Talking Business April 23 2021
Oaktree offers Australia’s Crown $2.3 bn buyback to remove founder Packer
Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast app, 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.
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 12 in our series for 2021 and today’s date is Friday April 23.
First, I’ll be talking to Aaron Applbaum, a Partner at Israeli start-up MizMaa Ventures which identifies the best companies and entrepreneurs in Israel and helps them succeed in the global marketplace. And I’ll be talking to Indeed economist Callam Pickering about Australian’s latest unemployment figures.
But now, let’s talk to Aaron Applebaum.
Consumers around the world have stockpiled an extra $5.4tn of savings since the coronavirus pandemic began and are becoming increasingly confident about the economic outlook, paving the way for a strong rebound in spending as businesses reopen. Households around the globe accumulated the excess — defined as the additional savings compared with the 2019 spending pattern and equating to more than 6% of global gross domestic product — by the end of the first quarter of this year, according to estimates by credit rating agency Moody’s. And booming global consumer confidence suggests shoppers will be willing to spend again as soon as shops, bars and restaurants reopen when restrictions to control the spread of the virus are eased. In the first quarter of this year the Conference Board global consumer confidence index hit its highest level since records began in 2005, with significant uplifts in all regions of the world.
Prime Minister Scott Morrison has announced next month’s budget will include a further $539.2 million government investment in new clean hydrogen and carbon capture, use and storage projects. This comes ahead of this week’s summit on climate convened by US President Joe Biden, which Morrison will address overnight Thursday (AET). The virtual summit of some 40 leaders will have two sessions of two hours, spread over two days. The breakdown of the funding is:
- $275.5 million to accelerate the development of four additional clean hydrogen “hubs” in regional areas and implement a clean hydrogen certification scheme
- $263.7 million to support the development of carbon capture, use and storage projects and “hubs”.
Hydrogen hubs are where users, producers and exporters are located in the same region, aimed at maximising the use of and investment in hydrogen. Potential areas for the hubs include the Latrobe Valley (Victoria), Darwin (Northern Territory), the Pilbara (Western Australia), Gladstone (Queensland), the Hunter Valley (NSW), Bell Bay (Tasmania) and the Eyre Peninsula (South Australia).
The remarkable recovery in super fund’s performance continues with another strong month of returns despite a slower vaccine rollout than many had hoped for and some regulatory uncertainty around the use of some vaccines According to SuperRatings data, the median balanced option rose an estimated 2.0% in March, while the median growth option rose an estimated 2.4% and the median capital stable option rose an estimated 0.9%. Over the 2020-21 financial year to date, the median balanced option returned 12.2%, reflecting the strength and speed of the post-pandemic recovery, which extended through to the end of the March quarter. And research house Chant West says super funds are racing toward double-digit returns for the financial year, after riding investment markets over the past three months to lock in a 3.1% gain. According to Chant West, the median growth fund returned 12.2% for the first nine months of the year and is up more than 2.2% already this month.
The best bank in Australia is headquartered in the Netherlands and the big four failed to even make the top 10, according to a new report. The Forbes World’s Best Banks list has shown ING Group, which is based in Amsterdam, is the number one bank in Australia. Forbes, in partnership with market research firm Statista, surveyed over 43,000 customers around the world for their opinions on their current and former banking relationships. Banks were rated on general satisfaction and key attributes like trust, fees, digital services and financial advice. ING Group took out the top spot for Australia, followed by little-known Newcastle Permanent Building Society in second place and even lesser-known Greater Bank in third.
- ING Group
- Newcastle Permanent Building Society
- Greater Bank
- Heritage Bank
- Beyond Bank
- HSBC Holdings
- Bendigo Bank
- Bank SA
- People’s Choice Credit Union
CommBank only just missed out, coming in at number 11. NAB is number 16, ANZ is in 18th position and Westpac doesn’t even make the list.
The hospitality sector is demanding the Morrison government introduce a 12-month “COVID recovery worker visa” as critical staff shortages of up to 30% force businesses to reduce opening hours or close altogether. The push for a special visa, which would be paid for by the recipient, comes as the Accommodation Association reveals its hotel and resort operators lost $5bn in room revenue across Melbourne, Sydney, Perth, Brisbane, Adelaide, Hobart, Canberra and the Gold Coast in the year to February. Melbourne hotels suffered the biggest hit, with a $1.4bn loss in room revenue. Analysis conducted for the peak body by AHS Advisory also shows that recovery from the COVID-19 pandemic for the tourism accommodation sector will take at least four years. The hospitality and accommodation industries have nominated labour shortages as the biggest barrier to their revival, after the coronavirus sparked a mass exodus of 200,000 foreign students, backpackers and skilled visa holders. The hospitality sector has lost 100,000 jobs and there has been a 23% decline in full-time accommodation positions.
