THE DISTILLERY: Packer pontiffs

Another example this morning of how the media loves writing about itself with our covey of jotters falling upon the ructions at the Ten Network yesterday for the second time in a fortnight. It might look good to be writing about people called Packer and Murdoch, but there were a couple of other issues around yesterday of equal or greater importance: the changes at Westfield, Metcash's profit downgrade, its CEO's spray at rival Coles and the fourth quarter economic figures. They were covered fitfully, compared to the warblings on James Packer's departure from the Ten board and the network's poaching of a Seven executive as CEO. So let's start there with the theories du jour.

News Ltd's The Australian reported: "Sources close to Mr Packer yesterday indicated he was "very irritated" at a decision to poach Seven Network's James Warburton as Ten's chief executive, an appointment engineered by Mr Murdoch. Mr Warburton – a sales executive at Seven who had been agitating for a shot as chief executive of Australia's number one network only to be stymied by Seven's legendary veteran TV man David Leckie – jumped at the opportunity to lead Ten when talks over his possible appointment started last week." Mr Murdoch's role was mentioned, but not a feature as it was in the Fairfax papers, or even in Terry McCrann's column in the Melbourne Herald Sun, a News Ltd stablemate.

And The Sydney Morning Herald agreed: "James Packer resigned his coveted directorship of Ten Network as a matter of principle after his co-investor Lachlan Murdoch's raid on a Seven executive breached a truce with Kerry Stokes. Back in September 2009, Mr Packer and the Seven Network supremo sheathed their swords and forged a truce in which they divvied up the spoils of the new media landscape. Yesterday's announcement that Ten had poached a Seven executive, James Warburton, to jump ship and head the network was a clear breach of that arrangement. While there was speculation Mr Packer's resignation reflected a fresh falling-out between him and Mr Murdoch, the move satisfies both Mr Murdoch and, more importantly, Mr Stokes, who is said to be ''Vesuvian'' at Mr Warburton's defection."

Fairfax Insider Ian McIlwraith, however, said the suggestion of a "deal" with Mr Stokes might heighten interest at the ACCC: "James Packer's jump from the sizzling pan that is the Ten Network board may have landed him in the fire of competition tsar Graeme Samuel. The orthodox spin being handed around yesterday on Packer's shock, and publicly unexplained, departure was that his business partner, Lachlan Murdoch, had breached some form of unofficial ''no compete'' agreement between Packer and television rival Kerry Stokes by poaching a new boss for Ten from Seven. While Packer's ''my word is my bond'' attitude under that scenario is laudable, if it is true he might have much more to worry about than a grumpy fellow mogul. Samuel, and his Australian Competition and Consumer Commission, tend to seriously frown on back-room arrangements that lessen competition." 

News Ltd's Terry McCrann (who works for the Murdoch-owned Herald Sun) wrote that: "What we can say is that there has been an extraordinary split between the Packer and Murdoch who have been closer than any other pair in three generations of intense, at times aggressive, combat and occasional co-operation. Packer J and Murdoch L. It is a split which has potentially profound consequences for the structure and dynamics of media in Australia, precisely at a time when media has never been in greater flux. In so abruptly resigning from the Ten board, Packer sent two signals. To Murdoch that he did not like his choice of CEO. And to Stokes, that the choice was not his doing. Arguably – alternatively? – it was a signal he HAD to send to Stokes, given their emerging relationship."

Malcolm Maiden wrote on smh.com.au: "Now Ten has announced that it has already hired a permanent CEO – James Warburton, who has been poached from a senior executive position with Kerry Stokes' Seven Network – and Packer is gone: or is he? The coincidence of the appointment of Warburton and the resignation of Packer is throwing up two sets of theories. The first is that Packer and Murdoch have fallen out, and that the appointment of Warburton is the reason. And there could be room for tension on that front. James Packer's family company control 45 per cent of Consolidated Media, the group that is a 25 per cent shareholder in Foxtel alongside Telstra (50 per cent) and News Corp (25 per cent), and a 50 per cent shareholder alongside News Corp in Premier Media, which produces Foxtel's three Fox Sports channels. The alternative theory has Packer standing aside because he is planning something big, so big that he needs to operate at arm's length, particularly when the Australian Competition and Consumer Commission is investigating Ten's ownership after his raid, Lachlan Murdoch's arrival and other moves including Gina Rinehart's subsequent acquisition of a 5 per cent-plus stake, and her appointment to the board.'' 

