THE DISTILLERY: Killing Colorado?

Retailing has been an ongoing focus in recent weeks, whether it's Coles and Woolies fighting over discounts, some senators trying to save consumers from these low prices, moaning suppliers, busted booksellers like Borders and Angus and Robertson, and now, the expected collapse today of the private equity-owned Colorado group of shoe and clothing chains. Some of the more persistent of jotters picked up the approaching failure after financiers refused to extend the debts. Expect this to become the topic de jour for our scribblers, although there's one easy explanation, too much debt.

The Australian Financial Review reported this morning: "Apparel and footwear group Colorado is on the brink of collapse and is one of many private equity-owned retailers that are struggling with too much debt and too little spending by consumers."
 
And The Australian's Nabila Ahmed, who broke the story last week, said this morning: "Colorado Group's directors are finally expected to call in the voluntary administrators after a board meeting today. The meeting follows a bitter struggle with lenders to keep the company alive. It's understood Colorado's lenders, which last week decided against extending a standstill agreement after two covenant breaches, yesterday wrote to the board saying they wanted to accelerate repayment of loans on default immediately."
 
The AFR also reported: "Cashed-up rag trader Solly Lew has made no secret of his interest in buying some of Colorado's fashion and footwear brands, but the Melbourne based businessman might have even bigger fish to fry."
 
And still in retailing, the paper said: "The boss of Coles has rejected claims he stands to earn a $38 million bonus linked to increased sales driven by the grocery price war he started with Woolworths."
 
Retailing's sole remaining darling, JB Hi-Fi won the market yesterday despite reporting a $24 million loss on revamping its underperforming Clive Anthony's business. A 10 per cent buyback and maintained dividend helped send the shares higher, despite the cost of the revamp to earnings. The Australian reported: "Shares in JB Hi-Fi soared to a five-month high yesterday after the electronics chain said it would spend $170 million to buy back up to 10 per cent of its stock. The news, which came earlier than expected, pushed JB Hi-Fi shares up 7.4 per cent to $19.83. The company also lowered its full-year net profit guidance to between $108.5 million and $113.5 million after taking a one-off, after-tax hit of $24.8 million from the poor performance of its Clive Anthony's whitegoods business. But the company said its underlying full-year net profit guidance remained unchanged at $134 million to $139 million as forecast last month."
 
Elsewhere, The Australian's Matt Chambers reported that: "Rio Tinto has failed in a last-ditch attempt to gain a controlling stake of Riversdale Mining and has instead been forced to go unconditional with its $US3.8 billion ($3.7 billion) bid while holding only a 41 per cent stake. This means its stake in Riversdale could end up being less than the combined interest of Riversdale's other big shareholders, Brazil's CSN and India's Tata. In talks yesterday, Rio failed to convince 20 per cent shareholder CSN to sell its shares in a deal that would have given Rio a stake of 50.1 per cent or more and triggered a sweetened, unconditional $16.50-a-share offer."
 
And Bryan Frith in The Australian pointed out this morning: "Rio Tinto seized the initiative yesterday and almost certainly wrong-footed the two major shareholder holdouts – India's Tata Steel and Brazilian steelmaker CSN – by declaring its offer unconditional and announcing that it would increase the offer price Riversdale Mining by 50 cents to $16.50 if it obtains a relevant interest in more than 47 per cent of the target company by the scheduled closing date of April 6. The significance of that lowered minimum acceptance level is that Tata and CSN in aggregate own 47 per cent of Riverdale and if Rio can secure more than that percentage, it would give it effective control and enable it secure control of the Riversdale board... Rio is thought to be confident that index-tracking funds, which are unable to accept until an offer is unconditional, hold at least 6 per cent and will now accept giving it control. Tata and CSN appear to have overplayed their hands."
 
John Durie wrote in his column in The Australian this morning: "Around midday today, AMP's Craig Dunn will formally claim his $14.6 billion prize with Axa Australia under his control and with it a wealth management distribution powerhouse. One-fifth of Australian financial planners will be formally linked to AMP and Dunn will control 24 per cent of the retail superannuation market, 19 per cent of the retirement market, the same in retail funds and close to 20 per cent in individual risk."
 
