THE DISTILLERY: Woolies U-turn?

'Price war, what price war?' seemed to be the defensive reaction at Woolworths yesterday after the retail giant surprised by changing CEOs, in a sedate but timely manner. It seems reporters put the questions about the impact of Coles' aggressive price cutting and Woolies' management deflected them, but didn't convince many. Coles' recent aggressive market place actions was the figurative gorilla in the back of the room Woolies management didn't want to acknowledge. That leads to the question, will Coles be the winner from Woolies' surprise leadership change?
 
Fairfax's Adele Ferguson thinks so: "The decision by Woolworths to promote Grant O'Brien over his boss, Greg Foran, speaks volumes about the board's thinking on diversifying and focusing on profit margins rather than market share. For customers it means an all-out supermarket price war with Coles is unlikely. The diversification will include its current home improvement strategy and will tap into financial services and joint ventures with banks. This will fill executives at the rival Wesfarmers with joy. It is widely understood that Foran had been pushing the ''reinvest in the price'' approach, which is about increasing market share by lowering costs through greater volumes and sharing the improved returns with customers through lower prices. It would have meant taking Coles on rather than following."
 
The Australian Financial Review's Chanticleer agreed this morning: "James Strong and the board of Woolworths have shown their inherent conservatism with the appointment of Grant O'Brien as chief executive."
 
As did The Australian's John Durie, who wrote: "While the rest of the market is focused on supermarket competition, Woolies chair James Strong has his sight set on building new revenue streams for the company with the appointment of Grant O'Brien as chief executive. The move seems likely to trigger the departure of the highly regarded supermarket boss Greg Foran, who has to endure reporting to a man who just yesterday reported to him. Chairman James Strong will also step down in the new year, with one of the newcomers – Jillian Broadbent or Ralph Waters – poised to replace him." Well known retailers both of them, one a banker, the other manufacturer and building products executive. 
 
Durie also wrote yesterday: "The appointment of Grant O'Brien as head of Woolworths is a marked change for the retailer at a time when increased competition has clearly rattled the company. The choice of O'Brien over his former boss Greg Foran is a slap in the face to former Woolworths chief and present Fairfax chairman Roger Corbett, who was a close confidante of Foran's and also an outspoken advocate for a retailer to run the company. O'Brien bristles at the suggestion that he is not retailer given he has worked for the company for 24 years, and when he started work as an assistant accountant by day at night time he was stacking shelves at what is now the Sandy Bay store in Hobart. Corbett's sweetheart five-year $600,000 a year consultancy at Woolies expires in September, the very same month Michael Luscombe steps down as chief executive. Luscombe didn't make a lot of use of Corbett's advice and chairman James Strong has also walked off in a different direction."
 
Business Spectator's Stephen Bartholomeusz made some interesting points in his commentary yesterday: "O'Brien is another Woolworths' veteran, having been with the group 24 years. His experience, however, has been quite diverse and, separate to the hands-on retail experience, has included strategic roles. He established the national marketing strategy Woolworths' adopted when it shifted from its former state-based structure; created its customer research department and is credited with devising the country's first supermarket loyalty program. He also helped develop the group's multi-banner liquor strategy and oversaw the integration of the ALH group. More particularly, O'Brien was appointed general manager of new business development in 2008 and was therefore the key figure in developing the strategy that resulted in Woolworths, in partnership with Lowe's of the US, entering the hardware sector." And if that joint venture fails to provide the returns, what will that say about Woolworths with him in charge?
 
The strong dollar is the other big story and The Herald Sun's Terry McCrann says the currency's strength is, on the whole, good for the country: "The strong dollar absolutely removes any last lingering chance of an official interest rate rise; and indeed takes any pressure – excuse? – off the banks to raise their rates independently. There was of course already no prospect of an official rate rise from the Reserve Bank today; and almost as certainly not for the next few months. The strong dollar sets that in cement. Indeed if anything it starts to open the door to a rate cut. Actually getting a cut would require the dollar to go sharply higher and for broad weakness in either the local or global economy. We're essentially in the lap of the gods. And the US dollar. Greenback weakness more than Aussie strength is driving this." A good piece, well worth reading in its entirety.
 
The AFR also reported today that there's growing concern among marriage party for the the ASX takeover by the Singapore exchange: "ASX Ltd and its would-be partners at the Singapore Exchange are trying to keep a brave face over their proposed $8 billion tie-up." The AFR carried a good opinion piece on the issue on Monday by a professor from the ANU in Canberra.
 
