Rupert Murdoch is putting the band together again. News Corp explores merger with Fox Corporation to reunite Murdoch’s empires
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.
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.
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 38 in our series for 2022 and today’s date is Friday October 21.
First, I’ll be talking to Renee Thornton, General Manager of Rehab Management, a leading corporate health provider. According to Safe Work Australia, more than half a million Australians sustain a work-related injury or illness each year at an estimated cost of $61.8 billion[i]. This impacts the health system, economy, and society in a multitude of ways including loss of productivity, income and quality of life. Workplace rehabilitation is the process of providing guidance and support to an injured worker to enable safe and timely return to work after an injury or illness. It is about finding the best ways for a worker to remain at work and engaged with the workplace while keeping their valuable skills. And I’ll be talking to economist Nicholas Gruen.
But now, let’s talk to Renee Thornton.
Corporate Britain has turned on Liz Truss as MPs are calling on her to resign. Stuart Rose, former head of British department store M&S and chairman of supermarket chain Asda, told the Financial Times that Truss had lost the confidence of business and investors. “She is a busted flush,” he told the newspaper. “As prime minister, you have to have the confidence of business, investors, the electorate and colleagues in the party. She has none of these.” Dame Alison Carnwath, former chairwoman of Land Securities and senior adviser at investment bank Evercore, said Truss had “no mandate, insufficient support in parliament, incomprehensible economic policies and lacks style, charisma and authority”. Guy Hands, founder of private equity firm Terra Firma, told the paper that Truss “should go as soon as possible”.
Newly installed British chancellor Jeremy Hunt on Monday killed off almost all the tax cuts proposed by Prime Minister Liz Truss in late September, in a set of screeching U-turns that leaves her six-week-old premiership increasingly adrift. After the Bank of England ended its emergency bond-buying program on Friday and Ms Truss sacked her now ex-chancellor and closest ally Kwasi Kwarteng, Mr Hunt rushed out a slate of measures on Monday morning to placate potentially fragile markets. In a death blow to the chaos-inducing Truss-Kwarteng mini-budget of September 23, Mr Hunt axed changes to income tax, dividend tax, alcohol duties and duty-free rules. The U-turns have together shaved £32 billion of the £45 billion debt-funded annual cost of Mr Kwarteng’s tax-cutting package, following earlier reversals on a £2 billion income tax cut for higher earners and his £18 billion cancellation of a planned company tax increase. Mr Hunt also said a massive £60 billion-plus plan to cap household energy bills for up to two years, which was also debt-funded, would be reviewed next April – with a view to finding a leaner, more targeted scheme. After this evisceration of the Thatcherite policy agenda on which Ms Truss won the party leadership, all that is now left of her agenda is a stamp duty cut and a tax break on investment.
Chinese President Xi Jinping has signaled no change in direction for two main risk factors dragging down China’s economy — strict COVID-19 rules and housing market policies — providing little lift to a worsening growth outlook. Xi praised “COVID-ZERO his no-tolerance approach to containing infections, during a speech during a speech opening the 20th Communist Party congress in Beijing on Sunday, although he didn’t reference the virus again in sections laying out plans for the future. His slogans on China’s property market, meanwhile, repeated prior language even as the sector experiences its longest-ever slump due to policies aimed at curbing debt and financial risks. Those two factors have been a major drag on the world’s second-largest economy, with economists surveyed by Bloomberg predicting growth of just 3.3% this year — the second-weakest pace in more than four decades. Third-quarter gross domestic product data, due to be released Tuesday, will likely show a muted recovery from almost stagnant growth in the second quarter.
Health Minister Mark Butler has commissioned a report on the Health Department’s existing compliance and audit programs following revelations billions of dollars were being rorted or wasted from Medicare each year and the system was failing to detect fraud or errors. Treasurer Jim Chalmers has also signalled Medicare rorting could form part of the government’s audit of wasteful spending amidst attempts to rein in budget costs as the peak doctors’ group said the claims had been grossly inflated. Dr Margaret Faux, the country’s leading expert on Medicare, estimated the annual cost of Medicare’s waste and rorts of about $8 billion equated to roughly 30% of its annual budget – and more than the annual cost of running the Air Force. Health Minister Mark Butler said the overwhelming majority of Australia’s medical professionals did the right thing, but it was important that every dollar in Medicare was spent directly on patient care.