Malcolm Maiden wrote in the Fairfax broadsheets this morning: "A challenge to Centro Properties' decision to deny shareholders a vote on the $US9.4 billion sale of its US shopping centres to the Blackstone private equity group began in the NSW Supreme Court yesterday. A member of the self-styled Centro Shareholders' Association filed for an order requiring Centro to open its books for inspection. If the application by Smartec Capital is successful it could lead to a second action aimed at forcing a shareholder vote under stock exchange listing rules, which give the ASX the power to force a company to seek shareholder approval for significant deals. The ASX initially agreed with Centro that a vote on the US deal was not needed, but has not granted a formal waiver, and is believed to be making more inquiries after receiving complaints from the Centro Shareholders Association and other Centro investors."
 
Poor Frank Lowy. The Westfield chairman has retired, no more loot, but 2010 was a last, golden fling, as The Sydney Morning Herald explained: "The retiring executive chairman of Westfield, Frank Lowy, got a 7 per cent pay rise to almost $16 million in a year when the retail giant's share price fell. The group's annual report for last year, released yesterday, showed Mr Lowy's total package included a base salary of $8 million and $7 million in cash bonuses. A non-monetary benefit included the use of Westfield's corporate jet." And guess which mall owner stands to lose from the growing list of retailing failures? Westfield.
 
Fairfax Insider Ian McIlwraith wasn't impressed: "Lowy, who recently announced he would finally surrender the corporate reins to the next generation, cannot be faulted for his public generosity – but did he really contribute so much more intellectual property in the past year to be worth that amount of money? The $7 million bonus was the maximum Lowy could earn and he is due to collect a $2.2 million bullet payment in May on departure. No one expected Lowy to work for nothing but even if he donates the salary to charity, why should that come out of Westfield investors' pockets?"
 
The AFR's Chanticleer columnist isn't happy about another situation: "RHG chairman John Kinghorn is taking the oppression of minority shareholders to a new level with his plan to delist RHG following a buyback that arguably undervalues the company's shares." The word 'rort' comes to mind.
 
The Reserve Bank got two new directors yesterday. Business Spectator's Stephen Bartholmeusz applauded: "It is difficult to criticise the two new appointments to the board of the Reserve Bank of Australia. Catherine Tanna and John Edwards bring skills and experiences to the board that are appropriate to the times. In Edwards, a former journalist, economic adviser to Paul Keating and long time chief economist for HSBC in Australia who has been executive director of economic planning and development for the Bahrain Economic Development board, Wayne Swan has replaced an academic economist with a market economist. Catherine Tanna, an executive vice-president of BG Group and managing director of its Australian operations – the giant coal seam gas-fed export LNG export project in Queensland – brings considerable experience in the energy sector, having previously held senior positions with Shell and BP. With the economy being driven by a resources boom in which energy, particularly gas, will play an increasingly significant role and where the key customers are in Asia, Edwards and Tanna will bring very relevant experience and understanding to bear."
 
The Sydney Morning Herald's economics writer, Jessica Irvine, looked at the dollar's strength this morning: "And while fluctuations in the dollar may unsettle some, we should take comfort that the floating dollar is doing exactly what it is supposed to do – cushioning us in downturns and restraining us in upswings. Indeed, throughout earthquakes and other natural disasters this year the Australian dollar has proved one of the world's most effective economic shock absorbers. Viewed over a longer period, the higher Australian dollar is helping us to cope with the biggest national income shock in our history, the commodity price boom. By making imports cheaper, the currency is helping to cool inflation pressure in an economy operating at nearly full capacity."
  
