What does Chemist Warehouse’s Australian merger mean?
Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast site, my own website, the Apple Podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at www.businessacumen.biz or at Banking Day.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com.
I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.
This is episode number 45 in our series for 2023 and today’s date is Friday December 15. Yes, I know we missed out on a podcast on December 8 but we had to leave that one because of medical issues. But we are back today.
So today, ’ll be talking to I’ll be talking to Ben Pfisterer, the CEO of business payment service Zeller about the role that finetchs can play providing banking services for business.
And I’ll be talking to financial analyst Tim Buckley, the director of Climate Energy Finance, about the Brookfield-EIG battle to take over Origin.
But first, let’s talk to Ben Pfisterer.
So what’s happening in the news.
Chemist Warehouse and its proposed partner, Sigma Healthcare, are confident they will be able to work through any issues raised by the competition regulator about market concentration in the pharmacy sector as part of the groups’ $8.8 billion merger. Chemist Warehouse and Sigma unveiled their long-awaited plans to list on the Australian Securities Exchange via a reverse listing through Sigma, which owns the Amcal brand and a successful medicine distribution business. Chemist Warehouse’s shareholders will own 85.75% of the newly merged entity once the deal is complete. The families of Chemist Warehouse’s billionaire founders Jack Gance and Mario Verrocchi will hold 49% of the group, valuing their holding in the group in excess of $2 billion each. The families will also receive a $700 million cash payment as part of the deal. The major shareholders will have the vast bulk of their remaining shares escrowed until August 2026. The deal will also involve Sigma raising $400 million from shareholders to assist in providing liquidity to the newly merged group via a book build managed by Goldman Sachs Australia. As part of the transaction, Gance and Verrocchi will join the combined group’s board, while Sigma’s chairman, Michael Sammells, and its chief executive, Vikesh Ramsunder, will remain in their roles. The transaction is expected to attract significant scrutiny from the Australian Competition and Consumer Commission as Chemist Warehouse supplies about 600 pharmacy-led stores via franchise arrangements, while Sigma supports 340 pharmacies under its Amcal and Discount Drug Store brands.
The long-term cost of the federal government’s debt interest bill has blown out by $80 billion since the May budget, overtaking the National Disability Insurance Scheme as the Commonwealth’s fastest growing expense. Treasurer Jim Chalmers on Sunday confirmed the mid-year economic and fiscal outlook (MYEFO) will be delivered on Wednesday, just one day before the release of monthly labour force figures, which are expected to show the jobless rate hit an 18-month high of 3.8% in November. MYEFO will show the interest bill on the federal government’s $918 billion in gross debt is now forecast to grow at an average rate of 11.7% per annum over the next decade, up from 8.8% in the May budget. The 10-year bond yield has increased by about 100 basis points since May to 4.3% alongside a global rise in long-term yields. Treasury estimates the average cost of new government borrowing has risen to 4.7% from 3.4% as a result. The increase means the federal government will spend $80 billion more money than previously forecast over the next decade paying interest. The next fastest growing expense will be the $42 billion NDIS, which is expected to grow at an average annual rate of 10.1%– above the federal government’s 8% target. Hospital funding, defence spending and Medicare are the next fastest growing areas of spending, increasing between 5.9% and 6.5% per year over the next decade. Despite the mounting pressure from interest payments, Dr Chalmers said gross debt in 2023-24 is forecast to be close to $900 billion as the budget benefits from a surge in revenue from stronger-than-expected income tax and commodity prices.
A shortfall of 229,000 workers is looming across the infrastructure sector, with warnings it will add to ongoing cost pressures on everything from steel to quarry rocks and make planning for new homes, roads and power generation even more difficult. The federal government’s chief adviser on infrastructure projects, Infrastructure Australia, used a report on the sector’s capacity constraints to reveal that the cost of some vital goods will climb another 25% this financial year, putting more pressure on government and private-sector budgets. Some of the hardest-hit areas will be in regional NSW and Victoria, where major road works will struggle for essential inputs and workers. The agency says the federal government needs to bring in more migrant engineers. All levels of government, and the private sector, have reported large cost overruns due to a combination of worker shortages, problems with supply chains, and the sheer quantity of infrastructure work spread across the country over the past two years. Infrastructure Australia found the nation’s construction-related workforce needs to grow by 127% to meet a shortage of workers that will peak in the middle of next year¸ Of the 229,000 shortfall of full-time workers, the agency estimates 131,000 are in trades and labour. There are also significant shortages of engineers, architects and scientists. The agency’s chief executive, Adam Copp, said on top of spending $230 billion in public infrastructure over the next five years, governments were hoping for the construction of 1.2 million new homes, as well as a quadrupling of spending in the energy sector.
