ASIC One.Tel trial slams Packer and Murdoch's "forgetfulness"

Last week, the NSW Supreme Court ruled in favour of One.Tel directors Jodee Rich and Mark Silbermann in their long-running case against the Australian Securities and Investment Commission. Justice Robert Austin said ASIC’s contentions were “superficial” and awarded costs of $15m to the defendants, leaving the taxpayer with a bill of $40m. Austin slammed ASIC’s reams of evidence as “unpersuasive when the underlying financial detail was investigated.” (photo of NSW Supreme Court by angusf)

The full transcript tells of a remarkable case that was treated only superficially by many parts of the Australian media because of the bad light it cast the country’s two main media families: the Murdochs and the Packers. In particular the scions James Packer and Lachlan Murdoch come out of the affair with their reputations badly damaged and capable of Alexander Downer-like feats of forgetfulness.

But only the Fairfax run Sydney Morning Herald were keen to run with the story of the “billionaires’ forgetfulness”. It was the executive directors that faced the music after the telecommunications company collapsed in 2001. Rich and Silbermann were two of One.Tel’s four executive directors. Rich was joint chief executive and Silbermann was finance director. The other two Brad Keeling and John Greaves settled out of court. Rich alleged former Prime Minister John Howard used his brother Stan to pressure him to also settle because of Kerry Packer’s interest in the case. Although James Packer was a non-executive director, the judge said he was substantially involved in One.Tel’s day-to-day affairs. Rodney Adler and Lachlan Murdoch were also non-executive directors during this time.

The key to the case was One.Tel’s financial position in the first four months of 2001. ASIC’s case was that the reality was much worse than public presented and the defendants deliberately withheld this information from the board. But the defendants said One.Tel’s position in those months was inextricably linked with Packer’s Publishing and Broadcasting Ltd and Murdoch’s News Ltd. At the time, PBL and News told the ASX they were “misled” by the directors.

ASIC then sought orders for the defendants be disqualified from managing or being a director of any company. The eventual judgement eight years later was a massive case with 104 affidavits, 425 exhibits, 37 witnesses, 232 hearing days, 16,642 pages of evidence and 4,384 pages of final written submissions. The main reason for this was the complex nature of ASIC’s case. It tried to prove that the defendants breached their statutory duty of care and diligence by failing to disclose to the board the true financial position of a large multi-national company over four months. The defendants meanwhile attempted to show that the end result of voluntary administration was related to the way One.Tel was governed from inception as well as the complex relationship with the Packer and Murdoch families, including the extent to which PBL and News influenced decisions.

The key failure for ASIC came when Justice Austin rejected over half of the evidence of its key witness forensic accountant. PricewaterhouseCoopers partner Paul Carter was retained by ASIC to prepare a report on its evidence but much of that evidence came from people who were not called at the trial and Austin ruled it inadmissible. ASIC then used other means including complex financial documents and tables of financial information based on daily cash flow spreadsheets, management accounts, trial balances and aged creditor reports. However Austin was unimpressed by much of this material which was often merely data and did not materially add to the case against Rich and Silbermann.

Justice Austin was also unimpressed by the “strength of recollection” of the testimony of Packer and Murdoch. Packer admitted he had deliberately tried to forget the events of the period. Rich’s lawyers successfully undermined ASIC’s claim Packer was a “thoughtful and intelligent” witness. Justice Austin said Packer’s evasiveness in cross-examination, argumentativeness, and his inability to remember key details undermined his reliability. Justice Austin also said Packer’s evidence over whether his father Kerry made any money out of One.Tel was “confusing and unsatisfactory.” In 9 days of testimony, Packer said “he could not recall” more than 1,500 times.

Lachlan Murdoch was also equally vague and suffering from as poor memory as James Packer. Murdoch used the phrase “I do not recall” almost 900 times which amounted to a daily rate higher than Packer. However, Justice Austin said the implication of Murdoch’s evidence was less damaging because he operated at a distance from One.Tel, “both physically and in terms of engagement.” According to Austin, Murdoch played the News Corp company line happy that PBL was the lead investor close to the business and he distinguished between the company position and his own position as a director of One.Tel.

