Thodey lines up the contenders for race to take lead at Telstra

Four of the five top contenders are newcomers, hired since Thodey took over, and each of the five has a different skill-set.

DAVID Thodey has settled the field for the succession race inside Telstra with yesterday's announcement that former AXA Asia Pacific chief executive Andy Penn will slip into the chief financial officer's chair at the telco in March.

Thodey (pictured) got the top job in May 2009. He's well on the way to fixing the problems he inherited from Sol Trujillo, and his company's shares are a standout performer this year, rising 17.2 per cent when the S&P/ASX 200 Index as a whole has fallen 11.5 per cent. On the strength of that, he has a good two years at the top in front of him, and he is capitalising on that by creating a diverse succession field. Four of the five top contenders are newcomers, hired since Thodey took over, and each of the five has a different skill-set. If a CEO change was imminent, that would be a problem. But there is time to rotate them, and see what happens.

The field continues to be led by Gordon Ballantyne, who worked at Dell, T-Mobile and Hewlett Packard in Europe and Britain before being hired by Thodey in the middle of 2010 to run Telstra's retail consumer business. A year later he took charge of a single sales division that services retail customers, business customers and governments. The mega-business accounts for 75 per cent of Telstra's revenue, and earned $13.8 billion before interest and tax in the year to June.

The sheer weight of numbers and the responsibility that comes with them makes Ballantyne the front-runner to eventually succeed Thodey as chief executive, but with the arrival of Penn as CFO there are now four other strong contenders.

Penn replaces John Stanhope, who retires at the end of this month, and after being CFO and then CEO of AXA here he also has a strong claim. He isn't inheriting Stanhope's seat on the telco's board, but that isn't really a downgrade because Stanhope had a special deal.

Stanhope was leading Telstra's labyrinthine negotiations for the telco's participation in the national broadband network by the time Trujillo's job was up for grabs in 2009, and he was a serious contender. After he missed out it was crucial he be retained, and the board seat was part of the embrace.

The NBN deal isn't totally locked up: the ACCC's final sign-off on an interim access regime for Telstra's copper network won't come until the new year. But it's close enough for the board seat to pass with Stanhope's exit, and for the status quo to resume.

The core contender group also includes Kate McKenzie, who joined Telstra in 2004, and runs pricing, product development and marketing. Telstra lost its way in the mobiles market under her watch during Trujillo's tenure and became too expensive, but Thodey backed her to fix the problem, and she has. Management and structural changes this year have reversed an earlier decentralisation of marketing by Thodey, and rebuilt her power.

Brendon Riley, who took over as Telstra's chief operations officer in March this year is also on the radar. Like Thodey, Riley is a former IBM executive, and was chief executive of IBM in Britain and Ireland before he was headhunted.

And there is Robert Nason, whose career in information technology and consulting had carried him to the head of Tabcorp's wagering business when he was hired by Thodey in February 2010. Nason has been steering Project New, an internal redesign that aims to refocus Telstra on its customers, while also simplifying business processes and cutting operating costs. Tough task, but so far Nason is on course. Productivity benefits from Project New were worth $662 million in the June year, and bigger gains are expected this financial year.

There are other potential contenders, including Deena Shiff, who ran one of the business units amalgamated this year under Ballantyne, but scored an intriguing new role to develop broadband applications for Telstra's embryonic cloud services business, and Paul Fegan, who ran St George Bank before its takeover by Westpac, and joined Telstra in February this year. He was an internal option for Penn's job, but still has a key strategic role in the telco, including a brief to examine mergers and acquisitions.

The next CEO is, however, most likely to come from the group of five. Penn is the final, heavyweight addition, but Ballantyne is still the best bet.

APA group's $841 million cash and share bid for the 79 per cent of Hastings Diversified Utilities Fund that it does not own is pitched at 13 per cent premium, but is probably only intended to get the game started.

Hastings' 100 per cent owned Epic Energy and APA share ownership of a gas pipeline that connects the Moomba gas facility in South Australia to Brisbane. The pipeline is in the process of being doubled in capacity, and Hastings' board will undoubtedly say that the bid does not recognise the revenue and profit uplift that is coming.

There's no doubt that there's what the takeover industry likes to call industrial logic in the combination, through the greater reach of the combined network, and the rationalisation of ownership of the Moomba-Brisbane pipeline.

This looks, however, like a bid that needs to be friendly: it is conditional for example on the takeover not triggering a renegotiation of Epic's $1 billion debt load, and that's a level of comfort that's difficult to achieve from outside the tent. Expect Hastings to reject the bid, and APA to sweeten it enough to get talks happening about an agreed deal.

The Maiden family owns Telstra shares.

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