Surveying The Field Of Carnage

Sydney Morning Herald

Friday March 7, 2008

Elizabeth Knight

THE carnage resulting from the fallout in debt and equity markets was strewn all around the market yesterday. Financially devastated companies put their shares into trading halts, the National Australia Bank seized control of Allco shares owned by its principals and the US private equity firm funding Lachlan Murdoch's bid to partner PBL in the privatisation of Australian Consolidated Media got cold feet and walked away.

But in the words of the redoubtable Dr Seuss: that is not all! Oh no, that is not all.

Highly leveraged infrastructure and property companies had their shares trashed and ABC Learning, which on Wednesday night entered into an agreement to sell 60 per cent of its US assets and pay off $750 million worth of borrowings, found its shares being battered again.

In the midst of this mayhem the market regulators, the Australian Securities Exchange and Australian Securities and Investments Commission, issued a series of statements reminding investors about the rules on short-selling, stock lending and borrowing and spreading market rumours.

There is no doubt that the short-sellers and rumourmongers have exacerbated the falls in the market over the past couple of months but, in many respects, the regulators have been powerless to do much more than issue hairy-chested statements about stepping up supervision and a willingness to impose penalties.

But all this will be too late for some. Allco is the number one problem among listed stocks on the market. It's a house of cards and yesterday the first card fell over. The principals of Allco Finance had their shares taken from underneath them by the NAB, which had become exasperated with these executive shareholders who had borrowed money to finance their stakes. The value of NAB's security has been well below the share price for a month. NAB attempted to enter into a standstill agreement with these principal shareholders, including the former executive chairman, David Coe, but they were unable or unwilling to put up additional security to satisfy the bank.

NAB has appointed Grant Thornton as an agent for the mortgagee. And it was clear from the statement issued by NAB that the principals will be pursued to recover funds from their personal assets.

The talk was rife last night that the remainder of the Allco matrix of companies will now unravel and all the assets will start moving into the hands of various bankers.

Allco Finance Group and Allco HIT were suspended from trading yesterday.

Meanwhile over in media land, Lachlan Murdoch is also feeling the heat of the international financial chaos. His private equity partner from San Francisco, SPO Partners, pulled the pin on Murdoch's attempts to begin his own journey as a media mogul.

Murdoch's proposal to take a stake in Packer's remaining media play, Consolidated Media Holdings, is now under a cloud. The company has minority stakes in Nine Network and Foxtel.

CMH went to lengths to say that the decision was about the change in the world financial environment - which is undoubtedly true.

However it is understood that SPO was concerned about the increased currency hedging costs it would have to wear today, relative to when it first made its proposal. And there was talk yesterday that the level of debt in the Nine Network was another point of concern.

Murdoch is now left with the onerous task of finding a new equity backer and is over in the US now trawling the market.

The trouble is that if the deal doesn't stack up for SPO why would it appeal to another private equity group?

This also presents a problem for CMH's largest shareholder, James Packer, who has now demonstrated a desire to further lighten his empire's exposure to media.

To date, Packer has stayed ahead of the curve and used private equity to get out of most of his media interests.

This deal might well have come just a little too late.

© 2008 Sydney Morning Herald

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