At the end of 3,800 pages Justice Austin’s conclusions were brief enough. “ASIC has failed to prove its pleaded case against either of the defendants. Therefore judgment should be entered for Mr Rich and Mr Silbermann in the proceedings.” ASIC is now reviewing the judgement and considering whether there are grounds for an appeal. ASIC Chairman Tony D’Aloisio said last week the case should provide important guidance to executives and directors on the exchange of information between the board and management. “‘The case has also provided important guidance to ASIC on how to run similar matters in the future,” he said.

Ian Ramsay, director of centre for corporate law at Melbourne University, agreed the judgement gave some “strong lessons” for ASIC. Speaking on ABC’s Inside Business today, Ramsay said ASIC brought a case that was far too broad. Ramsay noted the case may be of some help to the special purpose liquidator’s claim on $230 million against Packer and Murdoch for a cancelled rights issue. ASIC didn’t have to prove the defendants intentionally misled the board or withheld information from it, but only that they breached their duty of care and diligence to keep the board informed of the company's financial position. Given that ASIC failed to prove this, it left open the question whether the other directors including Packer and Murdoch were careless in failing to find out. That question has yet to be decided.

The Bully leaves the playground: The Death of The Bulletin

Australia’s oldest magazine "The Bulletin" has shut down today after 128 years. Australian Consolidated Press (ACP) magazines chief executive Scott Lorson issued a media release today saying that The Bulletin would cease publication immediately. Its final issue went on sale yesterday. In the latest Audit Bureau of Circulations figures, The Bulletin was down to 57,000 readers down from circulation highs of over 100,000 in the mid 1990s. The news comes barely three days after Lachlan Murdoch and James Packer launched a bid for the PBL media empire which includes 25 per cent of ACP.

However with The Bulletin always being a pet project of James Packer’s late father Kerry, the decision to shut down the magazine is more likely to have been made by the other 75 per cent owning partners, Swiss private equity firm CVC Asia Pacific Ltd. Journalists union Media Entertainment and Arts Alliance (MEAA) blames the former Howard Government’s change to media laws that allowed Packer to sell out PBL to overseas interests. Union federal secretary Chris Warren said CVC Asia Pacific was only interested in short-term profits. "Instead of The Bulletin being owned by an Australian company, it's now controlled by overseas private equity," he said. "It's only interested in money and not really understanding I think the important role that many of the assets within that company play within the broader Australian culture."

There is no doubt the “Bully” has played a major role in Australian culture. According to founding editor Jules Francois Archibald (for whom the Archibald Prize is named), the Bulletin began with a rickety three-legged chair which upended him on his first meeting with fellow founder John Haynes in a Sydney newspaper office in 1879. The two men were determined to start a paper of their own. The Sydney Bulletin (named for the San Francisco Bulletin) first hit the newsstands on 31 January, 1880 with a circulation of 3,000. According to Sylvia Lawson its early years were an “astounding conflagration of cultural and journalistic energy”. She says its racist and xenophobic jokes were merely elements in a weekly cacophony of news, anecdotes, stories, ballads and pictures.

John William Traill became editor in 1883 and he really put the paper on its feet. After a shaky start its circulation grew to 80,000 in ten years. He promoted an anti-British line in the 1886 adventure in the Sudan and supported Parnell and the Irish home rule cause. It celebrated the centenary of white Australia in 1888 as “the day we were lagged”. But xenophobia was never far away and The Bulletin ran a hysterical campaign against Chinese immigration. The Bulletin was a major influence on the White Australia policy implemented by the first federal government in 1901.

The Bulletin played up to its nickname of the Bushman’s Bible. Its correspondents Henry Lawson (pictured right with Archibald) and A.B. Patterson engaged in a famous verse-duel on the bush, with Banjo singing its praises and Lawson reciting its glooms and hardships. But by Federation, the newspaper was past its early best. Archibald left the paper in 1906 and it moved further to the right editorially. The paper suffered a long and unloved decline. By mid century the readership had dwindling to near non-existence. It was saved from death by the purchase in 1960 by Frank Packer’s ACP. Packer’s masterstroke was to appoint Donald Horne as editor. Horne revitalised the Bulletin, excised its xenophobia and mysogyny and removed the controversial masthead which read ‘Australia For the White Man’.