The government has released a draft of its proposed revisions to the tax agents code of conduct as part of a raft of measures designed to tighten controls in the wake of the PwC scandal. The draft outlines changes relating to additional obligations, integrity provisions, false or misleading statements, conflicts of interest, confidentiality and competence. It goes hand in hand with a consultation paper on strengthening the sanctions of TPB and ushers in a sequence of Treasury-led reviews in response to the PwC tax secrets affair. The code of conduct legislative instrument changes the Tax Agent Services Act 2009 and releasing the draft Assistant Treasurer Stephen Jones said it included measures to manage conflicts of interest, prevent unauthorised disclosure of confidential information, require disclosure of investigation or sanctions to a client, and put in place “adequate supervision and quality assurance arrangements”.
The Tax Practitioners Board will be able to pursue tax agents who break the code of conduct with beefed-up civil and criminal penalties in an overhaul of its sanction powers proposed by a consultation paper released on Sunday. The paper, Enhancing the Tax Practitioner Board’s sanctions regime, would also see the government expand the board’s suspension powers and add infringement notices and enforceable voluntary undertakings powers to its arsenal. Assistant Treasurer Stephen Jones, releasing the paper along with draft amendments to the Tax Agent Services Act, said the proposals delivered on the government’s promise to oversee the “biggest crackdown on tax adviser misconduct” in history following the PwC tax scandal. The TPB’s powers are currently limited to issuing low-level sanctions (such as written cautions and further education) and high-level sanctions (including the suspension or termination of registration and civil penalties), “but nothing between these two”, the consultation paper said. It said the TPB also had limited avenues to seek criminal penalties, available only when individuals refused or failed to comply with a taxation law or made false or misleading statements to a taxation officer. “Stronger sanctions are necessary to deter egregious behaviour and enable the TPB to have a full range of graduated responses,” it said. “The current sanction regime does not allow the TPB to act quickly in certain circumstances where urgent action is required.” Under the proposed changes, the TPB would be able to seek criminal penalties for unregistered practitioners deemed as “serious contraveners”, such as those who repeatedly provided tax agent services while unregistered or engaged in intentional wrongdoing. The government also proposed expanding the circumstances when the TPB could apply to the Federal Court for civil penalties, as well as increasing the existing penalties available to “respond to emerging threats to the integrity of the tax system in an agile and proportionate manner”. Penalties would also be available for a wider range of behaviour, such as acting dishonestly, failing to avoid conflicts of interest or keeping client information confidential, or providing services incompetently. Maximum civil penalties for individuals would increase tenfold to $782,500. The government also proposed increasing the penalties applied to firms that had directors or partners breaching the code of conduct from $391,250 to the greater of $15.7 million or 10% of aggregated turnover, with a $782.5 million cap. Additionally, the TPB’s suspension powers would be expanded to include “contingent suspensions”, deregistering tax practitioners until they remedied their breach instead of setting a suspension end date, and “interim suspensions” to allow it to respond immediately to breaches without waiting for an investigation to be finalised. Also included in the consultation paper were proposals to add infringement notice provisions and enforceable voluntary undertakings to the TPB’s powers.