And Business Spectator's Stephen Bartholomeusz said yesterday: "Austar's confirmation of reports that have been circulating for a fortnight that Foxtel has been talking to its major shareholder, John Malone's Liberty Global, about a possible bid for the regional pay television operator is going to cause significant disquiet among Telstra's telecommunications rivals. Telstra, of course, owns 50 per cent of Foxtel and, if Foxtel were to acquire Austar, would control a national pay TV service with about 2.4 million subscribers. If Foxtel were to acquire Austar and Telstra retained its 50 per cent share of an expanded Foxtel, it would be able to offer bundled fixed line voice and data services over the NBN and over its wireless network and pay TV over its HFC cable and/or the NBN and Austar's satellite service and even over its wireless network." It all sounds like a mighty ripping contest to me.

And Liz Knight, another Fairfax writer got to the point of the story wand pointed out: "Packer took the self-sacrificing step of giving up his Ten directorship – as a measure of goodwill towards Stokes and potentially an attempt to demonstrate that he didn't have a hand in this decision. Given it is hard to believe that Packer's fingerprints are not all over this talent grab, his resignation may serve as nothing more than a mea culpa. But it beggars belief that having resigned Packer will take a passive approach to his investment in Ten. The only question that lingers is whether Packer's resignation is also designed to appease the Australian Competition and Consumer Commission, which has a watching brief over Ten." And will Lachlan Murdoch now go, especially if Foxtel snuggles up to Austar? And The Australian Financial Review reported: "Austar said it understood talks had taken place between its largest shareholder, Liberty Global, and Foxtel about a possible acquisition of the regional pay TV company, but it had not received a formal offer."

On the changes at the Lowy family-controlled Westfield, The Australian's veteran commentator Bryan Frith wrote: "However, this is not just cosmetic, and does represent a changing of the guard. Lowy will still be very involved, but responsibility for day-to-day operations is now firmly in the hands of Peter and Stephen. That has largely been the case for some time, but it now has the imprimatur of the board. Lowy is still healthy and mentally alert, but he turned 80 in October and it's probable that was an important factor in his decision to step down from an executive role at the group he founded more than 50 years ago with the late John Saunders."

Fairfax's Adele Ferguson sniffed a longer-term change underway: "This board renewal, including the appointment of Brian Schwartz as deputy chairman, signals a subtle shift in power at Westfield, with the future chairman likely to be someone outside the Lowy family. This, coupled with last year's splitting of the empire into two separate listed entities, marks the beginning of a new era. In Frank Lowy's words, Steven and Peter, in the elevated joint role, will call the shots on a day-to-day basis rather than their father. David Lowy currently runs the family's private interests. These include private investments in shares, private equity, hedge funds, property and infrastructure. It is not known how much these are worth but it is believed to be well over $1 billion. This business has the potential to expand the family's wealth faster than Westfield, which, despite surviving the global financial crisis, has had a lacklustre share price performance."

And Fellow Fairfaxian jotter Ian Verrender took a similar tack: "Even Frank Lowy described it as a ''significant moment in the company's history''. No matter which way you look at yesterday's sweeping changes to the board and management of Westfield Group, it is difficult to escape the fact that the family's iron grip on the company has been loosened, if only marginally. The announcement has capped a period of intense disappointment for the family and a lacklustre performance for the company. Lowy, the Westfield founder and patriarch, was hoping to bow out a hero. But his high-profile push to bring the football World Cup to Australia ended in controversy, the recent restructure of Westfield has yet to bear fruit for investors and there is, smouldering away in the background, the ongoing investigation by US tax authorities into the company and the Lowy family. Given his advancing years and the disdain modern investors hold for chairmen who double as executives, it is remarkable the shift didn't occur years ago." The rents won't fall at Westfield's malls!

The Australian's Tim Boreham pointed out: "The 80-year-old Westfield founder, executive chairman and control freak becomes just "normal” chairman, ceding day-to-day control to sons Peter and Steven. The management revamp – coinciding with Westfield's golden jubilee – sees eldest son David and independent director David Gonski depart the board, after 35 and 25 years respectively. Also, existing director Brian Schwartz, erstwhile head of Ernst & Young and investment bank Investec, becomes deputy chair. Notably, Frank is not on the board of Westfield Retail Group, which houses the local shopping-centre assets hived off from the parent last year. So the revamp reflects an evolutionary approach to de-nepotising the group."

