Thursday, March 27, 2014

Rupert Murdoch finally douses succession speculation by naming son Lachlan most likely heir

After years of uncertainty, Rupert Murdoch appears to have answered one of the biggest questions that have dominated in the media, corporate and regulatory world for years.

Just who will succeed him when he ultimately retires or goes to the big newsroom in the sky - and will their surname be Murdoch?

By naming his oldest son Lachlan as co-chairman of News Corporation and 21st Century Fox, Rupert Murdoch has not only doused the "succession" speculation.

Mr Murdoch, now 83, has also cemented the Murdoch family's control over the media empire he founded six decades ago.

Here's my analysis broadcast on this morning's AM program.

At last Mr Murdoch is able to say there is a future beyond him, even though there is no suggestion that he is anywhere near to relinquishing his day to day control of the company.

According to News insiders, Mr Murdoch is known to point to the longevity of his mother Dame Elisabeth (note "s") Murdoch who died aged 102 in 2012.

But ever the strategist, Rupert Murdoch has led journalists, investors and analysts in a guessing game over his true intentions.

Back in August 2011, as the News of the World phone hacking scandal began to emerge,  I asked Mr Murdoch in an investor teleconference if hehad any update on his succession plan.

Mr Murdoch appeared to acknowledge this his younger son James Murdoch was not the preferred choice and that his top lieutenant and President of News Corporation Chase Carey might be in line.

"Chase is my partner and if anything happened to me I'm sure he'll get it immediately -- if I went under a bus. But Chase and I have full confidence in James," Mr Murdoch said.

James Murdoch has been badly damaged by the phone hacking scandal and was eventually forced to resign as chairman of BSkyB after a British parliamentary committee said he had some "a wilful ignorance of the extent of phone hacking".

However, in last night's announcement James Murdoch was re-elevated as co-chief operating officer at 21st Century Fox which makes him the third most powerful Murdoch in the empire behind Rupert and now Lachlan.

But David Folkenflik, author of "Murdoch's World", says while the succession suspense is over, as always Rupert Murdoch has been working to a strategy.

"This is something that Rupert Murdoch has wanted tor a long time. He's always wanted these succession games to set his adult children against each other," Mr Folkenflik told Bloomberg.

"James Murdoch took a real hit during the phone hacking scandal and in 2011 when that was erupting  Rupert sought to bring his oldest son Lachlan back into the fold.

"He had left because there had been these backroom machinations where he had been fighting the top guy under Rupert Murdoch Peter Chernin and the with Roger Ailes the powerful chairman of Fox News."

"And yet Lachlan, who has had a rather middling to mediocre record in Australia, has come back into the fold once the companies have been split."   

Wall Street investors seemed uncertain about today's succession announcement with News Corporation shares falling 1.9 percent and 21st Century Fox down 1.35 percent.

Lachlan Murdoch is also stepping down as chairman of the Ten Network where he holds 8.8 percent of the broadcaster's stock.

A lingering question is whether he will push for a News Corporation takeover of Network Ten subject to the right price and a favourable change in media ownership rules.

Wednesday, March 26, 2014

Medibank Private sale a long haul for journeyman CEO George Savvides

It was early September 2001 when I ran into George Savvides on a busy weekday evening at Melbourne’s Tullamarine Airport.

I was unaware of Mr Savvide’s new post as a director on the Medibank Private board, but knew him from the Melbourne business circuit in his previous roles at the pharmaceutical companies Sigma and Healthpoint.
After studying his new business card and offering the usual congratulations, I recall asking him about the big challenges ahead at the government-owned private insurer.
“They’ve brought me in to help sell it off,” Mr Savvides told me with a smile.

At that point, it was clear George Savvide's destiny at Medibank Private would be more than a boardroom advisory position.
But within the week or so, the world changed forever with the September 11 terrorist attacks in New York and Washington.
Like almost everyone back then, Mr Savvide’s hopes and ambitions were hit by the new global uncertainty.
Suddenly, most big financial deals were in the deep freeze and the sale of Medibank Private was among several potential floats of public assets around the world that were taken off the table.

Within seven months, George Savvides was appointed managing director where he carved a reputation for being hands-on in Medibank Private's long haul away from government ownership.

