THE DISTILLERY: Murdoch mayhem

The big market sell-off slowed overnight and the worried Italian market even rose, standing out against the falls elsewhere in Europe. Gold rose to a record because the minutes from the latest Fed meeting talked about more stimulus for the sluggish US economy. Wall Street steadied as well, then fell in late trading. The fear and loathing of Monday and Tuesday here and in Asia are easing, but not disappearing.
 
The Sydney Morning Herald reported gloomily this morning: "Global markets were bracing last night for further shocks amid fears the euro zone debt crisis had started to spread, threatening to engulf Italy and Spain. Sentiment turned deeply bearish among local investors, with more than $45 billion wiped off the Australian market's value over two days of heavy losses, with banks in the firing line."
 
One standout loser yesterday was missed by most, but not John Durie on The Australian: "Macquarie Group yesterday closed down 6 per cent at $28.20 a share, the lowest level since March 2009. The stock price hit $15 in February 2009 in the wake of the GFC, rallied to $58.80 in September that year and has basically fallen steadily ever since. Macquarie is the only listed investment bank in Australia and its decline has mirrored that of its Wall Street comrades, as has the 10 per cent fall in consensus estimates." 
 
A good column from Fairfax's Elizabeth Knight this morning explained the sell-off here: "This week's two biggest international stories appear to be totally unconnected but have the same underlying theme – contagion. The phone hacking scandal that has engulfed Rupert Murdoch's News Corporation is the first. The inclusion of Italy on the list of troubled European sovereign debt providers is the second. Both these situations have a long way to play out and no one knows how much damage will ultimately be done to either Murdoch's business interests or to the international economy by inclusion of Italy to the euro fiscally irresponsible rat pack." The carbon tax has come and gone.
 
This morning Fairfax's Malcolm Maiden looked at News Corp's BSkyB ambitions: "Rupert Murdoch's News Corp is now taking heavy collateral damage over the telephone hacking scandal in Britain. Any argument that the cost might be confined to the closure of the News of the World newspaper and some unspecified intangible loss of reputation is out the door with News's decision to back off on its £8 billion ($12 billion) purchase of the remaining 61 per cent of Britain's BSkyB pay television group. Technically, the BSkyB takeover is alive, and just side-tracked into a new merger investigation that buys time for News and the British government, which faced a parliamentary motion to defer approval today. But News's plan to own all of BSkyB is almost certainly dead: yesterday's announcement actually sets up the form of burial, in about a year's time – and the market knows it, judging by the steepening descent of News's and BSkyB's shares." The UK parliament is expected to vote tonight (with support from all parties) to request News Corp to withdraw the BSkyB bid.
 
Adele Ferguson observed on smh.com.au yesterday: "There is little surprise that the two big movers on the ASX today are Macarthur Coal, which has just landed a takeover bid at a 40 per cent premium, and News Corp, which has caught a nasty bug from the very contagious News of The World phone-tapping scandal. Both companies are grabbing the headlines for different reasons, and both are getting caught up in politics. As each day goes by and new allegations emerge in the UK, politics and politicians will start to jump on the bandwagon. This is a story that is just starting to unfold." Actually, News Corp's London woes are more than politics.
 
And the Financial Times reported in its Asian pages today: "News Corp will use $3.2 billion of the cash it had stored up for the acquisition of British Sky Broadcasting to boost its share buy-back programme from $1.8 billion to $5 billion, in Rupert Murdoch's latest dramatic response to a crisis that has weighed heavily on the media group's shares. The unexpected Tuesday morning announcement is likely to be welcomed by investors and analysts who have long argued for larger buy-backs, but is unlikely to dent News Corp's ability to afford the 61 per cent of BSkyB it does not already own." And the buyback will see the Murdochs tighten their control of the company.
 
SMH economics editor Ross Gittins wrote this morning: "The carbon tax is neither as good as Gillard claims nor as bad as Abbott claims. Funny, that." A good commentary, well worth reading.
 
The Financial Review says: "Banks will cash in on the government's carbon policy, as they develop new financial products and services in a market worth many tens of billions of dollars locally." And of course lawyers will benefit, with the paper noting: "Businesses might not be able to pass all of the carbon costs through to customers, raising the prospect of greater legal disputes." Ker-ching!
 
And The Australian's John Durie made some good points in his commentary this morning: "The federal government's carbon plan ticks most of the boxes on good policy, but falls down with its insistence on throwing money at ventures that are already heading for the rubbish bin. There is a basic inconsistency between a welcome effort to put a price on carbon via a market-based scheme, and then distorting that market with subsidies and arbitrary support that jeopardises its effectiveness. The steel industry stands to collect $300 million to help adjust to the new policies, when in reality some of its capacity is being shut anyway."
 