The Australian Financial Review's Chanticleer wrote today: "The uncertainty about the role of directors faced with takeover offers is again in the limelight because of two recent deals involving Perpetual and Crane Group that do not appear to pass the corporate governance smell test."

The AFR reported: "The economy was gathering momentum before the Queensland flood disaster, with official figures showing output grew by 0.7 per cent in the December quarter to be up 2.7 per cent from a year earlier."

Michael Stutchbury, The Australian's economics editor wrote yesterday: "The economy is growing solidly, as Wayne Swan pointed out in response to today's national accounts. But it is not bursting at the seams even amid the Australia's biggest ever mining development boom and a surge in national income from sharply higher export prices. That should be enough to keep the Reserve Bank on the interest rate sidelines for at least the next few months. The headline gross domestic product number – up 0.7 per cent in the last three months of 2010 and 2.7 per cent over the year – is comfortably within the economy's sustainable annual growth pace of a bit above 3 per cent."

And this morning Stutchbury wrote: "Our commodity export prices have soared 48 per cent in the past year. That's pumped up the buying power of national income by 9 per cent, increased working hours by 3.2 per cent and clipped the jobless rate to 5 per cent. Our big Asian export markets are posting "very strong" growth, says the Reserve Bank. And miners are gearing up for our biggest ever investment boom. So the economy should be overheating by now. Instead, according to yesterday's December quarter national accounts, it's expanding at an annualised 2.7 per cent, easily within its speed limit."

Michael Pascoe wrote on smh.com.au: So the economy grew nicely enough in the December quarter despite the RBA lifting rates at the beginning of November and the consumer turning thrifty. Personally, I find it hard to get excited about the numbers – they're so last year. Here in March, after various natural disasters and ahead of reconstruction and a massive surge in private capital expenditure, the score for what the economy was doing at the end of last year is primarily of historical interest. The interesting bits in today's national accounts are those that mean something for way ahead, not what happened four months ago. Thus the biggest contribution to growth in the quarter – inventories being built up – does matter a bit as it suggests they might be run down this quarter while consumers sit on their wallets. So retailers will have to keep discounting and whingeing as they clear stock. There's nothing in the national accounts that would surprise or disappoint the Reserve Bank. The historical scorecard is in keeping with everything the RBA has been promising us. The terms of trade are up a whopping 22 per cent over the year, although they rose just 1.1 per cent in the latest period, and the big capex spend to capitalise on that is only starting to happen." 

John Durie said in The Australian this morning: "Metcash's Andrew Reitzer just doesn't get it. He blames his struggles on Coles and says not a word about his customers. He went a lot further than that yesterday, in explaining his expected profit downgrade, describing as immoral Coles' behaviour in cutting milk prices, and even launching a tirade against Coles boss Ian McLeod. Clearly McLeod's strategy of cutting prices to boost volumes, which comes straight from the British textbook, has got under Reitzer's skin – and has also temporarily rattled Woolworths. McLeod has got away with it because Woolies' margins are double his and Reitzer's margins are also higher. It is extraordinarily hypocritical then for Reitzer to launch a tirade against Coles and in defence of Australian industry."

Durie wrote on the paper's website yesterday that Metcash boss Andrew Reitzer is upset and says his profit downgrade shows why the ACCC should okay his Franklins buy: ""Metcash's Andrew Reitzer blames much of the industry's woes on rival Coles, saying it was responsible for driving prices down and threatening to destroy the local food-processing industry. He didn't mention Coles boss Ian McLeod by name, but he said there was one person, in particular, responsible who would leave the country in a couple years after collecting a big bonus. Reitzer also questioned the morality of the practices. The retailer, which is challenging the Australian Competition and Consumer Commission's rejection of its planned acquisition of Franklins, said its market share in the grocery market was stable at 19.6 per cent. Reitzer has cited price-deflation as a key reason for his downgrade, which he cites as yet more evidence of competition in the sector. This, he argues, explains why Samuel should clear his Franklins purchase." Strange days indeed in our shops when the consumer getting a bargain is somehow 'bad'.