So today’s announcement that the federal government will finally press ahead with a Medibank Private sale through an initial public offering (IPO) is the culmination of an almost fourteen year process led by George Savvides.
It’s been slow grind that has made Mr Savvides one of Australia’s longest serving chief executives who is now on to his fifth Prime Minister.
In the weeks after last year’s federal election – Mr Savvides told me he felt the anticipated sale of Medibank Private could take place during the Coalition’s first term.
Releasing Medibank Private’s financial results last October, Mr Savvides told The World Today the sell-off remained a key Coalition goal.
"I think it is designed that way and certainly we will respond in a manner required to meet the expectations of the owner," Mr Savvides said.
"But I suspect it will be in the first term."
Over the past six months, speculation of a sale has ramped up when the government quietly initiated an independent scoping study to look at the dollars and cents argument of a potential sell-off.
Indeed, the Medibank Private cash cow appears to have been fattened up after the insurer’s full year profit rose by 84 per cent to $233 million.
It has 3.8 million members with an enviable 30 percent share of the health insurance market.
So how much is Medibank Private worth on the sharemarket?
The Finance Minister Mathias Cormann won’t put a number on it, but estimates range from three to six billion dollars.
That would make it one of the biggest public floats since the final sale of Telstra or T3.
Back in 2006 when a potential sale of Medibank Private was legislated by the Howard government, the insurer was valued at more than $4 billion.
However, Medibank Private’s market value was thought to be around half that so in recent years the government has been waiting for the right time and a better price tag.
With the float preparations still in their early days and bankers yet to be appointed, Mr Savvides is not surprisingly unavailable to speak to the ABC despite the day’s big news.
However, back in October he said Medibank should “value well”.
"Medibank certainly is a mature organisation now, nearly a $6 billion company paying taxes and dividends. So it may be a time to actually be owned more broadly."
Matthias Cormman makes the point that there is no compelling reason for the government to still own Medibank Private.
And the sale removes the conflict of interest where the government is both the market regulator and majority player in a private market.
Investors in a sharemarket-listed Medibank Private may well be some of the insurer’s customers who, through high premiums, might regard themselves as owners of the company.
Those taking a punt will be hoping that Medibank Private follows the form of the Commonwealth Bank – once a government asset which has made many early investors wealthy on paper.
But for George Savvides and Mathias Cormann a new era of hard work is beginning as lead bankers strike the best price for Medibank Private and the taxpayer in an era of government austerity.

RBA warns banks not to fuel real estate speculation with weak lending standards

The Reserve Bank has again warned Australian banks not to fuel real estate speculation by weakening their lending standards.

In its latest Financial Stability Review, the central bank says "the pick-up in lending for houses would be unhelpful if it was a result of lenders materially relaxing their lending standards".

And in a direct message to the Big Four banks, the RBA says "it will be important for financial stability that banks do not respond by unduly increasing their risk."

The Reserve Bank's warning to banks follows similar concern from the banking regulator APRA (Australian Prudential Regulation Authority) about relaxed lending standards in the face of rising property prices in Sydney and Melbourne.

While the RBA does not refer to a property "bubble", it again warns investors about the risks of real estate investment and that low rates "have the potential to encourage speculative activity in the housing market."

The review echoes warnings made repeatedly by the Reserve Bank governor Glenn Stevens that real estate investment was not an assured path to easy capital gain.

"It is important for both investors and owner-occupiers to understand that a cyclical upswing in housing prices when interest rates are low cannot continue indefinitely," today's review said.

"And they should account for this in their purchasing decisions."

The RBA also says there are indications that some lenders are using less conservative assessments when determining the amount of money which can be lent.

The comments from the RBA saw the Australian dollar remain steady at around 91.6 US cents on speculation that the next move for the cash rate will be up from a record low of 2.5 percent.

Westpac's chief economist Bill Evans recently dropped his forecast of two more rate cuts this year and is now predicting a rate rise in 2015.

The Reserve Bank is also concerned that household debt is "still around historic highs" and that unemployment is trending upwards.

"Continued prudent borrowing and saving behaviour is needed to underpin the financial resilience of households," the RBA says in the review.

"The recent momentum in household risk appetite and borrowing behaviour, in particular, therefore warrants close observation."

The RBA gives the overall financial system a tick of approval and says indicators of financial stress remain generally low.