without big risks: "John Sevior and Matt Williams would be feeling almost omnipotent today given that the fate of the $1.7 billion approach by private equity giant Kohlberg Kravis Roberts & Co to acquire Perpetual Ltd almost certainly rests on the attitude of the two most senior Perpetual fund managers towards the proposal. Sevior and Williams, but most particularly Sevior, represent a significant slab of Perpetual's brand value and the value of its funds management operation – effectively half the group. If they were to depart so would a material amount of Perpetual's $27 billion-plus of funds under management. That gives them real influence over the fate of the KKR approach – and presumably personal negotiating leverage with KKR if the private equity group were able to convince the Perpetual board that its initial approach of between $38 and $40 a share were attractive." And this morning, The Australian's John Durie agreed: "Perpetual fund managers John Sevior and Matt Williams have landed in the perfect role as king makers determining their own financial fortunes. KKR's $1.75 billion surprise bid for Perpetual on face value relies on the teams led by the aforementioned gentlemen staying on board and delivering strong returns lest the franchise value disappear. The recent tragic demise of 452 Capital highlights the fragile nature of the funds management industry and Perpetual's investment franchise just happens to account for $49.1 million of the $81.2 million earnings before interest tax depreciation and amortisation."

On the BHP-Rio split, Business Spectator's Robert Gottliebsen believes BHP will lose from the iron ore decision, but win with the Potash takeover attempt, which looks a good move and Canada is not one of the places where BHP Billiton and Australia are unpopular.

And first thoughts from The Australian's John Durie yesterday were: "BHP Billiton faces some difficult choices now reality has dawned on the company that the iron ore venture with Rio Tinto is dead. No-one buys the line cheaper production will deliver cheaper prices to its customers. One reason why BHP wanted the deal was due to looming space constraints at its Port Hedland port facilities, with both port and sea channel restrictions looming now Fortescue has moved in. Just whether BHP would consider buying Fortescue complete with its lower grade ore to solve its port issues is another question. It has, of course, a new string to its bow with the $US40 billion Potash bid."

Business Spectator's Stephen Bartholomeusz says : "To some extent, the failed deal served both companies' original purposes. It helped Rio Tinto sell the $US15 billion capital raising during its most vulnerable moment while from BHP Billiton's perspective it played its role in preventing Rio Tinto from creating an alliance with the Chinese. Rio Tinto is now in good shape, with planned investments of $US13 billion over the next 18 months, while BHP Billiton is engaged in a $US40 billion bid for Canada's PotashCorp. But the $US10 billion of synergies the joint venture could have produced are now lost and BHP Billiton in particular will have to make some quick and very costly investment decisions if it wants to grow its iron ore output in line with its ambitions. Its Port Hedland facility is capacity constrained and access to Rio Tinto's ports was a major attraction of the proposal."

And finally, for a good expose of the hypocrisy of business read Ian Verrender's excellent contribution this morning on the David Jones sexual harassment case: "For the very same people who last week were championing women's rights and their access to board positions and management were the ones doing their best to undermine the case of a young woman who was made the subject of the worst kind of sexism – blatant sexual harassment – in the workplace. Why? Well, the spin doctors took control of the issue. It's all very well to rewrite the motherhood statement press release, but when it gets down to the hard issues, whatever you do, don't rock the boat otherwise you won't be given access to the ''movers and shakers'' and you won't be invited to lunch again." Shakespeare wrote in one of his plays, 'first, kill all the lawyers.' Now it should be 'first tune out the spin doctors and their fellow travellers', they are a blight on business, like locusts are to farmers.