Universities should repurpose underused buildings and spaces on their campuses or temporarily shut the door and turn out the lights as a way of saving money. A report from professional services firm JLL says universities need to turn to big data to fully understand how much, and when, campus facilities are used, and must employ a flexible mindset in thinking about alternative uses and purposes. Among these are disposing of or repurposing underused facilities, creating flexible work and administrative spaces and opening up specialist facilities such as drama theatres and music auditoriums for community use.
Australian iron ore miners are making bigger profits than during the resources boom a decade ago after they overcame labour shortages and weather disruptions to collectively raise exports just as iron ore prices are surging. Confirmation that the biggest iron ore exporter, Rio Tinto, had made its most productive start to a year since 2018 means Australia’s top five iron ore exporters sold more into the bumper prices of the past three months than in the same period of last year. The export boost came as the recovery of iron ore supply from Brazil was weaker than expected and as Chinese demand in the March quarter was described by Rio as being even stronger than the record levels set last year. The iron ore price of $US181.80 per tonne on Monday was the highest since September 15, 2011 when the Australian dollar was above parity with the US currency. Shaw and Partners analyst Peter O’Connor said iron ore miners’ profit margins were now much greater than during that boom because a range of costs, including the cost of paying wages in Australian dollars, was effectively lower.
Galaxy Resources and Orocobre are merging in a deal that will create one of the world’s largest producers of lithium, a key commodity used in batteries for electric vehicles and other clean-energy products. Financial terms involve Orocobre acquiring all of the shares in Galaxy. Galaxy shareholders will receive 0.569 Orocobre shares for each of their own stock. Based on the companies’ closing share prices on Friday, the combined company will have a market value of $3.96 billion. Orocobre shareholders will own 54.2% of the combined group and Galaxy shareholders will own the remaining 45.8%.
Crown Resorts is weighing an unsoliticed proposal for funding to buy all or some of James Packer’s shares in the casino group. The $3 billion indicative offer from Oaktree Capital, made on behalf of an unnamed third company, would provide a $3bn funding commitment so the casino company can buy shares owned by James Packer through his holding company, Consolidated Press Holdings. CPH is Crown’s largest shareholder with a current stake of 37% in Crown, valued at just under $3bn at Crown’s last share price of $11.92. Crown’s board has not yet formed a view on the Oaktree proposal and will now begin a review process — but any selective buy-back of Crown shares held by CPH would be subject to shareholder approval. The funding offer comes amid a protracted negotiation for a $8bn full takeover of Crown Resorts by US private equity company Blackstone, setting the stage for a potential face-off between the US giants. Mr Packer tried to negotiate an exit from the company in 2019. He pitched Crown to Las Vegas’ Wynn Resorts, but when that failed he tried to sell down a 19.9% stake to Hong Kong casino Melco Resorts – a move that sparked the NSW inquiry that found Crown unfit to hold a casino licence in the state.
Consulting giant KPMG received almost 100 workplace complaints between 2014 and 2019 with allegations of bullying and sexual harassment growing or remaining steady over that period, raising questions about how widespread the conduct is and what the firm is doing to address it. More than half of the 92 complaints over the period related to a growing number of bullying allegations against senior staff and partners, while the number of sexual harassment complaints, made mainly against junior staff, has remained steady. There were 27 bullying complaints against senior staff and partners, with the number growing from 6 in 2014 to 11 in 2018, while the number of sexual harassment complaints has ranged between two and five annually during these years. This type of information has never been made public and provides the first indication of the level and type of complaints over time that are made within a large professional services firm. The rate of complaints equates to roughly one per 500 staff per year. It is not clear how this compares because there is no readily available data from other professional service firms. A 2018 National Survey found that 39%, or two in five women, had experienced sexual harassment in the workplace over the past five years.