Insurers are warning of cutting some types of flood cover and even dumping certain customers following the devastating inundation that struck Australia last year. Policyholders are also increasingly not renewing cover amid cost-of-living pressures and spiralling premiums, and others were wearing more risk themselves to keep their insurance costs down, the companies warned. The details were provided in submissions to a federal parliamentary inquiry into last year’s devastating floods. The biggest flood was in Queensland and NSW from February last year which caused more than $6 billion in insurance claims. Other inundation includes Victorian, Tasmanian and NSW floods in October that cost another $781 million in claims, according to Insurance Council of Australia data. Some of the submissions to the federal inquiry reveal changes in coverage and potential offerings. Key among the differences was Allianz, one of the few major insurance brands that offers customers the option of whether they want flood cover, which can be costly. Many major brands make flood cover compulsory following the public backlash against industry definitions after the 2011 inundation, when some people assumed they had flood protection found out they were only covered for stormwater. But Allianz, part of the larger German-based insurer, appears to have suffered again a sting in disputes with customers in this latest flooding last year. Of 36,022 customer claims from the disasters, 725, or 2%, were refused due to a lack of flood cover, Allianz said. Brisbane-based Suncorp’s submission revealed it had cut two types of caravan and RV insurance from last month, related to relocatable homes and onsite caravans. These lines of business were “unsustainable due to the high proportion of risks being located in caravan parks prone to flooding”. Many insurers said they were still willing to renew home insurance customer holders if they had made a flood claim, albeit the pricing would reflect the risk. Sunshine coast-based Youi’s submission also pointed to worrying trends about under-insurance, saying people not renewing when offered cover had accelerated from August last year following “a period of higher year-on-year premium increases necessitated by increased claims and reinsurance input costs
Australia’s insurance giants are warning premium costs will spiral beyond the reach of more households unless some homes are relocated from high-risk areas and planning laws are improved to better consider natural disasters. Insurance Australia Group (IAG), Suncorp and QBE have put the spotlight on rising premiums and point to locations like Wilberforce, Emu Plains and Warwick Farm in Sydney’s basin where planning controls fail to deal with unacceptable residual flood risk. The House of Representatives committee inquiry into insurers’ responses to last year’s east-coast flooding disaster – the most expensive insurance event in the nation’s history with $7.4 billion in claims – received 17 submissions including from the nation’s biggest insurers. Speaking ahead of an IAG land-planning report to be released on Monday, the insurer’s land planning hazards and regulatory manager Andrew Dyer said houses are being approved in areas under the current planning framework where natural disaster risk levels are unacceptably high. “We’ve got to stop putting more people’s assets in harm’s way, and this is really through land planning reform,” he said. “That’s where your biggest bang for buck is.” For a new $500,000 house in Wilberforce, the flood insurance premium is roughly $3700, or about 3.2% of the area’s median household income, the report says. That does not include other typical charges like non-flood “base premiums” which can boost the total cost to around $6200 making it unaffordable for many. Dyer said current views on “acceptable risk” in land planning don’t adequately factor in natural disasters leaving some communities with “really unacceptable financial outcomes”. Other localities lack national guidance for planned relocations, he said. “The risk in some areas is approaching levels where you’re not talking about insurance availability or affordability,” he said. “You’re really talking about the habitability and viability of these communities. There is no national guidance currently on planned relocation, and we think that’s a bit of black hole.” In its submission to the inquiry, Suncorp said Australia’s current built environment is dealing with the consequence of decades of poor planning and more government support and investment is needed for mitigation efforts. “Increasingly, the likelihood is that more properties will only be insurable at a cost beyond the reach of most homeowners,” the company said. “Affordable insurance and the backstop of government have always been there to deal with the consequences. [But] the evolving risk appetite of global reinsurers, combined with the recognition of a changing climate, has rendered this traditional model obsolete.”
Luxury property, cars, boats and cash worth $110 million have been seized from the country’s biggest money-laundering ring by Australian Federal Police, bringing the value of assets taken from alleged criminals to more than $1.1 billion in four years. AFP Commissioner Reece Kershaw who updated the results of Operation Avarus-Nightwolf at a press conference in Sydney on Tuesday said the money laundering investigation led to seven members of an alleged organised crime syndicate being charged in October. The suspects, who include a former ANZ employee, are accused of laundering close to $229 million as part of $10 billion moved over three years by the exchanges, “operating in plain sight from shiny shopfronts across the country.” The AFP-led Criminal Assets Confiscation Taskforce “restrained” more than $50 million in assets from the alleged money laundering syndicate known as Long River, which ran Changiang Currency Exchange shops. The assets included 14 residential properties in Victoria, Queensland, and Western Australia, six motor vehicles and 51 bank accounts and shares. The update revealed further police action means the value of assets confiscated has now topped $160 million, including more properties in Victoria and Queensland, additional bank accounts and luxury items. Police claim the suspects were living the high life in mansions in Melbourne, flying private jets and buying luxury watches, wine and sake. The assets are believed to include a Mercedes-Maybach GLS worth $400,000, a $94,000 diamond Rolex watch, handbags designed by Hermes and Louis Vuitton and bottles of Penfold’s Grange valued at more than $100,000.
Veteran publisher Morry Schwartz, owner of Schwartz Media, which produces The Saturday Paper, The Monthly and 7am Podcast, has stepped down as the company’s chair. Schwartz told staff on Monday in an email that he was stepping aside as chair and stepping back from day-to-day operations, one month after chief executive Rebecca Costello departed to join The Guardian Australia. Schwartz said it was the right moment to take a break, and that internal opposition tocoverage of the Gaza conflict did not play a role in the timing of his move. Schwartz, who has been acting as interim chief executive, said he was not considering a sale of the company. Founded in the 1980s, Schwartz Media has become one of Australia’s largest independent publishers and a leading voice in progressive media. Its weekly print publication, The Saturday Paper, will reach a decade in circulation in 2024.
