ERG was a victim of poor management.

IT IS fitting that, at the 100-year anniversary of the sinking of the Titanic, we can also commiserate on the demise of what had once been feted as Australia’s greatest technology stock. Once valued by the market in the billions, ERG is at the end of its voyage, having told its 15,000 surviving shareholders a few days ago that it had settled its lawsuit with the New South Wales government.

Although long since restructured, split in two and renamed Videlli, ERG once counted itself among the handful of great Australian technology stocks. Unlike Cochlear, Resmed or CSL, however, it could never bridge the schism between good technology and commercialisation – between idea and reality. Few do.

ERG was a victim of poor management.

Its technology, smartcards for mass transit systems, was sound. But management rarely delivered on song, and often got hung up in costly frolics, such as a failed venture in the Philippines where they unwittingly got into bed, metaphorically speaking that is, with a gay porn entrepreneur under scrutiny by authorities in the US and Canada.

Besides the critical importance of management, the other moral of the ERG story is that shareholders should never rely on the outcome of litigation.

The company, which was listed on the ASX until June 2009, has just settled its longstanding lawsuit against the NSW government over its aborted Sydney transport ticketing contract. It had been seeking up to $200 million, but settled for a payment of $5 million to the NSW government.

Each side will bear its own costs. Videlli’s last annual report showed it had spent $16 million on legal bills in three years.

It was a suitably humiliating end for a company whose only business over the past three years had been to pursue the government in the courts.

After 15 years, and lugging accumulated losses of $700 million, this is one of the nation’s most tortuous collapses, a paradox in view of its promising technology – technology which now makes money, or at least breaks even for its new owners overseas.

In the internet chat-lands, the tongues of conspiracy are wagging. Reclusive entrepreneur Duncan Saville had ploughed more than $100 million of his own money into ERG over the years and came away, eventually, with the viable ticketing operations overseas.

These remaining global assets of the old ERG Group are now owned and operated by Saville and the Bermuda-based Utilico. The shutters are down now that the offshore operations are housed in Bermuda but the last accounts from 2010 show a pre-tax profit of $7 million.

Had Saville, who made his fortune from the Thatcher government’s water privatisation in Britain, not injected $100 million-plus into ERG the ship would almost certainly have sunk years before. It is hard to begrudge Saville wanting to make his money back either, after years propping the group up.

Apart from earlier management which chronically over-promised and under-delivered, while overpaying themselves, it is a fair contention that ERG was irreparably punctured by the twin icebergs of the NSW and Victorian governments.

Here is a third moral to the story: government contracts are not necessarily a fool-proof meal ticket, especially when it comes to transport.

A billion dollars was wasted by the government and ERG in getting the smartcard ticketing system up and running in the Victorian transport system. Finally, it made money.

In NSW, where the government congenitally flip-flops on transport – changing the goalposts like a team of groundsmen – it lost $50 million. Taxpayers will have wasted $30 million thanks to the ERG debacle and attendant legal costs.

On ERG’s part there was a portfolio of other costly frolics over the years. For sheer entertainment it was hard to beat its 2006 foray into the Philippines via a $26 million smartcard venture with Versacard.

The promoter behind Versacard was the Scottish stock-spruiker and hard-core gay-porn website entrepreneur James Mackay. Mackay had attracted the attention of the Royal Canadian Mounted Police and the Securities and Exchange Commission in the US for his business activities – a fact of which ERG appears to have been aware.

Moreover, an elementary ”due diligence” via Google would have demonstrated to ERG management that interests associated with Mackay were not famed for reliability of payments.

Meanwhile, the 100th anniversary of the sinking of the Titanic is being commemorated. Bruce Ismay, the owner of White Star Line, who was on the fateful maiden voyage, still managed to survive despite the policy of evacuating women and children first.

Ismay lived the remaining 25 years of his life in comfortable disgrace.