Michael Pascoe wrote on smh.com.au: "The further away from the last federal election we get, the slower our population growth. Today's Australian Bureau of Statistics demographics release shows Australia grew by 1.6 per cent in the year to September 2010, down from the peak rate of 2.2 per cent in 2008. Total population growth of 345,500 for the latest year was the lowest since 319,100 in the corresponding 2006 period. After starting to take off in 2006 and peaking in 2010, population growth is within a notch or two of its 25-year average. The main influence is the washing out of the temporary surge in net overseas migration – NOM collapsed in the latest year by 36 per cent to 185,800." 
 
The Australian's John Durie made an obvious point yesterday not understood by many at the rival Fairfax broadsheets: "The National Party and high-priced milk advocate Senator Nick Xenophon have provided an extraordinary boost to Coles' campaign to re-establish its brand as a viable competitor to Woolies. In fact, Coles boss Ian McLeod could not have planned for better advertising as he works to re-establish the Coles name in the minds of shoppers as the place to go for better prices. The milk price cuts were not even original given then Woolies boss Roger Corbett was the first to slash home brand milk prices back in 1990, the day after the industry was de-regulated. As an aside, Corbett's lead in slashing milk prices does make Woolworths' claims to be the farmers friend a touch hypocritical. Then again, in the supermarket wars facts are being disregarded by the day." Too true.
 
And Durie also wrote: "Woodside Petroleum's stock price continued to soar today on takeover rumours, with dealers jumping on any suggestion pointing to a BHP Billiton bid for the company, starting with last week's board meeting in London. Then there was a story highlighting the fact the London-listed BHP Plc stopped its share buyback on March 18, some 11 days ago, which is seen as further evidence given the legal difficulties in buying shares while in receipt of inside information. There is, of course, another reason why the buyback stopped – the company has launched its off-market buyback in Australia and it always stops the on-market buyback at this time. The Australian Tax Office actually requested the suspension, which will mean it will stop between March 21 and April 8. The golden rule of broking is never let the facts get in the way of a marketable rumour." Quite right!
 
The Australian's Tim Boreham ran the scanner over yet another small bid: "In lobbing a 70 cents-a-share takeover offer for the leukemia drug house ChemGenex, Philadelphia-based big pharma outfit Cephalon is taking a $225 million punt on the US drug regulator approving ChemGenex's potential drug, Omapro. Doubts have dogged ChemGenex shares since the Food and Drug Administration early last year told the company to go away and do more work on its sloppy application. Cephalon's move comes before a March 31 deadline for converting $15 million of convertible notes (at 50 cents a share) and exercising an option to acquire 19.9 per cent of the company at 70 cents. In doing both, Cephalon acquires a 27.6 per cent stake – and a springboard for the full offer (not that it was legally obliged to make one)."
 
Fairfax's Liz Knight looked at Telstra's latest attempt to revive the flagging Sensis business and its key Yellow Pages brand: "What the company did say yesterday is that for the next couple of years revenue and earnings from this business will continue to decline. Shareholders will need to take a leap of faith that beyond this point Telstra is correct in its expectations that the tide will turn and the Sensis business will improve revenue and earnings. It is fair to assume that the Yellow Pages product offer will improve and may appeal to the small business that does not have the time or the expertise to navigate and measure in the multi-channel directories world."
 
The Herald Sun's Terry McCrann also looked at Telstra's attempts to revive Sensis: "The future is coming at Telstra's Sensis – Yellow Pages – and it is coming at it fast. Right now 80 per cent of the revenue is still – literally – in print. In just three years, Sensis expects it to have moved to 50-50 between print and digital. This is an extraordinary shift for any business, a potentially life-threatening shift, both from its speed and the loss of a comfortable high-margin 20th century monopoly. In part it's a technological and lifestyle tsunami which is going to sweep over Sensis and which it is impossible to resist, even if Bruce Akhurst and his team were silly enough to try."
 
And John Durie wrote in his morning column today: "Until this year, Sensis boss Bruce Akhurst defied his global comrades with growth while they all suffered double-digit revenue declines. That game too is lost and he is now forecasting three years of losses before a promised 2014 return to "organic" growth. Yesterday's long-promised briefing was strong on talk and concept but not so much on details, in part because it is a work in progress."