Treasurer Jim Chalmers has warned that the UK and US are heading for recession and China is facing a sharp economic slowdown and that will have ramifications for Australia’s economy and shape next week’s budget. Updated forecasts on international economic growth ahead of the October 25 budget show a steep downgrading of forecasts over the next couple of years for several of Australia’s major trading partners amid global energy price shocks, the war in Ukraine and ongoing pandemic restrictions in China.
Grocery prices will climb in the wake of the Victorian floods, intensifying cost-of-living pressures as Treasurer Jim Chalmers warns that the impact of this latest natural disaster on the federal budget will be substantial. The total cost to the economy will not be known until after the waters have receded, but a leading economist predicts inflation could surpass a 32-year high of 8% by the end of the year. Treasurer Jim Chalmers on Monday said the government would have to factor in the cost of the rebuilding efforts and disaster recovery payments, as well as the broader economic disruption. The summer floods were expected to cost the federal government more than $6 billion in disaster relief and recovery works. The latest floods will also cost the government billions of dollars.
Major Victorian agricultural companies say the extensive flooding in the state has significantly disrupted their operations. Dairy processor Fonterra, fruit and vegetable grower Costa Group and Noumi, formerly known as Freedom Foods, which makes plant-based products such as soy milk, all warned that road closures would affect their businesses. Prime Minister Anthony Albanese and Treasurer Jim Chalmers said the disruptions would push up supermarket prices and cause inflation to be worse than expected. The floods inundated more than 34,000 Victorian homes and have resulted in at least one death, with worst-hit areas including Shepparton, Rochester and Echuca, home to Victoria’s growing regions.
Victorians affected by the extensive flooding that has claimed at least one life, left many homeless and 8800 properties without power will get immediate federal government support as the crisis deepens. The floods have closed down many businesses and flooded large swaths of agricultural land in a development that is expected to push up surging food and grocery prices further. “We’ve got decade-high food inflation and we were of the view this hadn’t peaked even before the most recent floods,” said Rabobank senior food and agriculture analyst Michael Harvey. Mr Harvey said that the floods would affect the supply of grain and milk, but fresh fruit and vegetables would be the hardest hit. “Clearly these floods increase the risk we will have higher inflation for longer,” he said. After touring flood-affected regions in Victoria, where authorities on Sunday evening had conducted a total of 698 rescue missions since the floods began, Prime Minister Anthony Albanese said adults in the worst-hit flood areas in both Victoria and Tasmania would be eligible for a one-off federal government payment of $1000, while children would be eligible for a one-off payment of $400. These payments are in addition to support provided by the Victorian government, which is paying flood-affected Victorians $560 per adult and $280 per child, up to a maximum of $2000 per family. Premier Daniel Andrews, who described the crisis in Victoria as a “record-breaking flood event”, said on Sunday that 9290 Victorians had so far applied for these payments.
The Albanese government has ended a funding impasse over the Marinus Link project across Bass Strait by agreeing to fund 80% of the project as part of a wider $6 billion package of loans and equity for Victoria’s renewables, offshore wind, and the VNI West transmission link projects. The funding is the first deployment of Labor’s off-budget $20 billion Rewiring The Nation plan taken to the May election and comes just weeks before Daniel Andrews seeks a third term as the state’s Labor premier. It also comes days after federal Labor unveiled a generous infrastructure package for Victoria in next week’s budget. Prime Minister Anthony Albanese hailed the deal as a “historic day” for the state and the nation with a series of projects that will put the country “on track to be a renewable energy superpower.” In a joint announcement by the federal and Victorian governments late on Tuesday, Mr Albanese agreed to provide $1.5 billion of financing from Rewiring the Nation via the Clean Energy Finance Corporation for renewable energy zone projects in Victoria, including offshore wind. In addition, Canberra will provide another $750 million in financing for the VNI West link to “ensure it is completed by 2028”. Federal Labor will also provide at least $2.5 billion in funding for the disputed Marinus Link, with the remaining 20% of the project to be financed with three equal equity stakes from the Commonwealth, Victorian and Tasmanian governments. The agreement comes after months of intense negotiation between proponents of the link, which would deliver more renewable and firming hydro capacity to the mainland.
