The Distillery: Dick Smith's new dawn

Jotters marvel at Dick Smith's quick return to the market so soon, while one says broader business optimism is misguided.

When Anchorage Capital Partners bought a beaten-down Dick Smith from Woolworths last November, nobody guessed the private equity firm would bring a strengthened electronics retailer back to the market in less than a year. The surprise news that Anchorage is already considering floating the business has one scribe suspicious about the reported turnaround, while another defends Woolworths for relinquishing control in the first place.

At the Australian Financial Review, Sue Mitchell is astonished at Dick Smith's comeback – and at Woolworth's inability to see the opportunity.

"Private equity firms are renowned for their ability to make a quick buck. But the speed of the turnaround at Dick Smith is staggering and is bound to prompt some investors to question whether the gains are sustainable. The float will also raise questions about why Woolworths sold Dick Smith when it did, and why Australia’s largest retailer was unable to reverse a four-year decline in earnings."

But Business Spectator's Stephen Bartholomeusz offers an explanation:

"Woolworths would say that the business it sold wasn’t the business it had owned. It had taken a hit of more than $400 million from restructuring the chain, closing unprofitable stores and writing down its value before the sale. The problem Woolworths faced with Dick Smith was that it was ultimately too small to make a meaningful difference to the giant retailer’s numbers, but consumed a considerable amount of senior management’s attention. Despite a lot of effort and several format changes, Woolworths was never able to generate consistent performance from the business."

In economic news, Michael Pascoe notes the recent rise in business and consumer confidence has been attributed almost entirely to enthusiasm over a likely — and now confirmed – Coalition government. But the Fairfax columnist thinks optimism is misguided.

"The two confidence surveys underline that, despite proposing no change in the federal fiscal bottom line and a mixed bag of tax changes at some vague Senate-permitting point, the Coalition’s pro-business rhetoric has convinced a significant proportion of the population that their economic outlook is better."

Pascoe's papermate, Malcolm Maiden, thinks strong data out of China is more significant, perhaps signalling that a turnaround is afoot. "If the recovery is confirmed, Australia's miners and its economy will be in better shape than expected," he says.

Also on China, The Australian Financial Review's Karen Maley notes the Asian giant is going against the global trend of cutting investment, as it buys up everything from petroleum projects in Kazakhstan, to America’s biggest pork producer Smithfield, and takes major slices of the French tourism group Club Med and London’s Heathrow airport.

At The Australian, John Durie argues Ziggy Switkowski's seemingly imminent posting as NBN Co chairman is not about choosing a network construction expert. Rather, he thinks the "highly personable and widely liked" former Telstra boss will be used to bring the company and the government closer together, in recognition that Telstra is the most logical builder of the network.

"That prospect will face a revolt from rival telcos and will have to be managed very closely by the government, least the benefits of structural separation are thrown away."

And finally, The Australian Financial Review's Chanticleer columnist, Michael Smith, unsurprisingly takes the side of business on the issue of Archer Daniels Midland's bid for GrainCorp — although he doesn't envy Joe Hockey for having to decide.

"Knocking back the ADM bid would send the entirely wrong signal to the rest of the world at a time when investment bankers are out trying to patch up the damage caused by Kevin Rudd’s comments about foreign investment in the election campaign and several years of policy on the run."

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