The Australian's Peter van Onselen wrote: "The same reason most business interest groups don't like Julia Gillard's carbon tax is why most voters should prefer the government's scheme over and above Tony Abbott's direct action plan. Abbott's plan would use taxpayer dollars to pay for government to fund industry to lower its emissions. The Gillard scheme taxes industry to give it a price incentive to change its ways and, to the extent it can't or won't, funnels much of the revenue from the carbon tax back to the public (lower- and middle-income earners) through tax cuts to compensate for expected price rises."
 
Coal company, anyone? The AFR said this morning: "Macarthur Coal shares reach their highest in more than a year but remain below the price of the $4.7 billion offer from Peabody Energy and ArcelorMittal as investors and analysts ponder the likelihood of the bid's success or any counter-bid."
 
The Australian's Bryan Frith said: "It's early days, but judging by yesterday's market reaction it appears investors are not confident a rival party will appear to top Peabody's putative $4.7 billion takeover offer for Macarthur Coal. Meanwhile, it appears the hedge funds are piling into the stock already and they will be doing so in the hope there is either a higher rival offer or the Macarthur board extracts a higher offer from Peabody for a board recommendation."
 
And Business Spectator's Stephen Bartholomeusz wrote: "Whatever the eventual impact of carbon pricing on Macarthur it would, of course, be factored into the price that the prospective bidders will ultimately be prepared to pay. Indeed, the timing of the approach, a day after the carbon pricing scheme was unveiled, was probably designed to exploit the confusions and negative sentiment for coal that the package would be expected to generate. There was never any expectation that a carbon price would somehow savage the value of export coal producers, particularly coking coal producers. The coal industry lobby, in fact, has been careful to argue that the package will have an adverse impact on growth relative to what it might otherwise have been and on where the marginal dollar of investment is made, not that the sector won't continue to grow strongly."  
 
The Australian's John Durie wrote on the paper's website yesterday: "The hedge funds are backing an imminent change in control at Macarthur Coal, with over 11 per cent of the stock changing hands this morning, pushing the price up 37 per cent to $15.17 a share. This is still below the $15.50 proposed bid price. Bankers are also piling in on the $3.7bn bid amid a marked scarcity of deals. Importantly, the deal effectively puts a new price floor under the sector and backs the bulls on longer-term prices. This is especially given alarmist nonsense being spruiked by the industry associations in the wake of the government's carbon price plans."
 
Tim Boreham, wrote on The Australian's website yesterday: "If there's one thing the coal lobby can excise from its anti-carbon tax rota, it's how the impost will scare off investors. In what Macquarie Equities aptly dubs Groundhog Day, Macarthur Coal is again on the takeover agenda, with the persistent Peabody Energy of the US this time linking with 14 per cent holder ArcelorMittal to put forward an indicative $15.50 a share cash offer. What's changed in the interim? The coking coal-PCI market has tightened further, but the pricing benefit has been offset by the stronger Australian dollar. The mining tax debate – which was raging back then – has settled down (replaced, of course, by carbon). In other words: swings and roundabouts." Good point.
 
Papers such as the AFR noted another big jump in China's foreign exchange reserves to $US3.197 trillion at the end of June: "A increase in bank lending and a rise in foreign exchange reserves have underscored the challenges confronting China's leaders."
 
And the Financial Times reported in its Asian edition: "China's foreign exchange reserves, already the world's biggest, soared again in the second quarter, adding to inflationary pressure and highlighting the risks in Beijing's policy of holding down the value of its currency Reserves are a key indicator of central bank intervention in the currency market because they reflect how much foreign exchange it has purchased in order to stabilise the renminbi. After jumping $197 billion in the first quarter, reserves were up another $153 billin in the second quarter."
 
The AFR's Chanticleer columnist reported that: "A bitter internal fight in the upper ranks of one of the country's largest independent financial planners has driven out senior executives and several directors." 
 
According to the SMH, Kerry Stokes knows where Australia's future is, and his: "The media and resources tycoon Kerry Stokes says Australia risks missing out on crucial Chinese investment if it does not nurture the relationship with its resources-hungry Asian neighbour. The Seven Group Holdings chairman told business leaders in Perth yesterday Australia needed China more than its huge neighbour needed it." Mr Stokes' Westrac, part of Seven Group Holdings, has large business interests in China.