THE DISTILLERY: Forgotten Forrest

A jotter reflects on the irrelevance of the Fortescue founder's court case, while another mulls over Packer's strange casino play.

The lawyers of iron ore billionaire Andrew Forrest might be battling for the Fortescue Metals founder’s reputation in the High Court, but little else of long-term consequence. That’s the conclusion of The Sydney Morning Herald’s Ian Verrender, who points out that too much time has passed for Forrest’s potential banning as a director to have much of an impact. His holding in the company is too strong; it’s path too secure. But the topic of disclosures to shareholders, which the High Court will be focusing on, becomes very relevant with John Durie’s piece in The Australian, which tells the puzzling story of Crown’s claim that it doesn’t in fact own a major stake in Echo Entertainment.

The Sydney Morning Herald’s Ian Verrender says directors other than Fortescue founder and chairman Andrew Forrest have a lot riding on the High Court decision, particularly on matters of continuous disclosure.

"But as each day has passed since the charges were laid almost eight years ago, judgement on the matter – from Forrest's personal point of view – has become increasingly irrelevant. As a matter of ego, it would still matter enormously. Being banned as a company director would be a humiliating comedown and cast a pall over his ambitions to resurrect the Forrest family name. But the charges, and the High Court decision, no longer have the ability to sink the company or even cause material damage. Twiggy's fortune no longer is under threat from the legal action. Even if he loses, and is forced to stand aside as chairman, he will remain Fortescue's major shareholder and, as such, control the company's fortunes.”

Such matters come into sharp focus this morning with The Australian’s John Durie scratching his head in the wake of Crown’s announcement that it kind of does own a 10 per cent stake in Echo Entertainment, and it kind of doesn’t.

"The battle for Echo Entertainment was thrown into confusion last night when Crown said it was not a substantial shareholder, despite last week claiming ‘an interest’ in 10 per cent of the company. 'Crown is not a substantial holder of Echo for the purposes of the Corporations Act and therefore has no obligation to lodge a notice,' Crown chief financial officer Ken Barton said. This means that an equity derivative deal between Crown and Deutsche Bank – the controversial source of the supposedly increased stake – is structured in such a way that it has not yet delivered control of the relevant shares to James Packer's company. It also raises questions of why the company would claim ownership before it had been delivered, which arguably misleads shareholders.”

The Australian’s Rowan Callick urges readers not to dismiss the latest observations about China from the World Bank – specifically the reaction within China that indicates a growing appetite for more open markets.

"As China Daily editorialised yesterday, following the bank's big new report on China: 'It makes sense for Chinese policymakers to seek development advice from the World Bank, as it has a great deal of knowledge on how to overcome the middle-income trap (where productivity and income stall at a certain level), and it has played an historic role in the opening-up of China.' Past success, as the paper said, cannot guarantee that the future would also be successful. And the stakes are huge not only for China but also the world. Especially Australia's world, its Asian neighbourhood.”

Starting with Gerry Harvey for the rest of this morning’s commentaries, The Age’s Adele Ferguson points out that Harvey Norman’s share price has plunged so far in the last couple of years that its market capitalisation has hit $2 billion. That’s just $400 million higher than that of its property portfolio, implying that the rest of the business is worth less than half a billion. Something has to be done. Business Spectator's Stephen Bartholomeusz says Harvey Norman's property portfolio, while providing some stability and rental income streams into the medium term, could limit the group’s flexibility and might ultimately be threatened by the structural changes in retail and retail property that could develop. The Sydney Morning Herald’s Elizabeth Knight says Gerry Harvey is starting to inject some cash into an area that Harvey Norman isn’t exactly known for – mining services. The Australian Financial Review’s Chanticleer columnist Michael Smith says even if Gerry Harvey’s long-term strategy can overcome the threat posed by online competitors – his response so far has been hardly apt – the medium-term outlook for Harvey Norman is unlikely to strengthen until the Australian dollar comes down and prices can inflate again. And the Herald Sun’s Terry McCrann looks at the terrible state of the Australian retailers.

In other company news, Fairfax’s Insider columnist Ian McIlwraith says accounting laws have effectively forced Seven West Group to release a misleading set of results, while The Australian’s Tim Boreham looks at Countplus, ResMed and Ambition Group in his Criterion column this morning.

Meanwhile, The Australian Financial Review’s Matthew Stevens relays a speech from former BHP Billiton chairman and current mining tax surgeon, Don Argus, which contains some stern words for a government more interested in politics than policy – and failing to do either convincingly. The Australian’s Robin Bromby says the Australian resources sector should benefit from the return of the US carmaking industry, thanks to the number of minerals that ultimately wind up in them.

And finally, The Sydney Morning Herald’s Malcolm Maiden says only now will the relief rally, driven by the European Central Bank, be given enough time to be tested by fundamental market positions.


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