Clough has put itself up for sale amid deepening financial problems that could disrupt major energy projects, including the federal government’s giant Snowy 2.0 hydro scheme. The embattled contractor has opened a dataroom that has attracted a suite of major rivals as it looks for a corporate white knight ahead of a rumoured crunch point in its finances. Italy’s Webuild – Clough’s joint venture partner on Snowy 2.0 – is the only company remaining in the early negotiations to buy the West Australian contractor. Webuild has been given an October 21 deadline to submit a letter of intent, should it choose to explore a buyout of its partner. A second Italian engineering firm, Saipem, has also held talks over the Clough sale, while the Perth-based NRW Holdings considered a potential buyout.
Woolworths has followed health insurer Medibank Private and telecoms group Optus in owning up to data breaches affecting millions of consumers. Woolworths says some 2.2 million customers of its MyDeal business have had their data stolen after the company identified “unauthorised access” to its systems. The supermarket giant made the disclosure late on Friday, after the market had closed. “MyDeal is in the process of contacting the approximately 2.2 million affected customers by email … Woolworths Group and MyDeal have also commenced engagement with relevant regulatory authorities and government agencies,” the company said in a statement. MyDeal stores a range of customer data including names, emails, phone numbers and delivery addresses, but does not keep payment, drivers license or passport details. The company said 1.2 million customers impacted by the breach only had emails exposed. Woolworths acquired the majority of MyDeal in September.
At the age of 91, Rupert Murdoch is putting the band together again. News Corp has announced it will begin exploring a potential combination with Nasdaq listed Fox Corporation. “The Special Committee, consistent with its fiduciary duties and in consultation with its independent financial and legal advisors, will thoroughly evaluate a potential combination with Fox,” the announcement says. This is a classic Murdoch move. News Corp only split into 21st Century Fox and the new News Corp less than a decade ago, in 2013. At the time it was a pragmatic move because Murdoch was frustrated that financial markets did not recognise the value of the sum-of-the parts. Then in 2017, Murdoch announced an even more dramatic deal, selling 21st Century Fox to Disney, which wanted to get its hands on the company’s studio assets – the likes of The Simpsons, Titanic, Avatar and the rest. Rupert did that seeing streaming was coming in, It saw Murdoch give up his seat at the entertainment-making table (except as a shareholder in Disney) and remain in the news game. Fox Corporation was created to hold the rump of 21st Century Fox broadcast assets not covered in the Disney deal. Fox News was by far the biggest. One of the odd dynamics this created was that although Sky News Australia looks increasingly like its cousin Fox News, the two are owned by different companies. For now, anyway. The announcement raised some important questions. What will it do for company debt levels? Over the years, Murdoch has been a genius at using financial engineering to make debts go away. Could that happen again? What does this mean for Foxtel Group? Could this be a route to Telstra being bought out, or Foxtel’s high debt level being reduced? Telstra wants to get out and appears it wants to get into Fetch TV. Will the deal create a war-chest? There’s a logic in Seven West Media’s WA newspaper assets being part of the News Corp stable and its broadcast TV interests would also be complimentary to Foxtel’s paid play. The two organisations already co-exist around AFL and (for now) cricket. Will it affect voting interests in the Murdoch Family Trust referred to in the announcement? As it stands, the 91-year-old Rupert Murdoch holds four votes, while his offspring Lachlan, James, Elisabeth and Prudence have one vote each. When he passes, the future direction of the company will be determined by the four family members. What does that mean for the right-leaning Lachlan? Could he be outvoted by his more liberal siblings? And who would have most authority within this newly merged company? At Fox Corp, Lachlan has slightly more power as executive chairman, while Rupert is still top dog at News Corp. It’s tempting to describe this as Rupert’s last big deal. But they said that when he split the company nine years ago. And again when he sold to Disney in 2017. So watch this space.
