THIS year marks the 10-year anniversary of the dotcom crash. It was also, unlikely as it seems, 10 years ago that US sharemarkets peaked, buoyed by the explosion in technology share valuations.
Amid the hype of the dotcom boom in January 2000, the board of Time Warner agreed to sell to America Online in a $US284 billion scrip deal. Their share prices slid. By the time the deal was closed it was worth $US164 billion. Two years later Time Warner took a $US99 billion writedown to goodwill.
It is a deal celebrated as the worst in modern corporate history, the quintessential brain explosion by a company board.
Of course, the worst deal of all time – or at least the most oft-cited – is the sale of Manhattan Island to Peter Minuit and his scruffy crew of Dutch settlers for a bunch of beads.
Historians have often held this deal aloft as one of exploitation of natives, who had no idea of property rights, by white men. In truth, though, it may have been the Indians who dudded the Dutch.
This deal, you see, was struck by the Canarsie Indians who did not even live in Manhattan but liked to get over there for the odd drinking session. They were not even the rightful owners. So when they saw a bunch of gullible white blokes turn up, the Canarsie pulled the modern equivalent of the Brooklyn Bridge scam.
It was a deal that would bring a tear to the eye of a Gold Coast property developer on a Barrier Reef island transaction.
As far as government deals go, it will be hard to trump Julia Gillard’s and Wayne Swan’s $60 billion shellacking by BHP, Rio and Xstrata that came to light this week.
This really ought to have its own name, the Swan Dive perhaps, such is its breathtaking magnitude. The resource super profits tax was to have brought in $99 billion over 10 years, but was quickly and quietly downgraded to the mineral resource rent tax, and is now forecast to bring in just $39 billion. And it is still contested by miners and yet to be signed.
As far as government deals go, this one is up there with the Treaty of Tordesillas where, back in the day, Portugal and Spain divvied up the world with a line on a map – Spain got the West (America, that is … and all the gold) while Portugal got the East (that’s right, the Singapore Stock Exchange).
One can only imagine Vasco da Gama’s disappointment at sailing halfway around the world, in dread of tempests and sea monsters, only to get to the SGX and realise he had been dudded. Crestfallen, de Gama would find that though he’d brought more to the table, he still couldn’t get the numbers on the board. And he would surely be unimpressed by the “independent expert” report from Access Economics.
To be fair to Gillard and Swan, the mining tax rout was a resounding political success, shutting down a Minerals Council PR offensive during an election campaign, as it did, and later propelling Labor back into power. Governments, moreover, are routinely trounced by corporates in negotiations.
One only has to look at the distressing history of the NSW Government, which has once again, so predictably, copped a drubbing on the sale of the state’s power assets. Incidentally, they say there are some nasty derivatives exposures, which would not have helped the pricing.
Besides the $60 billion mining tax U-turn, there was news this week, via a Herald WikiLeaks scoop, that put the political influence of BHP in stark relief. Its chief executive Marius Kloppers – a soi disant nominal Australian, according to US diplomatic cable – was behind the breakdown of the Rio deal with Chinalco.
We can all thank Kloppers for that, keeping the Chinese from control of Rio Tinto. Rio especially. And we can all be thankful at the deluge of revenue and job creation that flows from the mining boom.
But make no mistake, BHP’s objectives – and Kloppers’s for that matter – are not entirely aligned with Australia. Shareholders’ and taxpayers’ interests are separate.
And so it was that this newspaper drew an interesting response from chief executives and chairmen of the top 50 companies this week.
Canvassing opinion as to whether Australia should start a sovereign wealth fund, only one, the boss of Leighton Holdings, was prepared publicly to put the case against a fund.
Chief executives from Lend Lease, Tabcorp, Mirvac, CSL, Foster’s, Orica, and Coca-Cola Amatil, and prominent chairmen, all told BusinessDay they favoured such a fund – either for stabilistion or savings, or both.
They joined the ranks of the Commonwealth Bank chief executive Ralph Norris, the Amcor boss Ken MacKenzie, the Boral chief Mark Selway, the Fairfax chairman Roger Corbett and the Reserve Bank governor Glenn Stevens who had made comments in support of a fund.
The case is quite simple, a pool of savings, whether at the individual, family, community or national level, has to be a good thing. Most of the top 50, particularly the banks and the miners, declined to say anything. Naturally, these two camps, now so hugely profitable, fear being a target of a national savings plan.
One chief executive spoke against the idea of a sovereign wealth fund, but was, ahem, off the record.
To finish, then, on the subject of power – and sovereign wealth funds for that matter – another, more chilling WikiLeak emerged yesterday. It detailed the head of China’s sovereign wealth fund meeting the US Treasury Secretary, Timothy Geithner, in June 2009. According to Reuters, Geithner was asked to lean on regulators from the Federal Reserve to approve a Chinese $US1.2 billion investment in Morgan Stanley. The deal was given the green light the next day.
As China has its foot on 7 per cent of the US bond market, it could drive up interest rates in the US with even a wisecrack about selling bonds (prices go down, yields go up). The flip-side of globalisation is, thankfully, that China could hardly afford to send America to the wall.