Seven West Media chairman Kerry Stokes has capitulated and agreed to pay the multimillion-dollar costs of the Ben Roberts-Smith defamation litigation, in a move that stops communications between the former soldier’s lawyers and his chief supporters at Seven from being made public. At a surprise hearing in the Federal Court on Monday, lawyers for Stokes said his private company would pay The Age and The Sydney Morning Herald’s legal costs – estimated at more than $16 million – on an indemnity basis, which covers a higher proportion of a costs bill than the standard order. Including Roberts-Smith’s own costs, the total costs of the litigation are estimated at more than $30 million. Stokes had resisted an application by the Nine-owned newspapers for his private company, Australian Capital Equity (ACE), to pay the costs of the litigation but agreed to the orders after the Seven parties failed to meet a court-ordered deadline to produce a tranche of communications with Roberts-Smith’s lawyers by noon on Friday. Nicholas Owens, SC, appearing for the newspapers, described the move as a “complete capitulation ” by Stokes’ private company. Stokes bankrolled Roberts-Smith’s lawsuitvia a loan provided by ACE. Seven Network (Operations) Ltd had originally funded the former soldier’s case, but ACE took over Seven’s loan on June 24, 2020, and Stokes’ company paid out his existing debt. In an historic decision on June 1 this year, Federal Court Justice Anthony Besanko dismissed the lawsuit and found the newspapers had proven to the civil standard – on the balance of probabilities – that Roberts-Smith was complicit in the murder of four unarmed prisoners in Afghanistan. He also found the news outlets had proven the former Special Air Service corporal had bullied a fellow soldier. Besanko later ruled that Roberts-Smith was liable for the legal costs of the dispute on an indemnity basis, which allows the successful party to recover 90 to 95% of their costs.
Universities and private colleges considered at high risk of recruiting international students to Australia to work rather than study stand to lose tens of millions of dollars in revenue under the government’s new migration strategy. Victoria University and Federation University in Victoria and Wollongong and Newcastle universities in NSW are among those whose ability to easily recruit international students is in jeopardy. Meanwhile, the Independent Tertiary Education Council Australia, which represents hundreds of private colleges, described the new migration strategy as “reckless” and said Australia’s broken visa processing system was to blame – not students. Home Affairs Minister Clare O’Neil and Immigration Minister Andrew Giles on Monday released the federal government’s migration strategy, which plans to halve immigration numbers within two years. Australia’s net migration reached a high of 510,000 in the year to June 2023. The strategy is designed to weed out people using the student visa system as a back door to the job market, aiming to cut new arrivals by targeting universities and colleges considered the highest risk of accepting students coming to Australia to work rather than study.
And that’s it for this week. This is the final episode of Talking Business for 2023. We’ll be back in February.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com.
If you like Talking Business, please leave us a review with Apple podcasts. Thank you in advance.
In the meantime you can catch me on Facebook, Twitter, Instagram, LinkedIn and YouTube. And if you want leave a comment. For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business on the Apple podcast store or on my website leongettler.com.
If you want to contact me, email me at leon@leongettler.com. I answer all emails.
Wishing you and your families all a safe and healthy Christmas and New Year, And looking forward to bringing you Talking Business in February 2024
NSW are among those whose ability to easily recruit international students is in jeopardy. Meanwhile, the Independent Tertiary Education Council Australia, which represents hundreds of private colleges, described the new migration strategy as “reckless” and said Australia’s broken visa processing system was to blame – not students. Home Affairs Minister Clare O’Neil and Immigration Minister Andrew Giles on Monday released the federal government’s migration strategy, which plans to halve immigration numbers within two years. Australia’s net migration reached a high of 510,000 in the year to June 2023. The strategy is designed to weed out people using the student visa system as a back door to the job market, aiming to cut new arrivals by targeting universities and colleges considered the highest risk of accepting students coming to Australia to work rather than study.
And that’s it for this week. This is the final episode of Talking Business for 2023. We’ll be back in February.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com.
If you like Talking Business, please leave us a review with Apple podcasts. Thank you in advance.
In the meantime you can catch me on Facebook, Twitter, Instagram, LinkedIn and YouTube. And if you want leave a comment. For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business on the Apple podcast store or on my website leongettler.com.
If you want to contact me, email me at leon@leongettler.com. I answer all emails.
Wishing you and your families all a safe and healthy Christmas and New Year, And looking forward to bringing you Talking Business in February 2024
