$1.5 billion destroyed in three short years

$1.5 billion destroyed in three short years

This is one of the fastest destructions of $1.5 billions in Australian history. The two moguls have lost about $900 million between them and Australia’s institutions have dropped almost $500 million.

It is hard to believe that One.Tel’s value peaked at $3.4 billion in November 1999, which is about the time Crikey sold 1000 shares at $2.40 just as News Corp was injecting another $200 million at $1.20 a share. Unfortunately we hung on to the other 1000 to the death.

This $3.4 billion valuation was also what triggered the $15 million bonus to joint MDs Jodee Rich and Brad Keeling.

So what happened to the $1.5 billion that was injected by the moguls and institutions? Lucent is due to receive $1.1 billion for building the Australian mobile mobile network and Canberra picked up a cool $550 million for spectrum in mid 1999.

The rest was blown on marketing and opening offices in 7 countries and now Australia will soon have one less company generating $200 million a year in offshore markets.

So, did anyone make money out of One.Tel? Ironically, HIH/FAI invested $475,000 and pulled out $60 million.

Rodney Adler made more than $10m selling shares he held personally and neatly timed his resignation from the One.Tel board on April 12 this year.

James Packer and Lachlan Murdoch have told the market they were “profoundly misled” by Rich and Keeling. But how can this be so when they’ve been on the board for two years. Lachlan never turned up to the last two AGMs that Crikey attended.

Interestingly, One.Tel dumped Nelson Parkhill as auditors last October and brought in Ernst & Young, the, the accounting firm of choice for the Packers.

It was the auditors who gave News and PBL the bad news after they punted Rich and Keeling and committed to a $132 million rights issue on May 17.

A sleeper in the pack is the status of the pre-paid advertising deals that News and PBL did in exchange for share placements. The cash was never paid over but rather sat in trust within News and PBL. If there is more than $100 million left and One.Tel is wound up, do the moguls have to pay over the cash or not?

There is a real sense of de51 ja vu in recent weeks. Jodee Rich was one of the 1980s entrepreneurs whose computer company Imagineering went under. Rodney Adler’s dad Larry was another one of the highest flying entrepreneurs in the 1980s. Then there is Joe Gutnick whose Centaur Mining & Exploration went broke after the 1987 crash and has just gone broke again with losses of $500 million.

So how much did Jodee Rich and Brad Keeling pull out of One.Tel. Recent media reports have suggested about $50 million from salary and share buybacks. Will they have to sell their tropical islands, aeroplanes, fast cars and waterfront mansions now that the whole thing has exploded.

Lastly, here is a letter sent to Crikey by a media proprietor who is commenting on the failures of the mogul sons Lachlan and James.

Failure of the sons

So now One tel goes into “administration” – read receivership – with hundreds of millions of losses. Chalk up another loss for the poor old News Corp and PBL shareholders thanks to their over-promoted and inexperienced chairmen.

Really, when is someone going to stand up to Rupert and Kerry and demand they sack their sons? Nepotism is one thing but the James and Lachlan show has cost shareholders billions as these two clowns lurch from disaster to disaster. NRL, Fox Showgrounds, Foxtel, News Interactive and now One Tel – you name it, these kids have burned it. Even their key franchises are slipping badly with Nine’s ratings now falling behind Seven – a previously unthinkable development – and large circulation falls at most of News Ltd’s mass-circulation daily titles.

Jimmy and Lachy are now trying to blame mate Jodee for One Tel but it’s not good enough. They were directors and they should have known what was going on. Better still, they shouldn’t have made the investment in the first place. They were totally unprepared for the risks of going up against telco heavyweights and couldn’t even be bothered managing key staff sufficiently to stop Rich and co ripping out millions in unjustifiable management fees.

I doubt whether even James and Lachlan, despite all their apparent carelessness, would allow this sort of gross mismanagement at their own companies. Now it is time they went themselves. If the “independent” media and institutions don’t demand some accountability in these public companies now, will they ever?

ends

Australia really has been a disaster for News Corp. They’ve blown about $500 million on One.Tel, $500 million on Super League and $150 million on Fox Studios,

News also sold out of Seven at about $4.50 when the stock is closer to $6 now. The smartest move they did under Lachlan was selling a 50 per cent stake in Ansett to Air New Zealand for about $600 million two years back.

But would you buy a share from News Corp. They dumped the 40 per cent stake in PMP at about $2.50 a share three years back and the stock is now wallowing below $1.

ends

Finally, this is the statement the mogul sons put out pointing the finger at everyone but themselves.

James and Lachlan point the finger

Publishing & Broadcasting Limited (“PBL”) and News Limited (“News”) today announced that the Directors of One.Tel have advised that the company is insolvent.

This follows due diligence investigations which led the two independent and two management directors of One.Tel to resolve that the $132M rights issue would be insufficient to assure the solvency of the company. The PBL and News directors abstained from the vote.

The One.Tel directors also resolved to appoint Mr Steve Sherman and Mr Peter Walker of Ferrier Hodgson as Administrators.

The Chairman of PBL, Mr James Packer, and the Chairman of News Limited, Mr Lachlan Murdoch, said today: “Like all shareholders we are angry.”

“We have been profoundly misled as to the true financial position of the company.

“We intend to explore all remedies available to us.

“We welcome the Administrators’ assurance that One.Tel would continue to trade as a going concern and that they would seek to identify the best ways of maintaining One.Tel’s value for the benefit of all shareholders and creditors.”

Mr Peter Yates, Chief Executive Officer of PBL and Mr Peter Macourt, Deputy Chief Executive Officer of News Limited, of One.Tel, said the due diligence investigation revealed that the financial position of the company was not as reported to the Board on May 17, nor at earlier Board meetings as they understood it

“The Board was advised on May 17 that the proposed $132 million rights issue was prudent but not essential. However ten days later, due diligence by the company’s auditors revealed that the $132 million rights issue would still be significantly insufficient to assure the company’s solvency,” they said.

Media enquiries for PBL: Mark Rudder: Cosway PR: (0411) 362 362.

Kris Neill or Wendy George (ex Bob Carr spinners now at News Ltd): 02 9288 3274