Fairfax's Adele Ferguson wrote yesterday that all the talk about how ASIC was going to be tougher on insolvency practitioners (such as in yesterday's AFR) was all about "shoring up its position ahead of some legislative changes that are set to be put through parliament in June. Last year a senate inquiry into liquidators spear-headed by Nationals senator John Williams tore strips off ASIC for its failure to properly regulate. It recommended the corporate watchdog be shorn of its powers, that the industry be opened up to competition, that liquidators be licensed and that a majority of creditors had the power to get rid of a liquidator. To date, nothing has happened from the federal government. The Treasurer Wayne Swan has sat on the recommendations and has failed to report back to the senate. In simple terms, he has done diddly squat. But behind the scenes there is a lot of lobbying to get change. It is understood that there will be a move in parliament to push through three changes to the legislation."
 
Chinese owned Minmetals Resources has made a surprise $A6.3 billion bid for Equinox, raising the question, ably put by the AFR this morning: "One of the big questions – now that Hong Kong-listed Minmetals Resources (MMR) has made clear its intention to bid $C6.3 billion ($6.3 billion) for copper miner Equinox Minerals – is who might be game enough to take on the Chinese." Good one. Counterbid and lock yourself out of China?
 
And The Australian's Bryan Frith wrote this morning: "Equinox used the need for shareholder approval to force Inmet and Lundin Mining to scrap their proposed "merger of equals", but now finds its $5 billion bid for Lundin under a similar threat from China's Minmetals Resources. It's unfamiliar territory for Equinox. Until now Equinox has been very much the hunter – only two months ago it succeeded in a $1.25 billion bid for Citadel Resources for $1.25 billion (sic) and is now bidding for Lundin – but it now finds itself as the prey."
 
The Australian's Tim Boreham looked at the outbreak of bids for our little biotechs: "Undeterred by the robust Aussie dollar, global pharma firms are making a sustained assault on our biotech sector – and not before time for long-suffering investors. In an unexpected friendly tilt, the acquisitive Frankfurt-based Qiagen has offered $341 million ($3.55 a share) in cash for Cellestis, a global purveyor of Quantiferon tuberculosis testing kits. The offer – which might be bolstered by a special franked dividend – is a 24 per cent premium on Friday's closing price. This is the third big deal in the last four working days – and arguably the biggest in the sector's illustrious history."

The Australian's David Uren reported that: "Treasury has warned the federal government that the river of company tax revenue that has supported the budget for the past eight years is drying up, with payments falling massively short of budget projections. A Treasury executive minute to Wayne Swan has blamed the strength of the Australian dollar and the run of Reserve Bank rate rises for the shortfall, and says the government should not expect the minerals boom to bring a quick turnaround. The Treasury minute shows company tax revenue will reach only $60.6 billion for this financial year, down from the $63.7 billion expected when the government's finances were reviewed last November and 10 per cent short of the $66.5 billion revenue forecast in last year's budget."
 
The Sydney Morning Herald's Peter Hartcher wonders about the thinking of 85 year old former Fed chairman, Alan Greenspan, the man more responsible than most for the GFC and everything that went with it: "It is breathtaking audacity that the chief arsonist should scold the fire brigade, saying: "Put away your hoses and enjoy the fire". Even more so because there was a day in late 2008 when he did seem remorseful, accepting that he might have made an ideological error in refusing to adequately regulate banks: "Yes, I've found a flaw. I don't know how significant or permanent it is. But I've been very distressed by that fact." Greenspan seems to have made a full recovery from his distress. A highly intelligent man, he knows that his system broke. He knows that it can be fixed. He knows that it's entirely possible to have a free-market financial system that does not suffer inevitable and catastrophic collapse. Australia and Canada are living, growing proof." Another excellent read.
 
And finally, Fairfax's Ian Verrender had a commentary on the NBN and Telstra: "Just as negotiations between Telstra, NBN Co and the federal government have moved into top gear over structural separation of the telco's business, the Telstra boss has suddenly been handed a potential trump card. Last week's announcement by NBN Co that it had suspended tenders for the huge broadband rollout created the predictable froth and outrage within political ranks. But it may well provide Telstra with a little extra leverage as it negotiates the finer points of the $11 billion sale of its copper wire network and hardware to NBN."