Despite Horne’s energy and intellectual vigour the magazine continued to operate at a loss for many years. It was sustained only by Packer largesse and its tax write-off potential. However, in the 1980s The Bulletin was shifted to a more business-oriented audience and did well in the financial boom. Its circulation topped 120,000 and became a profitable title once more. But it suffered at the hands of the free magazine inserts in the weekend newspapers and again later at the hands of the Internet.

Various attempts to breathe new life into the magazine failed. Laurie Oakes has written a political column in The Bulletin for the past 24 years. He lamented the decision to shut it down, but said it was not a shock. "I know that it hasn't been profitable for a long time and I guess when you think about it, it's not surprising,” he said. “It doesn't make it any less upsetting.”

Ominous Scions: Murdoch and Packer plot Australian media's future

The two most dominant names in Australia media came together again this week when Lachlan Murdoch and James Packer announced a $3.3 billion bid to take over Consolidated Media Holdings (CMH). Packer's Consolidated Press Holdings (CPH) is the major shareholder in CMH and they are combining with Murdoch’s private company Illyria to buy out the remaining shareholders. The deal is contingent on whether CMH shareholders consider the $4.80 share price adequate.

If the deal is approved, Murdoch will become the newly privatised vehicle's executive chairman. He has declared he wants to take on a “hands on” role. He said the main attraction is the growth potential in the Pay TV assets but he also wants to get involved with Channel Nine as well. "This is going to be my focus over the years to come if we're successful," he said. "I ran 35 TV stations in the US while I was there, obviously I understand print businesses very well, so I'd hope I could I add value if CVC and the management of PBL Media were interested in my opinions.”

It is his reference to the newspaper business that worries many analysts. Murdoch vehemently denies his side of the funding is related to his father Rupert’s massive News Corp organisation which is already the largest media empire in Australia. Murdoch jnr resigned from his executive positions at News Corp in July 2005 but remains on the international board in a non-executive capacity. Murdoch said he had no plans to leave the board, because CMH businesses didn't compete with News Corp operations. Writing in Crikey today, Glenn Dyer asked where the money was coming from to finance the bid and suggested banks were coming to the party because Rupert Murdoch has provided guarantees for his son’s share.

Also writing in Crikey, Margaret Simons has similar concerns. She questioned whether Lachlan Murdoch can, as he claimed, “add value” to the assets. She says there must be more to the deal than is currently in the public domain as asset strength is not a primary consideration for venture capitalists. Simons believes that Murdoch’s most important weapon is his “contact book” which he has extraordinary leverage over through his family.

Certainly the assets in question are extremely valuable. CMH was formed just three months ago when Packer split up his father Kerry’s Publishing and Broadcasting Limited (PBL) empire into a media and a gaming arm based on the Melbourne Crown casino. At the time Packer pumped most of his cash into the gaming side of the business. Despite his divestment, CMH remains a big player in the Australian media scene. It owns 25 per cent of the Nine Network, Pay TV operator Foxtel, and Australia’s biggest magazine publisher ACP (publisher of the titles Women's Weekly, The Bulletin and Woman's Day). It also has an option to buy-out the remaining 75 per cent of these assets if private equity owners CVC decide to sell out. CMH’s grab-bag of enterprises led the Australian Financial Review’s Chanticleer to describe it as “Spare Parts Media”, an organisation unlikely to last long as investors eye off its strategic assets.

Murdoch and Packer will be hoping this will be more successful than their last joint venture. They were both directors of the ill-fated telecommunications company One.Tel which collapsed in 2001. During the dotcom boom One.Tel attempted to create a youth-oriented image to sell their mobile phones and internet services. The company was supposed to make the country's richest sons successful in their own right. In 2000 One.Tel reported a loss of $291 million after spending over $500m million on purchasing additional Australian spectrum licenses. Yet company managers Jodee Rich and Brad Keeling gave themselves a $7 million dollar bonus. Packer defended the pair as visionaries and excellent managers. In May 2001, Packer and Murdoch underwrote a rights issue of $132 million worth of new shares. Just 12 days later, a voluntary administrator was sent in and One.Tel went bust. One can assume the pair have learned their lesson and won’t ignore their statutory duties of care and diligence a second time.