James Mawhinney, the founder of former Dunk Island-owning investment outfit Mayfair 101, has been banned from raising funds for 20 years. The 37-year-old entrepreneur also cannot partake in marketing financial products following a ruling in the Federal Court on Monday. The Federal Court found Mawhinney acted with “total disregard” for the Corporations and ASIC Acts and that his contraventions “are of a very serious kind and warrant a very substantial period of restraint.” The Federal Court suspension on Mr Mawhinney is less harsh than a permanent ban sought by the Australian Securities and Investments Commission. Yet ASIC’s back-up position was a ban of not less than 15 years and the suspension also comes after Mr Mawhinney attempted to defend the lawsuit and protested loudly against the regulator’s actions. His Mayfair outfit had raised more than $210 million from people including elderly retirees and parents hoping to build nest eggs for children, in a mix of investment seminars, newspaper advertising and Instagram endorsements from B-grade celebrities. The hype was crowned in 2019 with the purchase of Dunk Island, which came crashing down last year when it was repossessed after failure to pay for the tropical North Queensland island. Investors are now sweating with all their money frozen. Mawhinney will be 57 when he is able to rattle the money tin again, but for most of his investors they’ll never get a second chance. The eight victims who testified as part of the Federal Court case ranged from ages 29 to 84. Their nest eggs have been all but decimated after they invested hundreds of thousands of dollars into schemes they believed were stable, and offered a slightly better rate than a term deposit. The judgment was scathing of Mawhinney, who had blamed everyone but himself for the collapse of his various schemes. But it also showed how Mawhinney had tried to stay one step ahead of the regulators by reorganising, and renaming his schemes when they closed in on him. Mayfair 101 was last month found guilty of making false, misleading and deceptive statements while advertising its investment products. A penalty hearing in that case is scheduled for July.
The COVID-19 tailwinds that underpinned record sales growth at hardware and homewares retailers could continue for years, says Angus McDonald, chief executive of Australia’s largest specialty barbecue retailer, Barbeques Galore. Like Bunnings, Mitre 10, Harvey Norman and JB Hi Fi, Barbeques Galore benefited from the pandemic as consumers spent more time dining and entertaining at home and redirected the $60 billion they would have otherwise spent on international travel fixing up their homes. Mr McDonald believes these trends are likely to prevail for another year or two, and combined with strong growth in new home approvals, should underpin continued sales growth. While demand in some sectors such as furniture and electronics has started to taper off after record gains in the September quarter, Barbeques Galore’s same-store sales rose “well in excess” of 20% in the March quarter and were up more than 20% in the financial year to date. Barbeques Galore has 88 company-owned and franchised stores and accounts for about 21% of the barbecue market. It also sells barbecue accessories, outdoor furniture, braziers, smokers and wood-fired heaters. Over the past 20 months, Mr McDonald has re-set the business by closing eight underperforming stores, reducing floor space, and opening new stores between 500 square metres and 1000 square metres where it can display a curated range of products and achieve better sales per square metre.
The manufacture of future COVID-19 vaccine boosters and annual flu shots could be supported by early-stage plans for domestic production of mRNA vaccines in Australia. Preliminary discussions and the development of a business case are under way, as the Morrison government faces continued pressure over supply problems related to overseas-produced COVID-19 vaccines. A regional manufacturing hub for mRNA vaccine technology products would give Australia capability to make vaccines like the Pfizer and Moderna COVID-19 locally, strengthening the response to future public health emergencies. Talks about new capability have included representatives of CSL, Pfizer and other drug giants, with consulting giant McKinsey & Co already involved in the business-case process. CSL is manufacturing the AstraZeneca viral vector vaccine in Melbourne, and could manufacture other vaccine technologies in a new $800 million facility being built at Tullamarine for subsidiary Seqirus. The new facility will be focused on cell-based pandemic and seasonal influenza vaccines, antivenom and Q-Fever vaccine production. Flexibility for other technologies is not yet in place. CSL is considering mRNA technology for flu jabs, but chief scientific officer Andrew Nash said the company did not currently have capability to manufacture mRNA drugs in Australia.
Afterpay is exploring listing its shares in the United States, as the world’s biggest economy overtakes Australia to become its biggest market and it attracts more global shareholders. The buy now, pay later (BNPL) operator on Tuesday said it was working with external advisors to explore options for a US listing, as it also said underlying sales had jumped 104% in annual terms during the March quarter.
And that’s it for this week. And next week, I’ll be talking to Dean Foley Founder & CEO of Barayamal, Australia’s indigenous business accelerator and world leader in Indigenous entrepreneurship. We’ll be talking about the difference between western and indigenous entrepreneurship. And I’ll be talking to CommSec chief economist Craig James about what’s ahead in the market for the week.
In the meantime you can catch me on Facebook, Twitter and LinkedIn. And if you want leave a comment. Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.