Previously secret details of the $16.6 million in taxpayer funds paid to Grill’d to subsidise the wages of nearly 2800 trainees show almost one in two have dropped out of their training course. The popular burger chain, which requires new staff to sign up to a program dubbed “hamburger university” by participants, was the most prolific user of the Coalition’s flagship $5.8 billion trainee and apprentice wage subsidy. The Grill’d training is compulsory regardless of whether an employee is studying something else or has no interest in a hospitality career, and allowed the company to pay less per hour than non-trainees under its employee agreement and receive up to $28,000 a year for each trainee from the government. Documents released under Freedom of Information showed that of the 2799 staff signed up for the Coalition’s Boosting Apprenticeship Commencement program (BAC) between October 2020 and June 2022, 47% have already dropped out. Just under 600 trainees have completed their training and the remaining 900 are still going. Grill’d received about $16.6 million in taxpayer wage subsidies under the scheme, an average of about $6000 per trainee.
The NSW casino watchdog has suspended the Star Entertainment Group’s Sydney casino licence and appointed a special manager, but the casino will be allowed to stay open as the group fights to show it can be trusted to run its flagship casino. The NSW Independent Casino Commission (NICC) has also slapped a $100 million fine on the company.
The federal government has signalled a new wave of competition reform, supported by incentive payments to the states, as part of an agenda it says would boost living standards and bring down prices for consumers. Competition Minister Andrew Leigh said the country needs a “good dose of competition”, arguing for a return to the Hilmer reforms of the 1990s and early 2000s that delivered a $50 billion a year boost to the economy. Leigh, an economist, said competition in everything from the licensing of trade workers to land zoning needs to be part of a program of change led by the nation’s treasurers. In 1992, economist Fred Hilmer headed up a review of competition policy. At the time, there were heavy restrictions on many ordinary parts of life, including the time at which bakers in NSW could bake bread to when major supermarkets could offer meat to customers. A Productivity Commission study from 2005 estimated the reforms permanently lifted Australia’s GDP by 2.5% or about $5000 per household. A key element of the Hilmer agenda was the payment by the federal government to states and territories to help them absorb the financial impact of some of the reforms. Almost $6 billion was paid to various governments over more than 10 years. Leigh argued many of the areas in desperate need for change are at the state level, citing “problematic” privatisations that reduced competition in a sector or that tie a government to ongoing payments, housing taxes that make it expensive for people to move, and occupational licensing rules. He said the use of financial incentives, such as those under the Hilmer period, had to be part of a wide-ranging competition agenda, which should be driven by federal, state and territory governments.
Super fund performance continues to slide, forcing investors to make tough choices as traditional diversification strategies fail and inflation becomes a serious problem for the first time in 30 years. Returns for the average balanced super fund (which aims to balance risk and return) have slipped to an average loss of nearly 5%, with the worst performer losing 11% during the past 12 months to end-August, according to analysis by research group Rainmaker. This compares to 2020-2021 record returns of around 15%. Only one of a total 102 balanced super funds made a positive return as turbulent stock markets hit higher-risk equity strategies while traditional conservative strategies used to protect portfolios were undermined by inflation. The performance of fixed interest returns such as bonds or fixed income (traditionally less volatile than shares) was even worse, averaging losses of around 9% during the 12 months, according to Rainmaker. “This is a pretty scary time,” says Alex Dunnin, executive director of research and compliance at Rainmaker. “After a decade of record returns, markets have turned on a dime and produced a horror year. Equities, bonds and cash are going nowhere. There seems to be nowhere to turn because the normal refuges are not working. Added to this is record inflation. It is back with a vengeance.”
The share of new electric vehicles sold in Australia increased to 3.39% in September compared to 2.05% the previous year, a report from the Electric Vehicle Council says. It said 26.536 EVs were sold in the first nine months of 2022, with there being 45 models and 95 variants available for purchase. The report said that in some cases the degree of interest from consumers was so high that some models sold out within minutes of being made available for purchase.
And that’s it for this week. And next week, I’ll be talking to the founder/CEO of Macquarie Telecom Group, David Tudehope about cyber security challenges. And I’ll be talking to Indeed economist Callam Pickering about the latest unemployment figures
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.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.