The House of Packer

Publicity-shy media magnate James Packer celebrated his 40th birthday last month in private with his new wife ex-model Erica Baxter. Packer inherited the fortune of his father Kerry who died in December 2005 and is the head of the privately run Publishing and Broadcasting Limited (PBL) which has interests in Australia’s Channel Nine, Australian Consolidated Press, Sky News, Ticketek, and Crown Casino. Reputedly worth about $5 billion, Packer has divested much of his family’s long-standing interest in Channel Nine by selling half of the media business to British private equity company CVC.

That move reversed 80 years of dabbling in Australian media by the Packer family. The early path of the family is authoritatively traced in Bridget Griffen-Foley’s “The House of Packer: The Making of a Media Empire”. The Packer family came from Reading in Berkshire, UK. Frederick Packer migrated to Hobart in 1852 where he became organist at St David’s Anglican Cathedral. His youngest son Robert Clyde (known as RC) was born in 1879. In 1900, RC Packer joined the Tasmanian news as a cadet journalist. After two years he was drawn to the mainland where he joined the Dubbo Liberal and later went further north to the Townsville Daily Bulletin.

Finally he got a job in Sydney with the Sunday Times where he worked his way up to editor before joining the Sunday Sun. He formed a partnership with Sydney mayor James Joynton Smith and journalist Claude McKay to found the successful “Smith’s Weekly”. With the money they made, they launched the Daily Guardian in 1923 where RC’s eldest son Douglas Frank Hewson Packer (known as Frank) got his first job in the industry. Frank Packer slowly made his way up his father's organisation working in various facets of the business. His business acumen was recognised early and he was appointed advertising director in 1924.

In 1924 RC brought journalist George Warnecke back from London. Packer made him chief sub-editor of the Guardian and the two men struck up a strong bond based on similar ideas about journalism. Importantly, both had aspirations of ownership. They struck up a partnership with a third man Edward Granville “Red Ted” Theodore. A former miner, Red Ted was involved in union politics before winning a seat for Labor in the Queensland state parliament in 1909. He worked his way up to state premier in 1919. He resigned in 1925 and entered federal politics in the NSW seat of Herbert.

Theodore was looking for a newspaper sympathetic to his interests. In 1930 Hugh Denison bought out the Guardian group and the Packers acquired a significant shareholding in the new entity. RC Packer was appointed managing editor of the new group, called Associated Newspapers. Through Warnecke’s friendship with Theodore, they negotiated to take over the Australian Workers' Union's daily, the World. Instead of publishing it, they closed it down and began a new venture in a radically different direction: Australia’s first women’s newspaper.

Theodore immediate hit it off with RC’s son Frank. Theodore became a father figure to Frank Packer and saw something of his own dynamism in the younger man. Theodore was now an influential figure at the Guardian (renamed in 1931 to the Daily Telegraph). In 1933 Theodore, Frank Packer, and Warnecke began developing a proposal for a new publication called Australian Women’s Weekly. Warnecke had knowledge of English women’s magazines and all three men believed the women’s market was under-serviced in Australia.

Printed on newsprint in a newspaper format, the magazine cost twopence (a penny less than its competitors) and touted itself as “the biggest value in the world.” Packer hired high-profile contributors to the magazine including socialite Jessie Tait as fashion editor, novelist Louise Mack as social diarist and several other celebrities. It was an instant success and the first issue sold out a massive 120,000 copies, twice as big as they told advertisers. Packer, Warnecke and Theodore founded Australian Consolidated Press (ACP) and the Weekly was its crown jewel.

RC Packer died a year later and Frank Packer took his place on the board and inherited his father’s share portfolio. That same year he married Sydney socialite Gretel Joyce Bullmore who gave birth to their two sons within three years, Robert Clyde (known as Clyde) and Kerry Francis Bullmore. Packer’s wealth grew on the back of the phenomenal success of Australian Women’s Weekly. He now set about reviving the dormant Daily Telegraph.

In 1936 it was relaunched as a bright sassy broadsheet newspaper selling for 1 ½ d. It unashamedly had news of the growing film industry and a full six pages of sport. Its lively style would prove to be a major challenge to its rival, Fairfax paper Sydney Morning Herald. Fairfax general manager Rupert Henderson was forced to increase advertising rates, acquire a new plant and discontinued the evening edition in the face of the new challenge by Packer's upstart newspaper.

The Telegraph became a leading advocate of progress and modernity. It called for the introduction of outdoor cafes and beer gardens, more theatre, a lifting of censorship and an end to the six o’clock swill. It serialised HG Wells “Things to Come” and heralded the beginning of flights from London to Sydney. Under editor Sid Deamer the paper’s political stance was mild and did not follow a party line. Its sales rose from 110,000 in 1935 to 186,000 three years later.

In the World War II years, it campaigned for a national government and reacted strongly against government war censorship. Despite the shortage of newsprint, they launched the Sunday Telegraph in 1939. Australia had one of the worst reputations of allied countries for the stringency of wartime press restrictions and much of the war years were spent in a constant battle with the Department of Information. In 1944, the Telegraph was so frustrated with the censors that they printed articles with blank spaces. By doing this they had breached National Security Regulations and the police were ordered to stop distribution of these editions.

Frank Packer began to put his political stamp over his publications after the war. He had the Weekly denounce a 1949 miner’s strike as “a national disaster” and the Telegraph claimed that Australians would think hard before they would “give the socialists the power to create a socialistic State”. That year Menzies was elected and the Liberals would stay in power for the next 23 years. The Telegraph was in favour of Menzies' plan to outlaw the Communist Party saying it was a menace which “would not yield to any namby-pamby treatment”.

Packer then began preparing for the advent of television. In 1954 a parliamentary report recommended that ABC should run the national system and at least two commercial licences should be established in Sydney and Melbourne. Packer applied for a Sydney licence. He appeared before the committee to say television was ‘going to be a very important factor in building up the character of the nation’. They won one licence for Channel Nine and a Fairfax-Macquarie consortium won the other, Channel Seven. Packer constructed his TCN-9 headquarters at Willoughby and used his newspapers to launch an advertising frenzy for the new medium.

Station manager Bruce Gyngell (father of Nine’s current boss David) spoke the first words on Australian TV - "Good evening and welcome to television". Packer went on to acquire GTV-9 in Melbourne in 1960 for $3.8 million, giving Australia its first TV network - the Nine Network. Packer had little respect for the nature of the new medium. In the early days he twice had his Sydney staff interrupt normal programming so he could show the finish of a Sydney horserace to his dinner party guests.

In 1958, ACP launched the Observer, a fortnightly newspaper of ideas. In 1960, Packer purchased one of Australia’s oldest publications - the Bulletin, founded in 1880 by JF Archibald and John Haynes. This larrikin weekly appealed to rural workers and was known for its strident xenophobia. But it had lost significant circulation by 1959. Packer appointed Donald Horne to edit the magazine and merged it with the Observer in 1961. Horne modernised the layout and removed ‘Australia for the White Man’ from its masthead.

It was assumed Packer’s eldest son Clyde would inherit the business. Younger son Kerry suffered from polio as a youth and performed poorly at school. He began his working life at the bottom of the corporate ladder unloading newsprint, cleaning machines, filling ink drums and stacking newspapers. He was viewed as lazy and a gambler and his father decreed he was to be shown no favouritism. Kerry later quipped that he was fired so many times he lost count.

In 1972 Packer allowed his sons to negotiate the sale of the Telegraphs to Rupert Murdoch.They sold "the plant and plantation" for $15 million. Packer would now rely on his TV interests. His intervention to insist that Mike Willesee’s interview with then trade union boss Bob Hawke should not go to air, caused his son Clyde to quit in protest. Clyde resigned all his positions with Consolidated Press and the mantle passed to younger son Kerry.

Frank Packer died of a massive heart attack in 1974 leaving an estate valued at $1.34 million. Kerry Packer took over the reins. In 1976 Clyde sold his interests to Kerry for $4 million. One year later Kerry Packer started world series cricket. It was the beginning of a new empire and one that led to new heights undreamed of by his father. James Packer has inherited the billions of Kerry not the millions of Frank.