Reed contract switch raises doubts

CREDITORS who are owed up to $80 million from the embattled Reed Construction group are concerned that a contract Reed holds on the Law Courts project has been transferred to another company owned by the Reed founder Geoff Reed.
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The transfer this week heightened concerns Reed was on the brink of seeking voluntary administration.

Law Courts Limited said yesterday it had agreed to a proposal from Reed Construction Australia to novate the construction management contract Reed held for works at the courts to RBG Holdings Group Pty Ltd, the Reed group’s holding company. It stressed that the overall $300 million project was with a firm, LCL, not Reed.

It said the measure would ensure the ongoing employment of Reed Construction project staff ”thus retaining significant experience and knowledge of the project in its final stages”, and would also put in place a mechanism that retained all existing employment entitlements for the Reed workforce.

Law Courts said it provided ”the most certainty for the project to continue uninterrupted and avoids lost time and additional costs given the current circumstances surrounding Reed Construction Australia”.

”Law Courts Limited intends to complete the project using the existing resources and contractors on site.”

The novation of the contract comes at a tense time for the company and its subcontractors and suppliers, many of whom have not been paid for six months. Reed faces a wind up application in the NSW Supreme Court next week from three creditors.

Reed’s immediate future was put under further pressure last week as the NSW Department of Education said it did not owe Reed any money under the Building for the Education Revolution. Reed had claimed substantial sums were owed under BER, and from road projects. Reed told BusinessDay last week it was still in negotiations over its BER claims.

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Perpetual fends off rumours

Buyers in motion.TAKEOVER fever has gripped the sharemarket without a single bid being made.
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Echo Entertainment and Fairfax Media could soon be in play as billionaires James Packer and Gina Rinehart increase their stakes. Just yesterday rumours swirled that Mrs Rinehart had lifted her share in Fairfax to 15-16 per cent.

But after heavy falls on the market in the past three months, cashed-up raiders appear to be preparing to launch attacks on other weakened companies struggling with the downturn. Following Qantas’ announcement of a defence mandate for a yet-to-be-announced offer, and news of a possible privatisation of Whitehaven Coal, speculation about the intentions of suitors has put a rocket under their weakened share prices.

Yesterday Perpetual Investments became the third company in as many weeks to fall victim to rumours that a private equity firm was circling for a buyout.

Its shares climbed 9.8 per cent, the biggest gain since August 26, after newspaper speculation that Perpetual’s board might be approached with an offer in the $30 range.

Its shares shot to $23.77 in the morning, up from $21.64 the day before.

The unusual price movement prompted a letter from the Australian Securities Exchange demanding to know if the company was aware of information that ought to have been announced to the market.

”Is the company aware of any information concerning it that has not been announced which, if known, could be an explanation for recent trading in the securities of the company?” the letter said.

”In answering this question, please address today’s press report about a private equity firm preparing to approach the company.”

But Perpetual told the ASX it was not aware of any information relevant to the article and that it had no reasons to believe that the article was ”anything other than mere speculation”.

A spokesman later reiterated that point: ”We have nothing to add to the statement we issued to the stock exchange today.”

In late 2010, Perpetual knocked back a takeover offer worth $38-$40 a share from private equity firm KKR.

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Stronger sunscreen not yet a hot topic for bronze brigade

Sun seekers …Harold Hunter, left, and Les O’Keefe at Bronte yesterday. Both spend a lot of time in the sun, but they were uninterested in the new SPF50+ sunscreen.AS TEPID rays finally broke through the clouds at Bronte beach yesterday, swimmers seemed uninterested in trading up to sun protection factor (SPF) 50+ sunscreens expected to be available in time for summer.
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Harold Hunter of Double Bay said SPF30+ was quite adequate for his needs. ”When I am down here, I don’t spend more than an hour in the sun,” he said.

Les O’Keefe of Glebe, who spends five days a week swimming at Bronte and the other two at Manly, said he rarely bothered with sunscreen.

Sunscreens are about to become more potent, but some experts say the new standard fails to screen out all potentially damaging rays and risks lulling people into a false sense of using the ultimate protection.

Colin Blair, the chief executive of Standards Australia, which has adopted the new standard, said SPF50+ would ”become the new normal in the way that SPF30+ did over time.” But he warned ratings still needed ”to be put in context of when in the day you go out” and other advice such as wearing a hat and seeking shade.

The ratings are based on a person whose unprotected skin would burn within 10 minutes. Products that have SPF30+ ostensibly allow 30 times greater – or 300 minutes – sun exposure before burning, while SPF50+ would confer 500 minutes of protection.

The managing director of the Australian Photobiology Testing Facility, Gavin Greenoak, who was one of two dissenters on the 13-strong committee that devised the new rating, said he was concerned the new standard did not adequately consider ultraviolet-A rays, which do not burn but are increasingly implicated in skin ageing and cancers.

The new rating requires sunscreens to filter light from across the spectrum, but Mr Greenoak said skin was exposed to multiple light wavelengths simultaneously. ”You can plot [sunscreen’s] effectiveness for each wavelength, but light doesn’t work like that – just as you don’t play a Mozart symphony note by note,” he said.

Mr Greenoak also cautioned people with fairer skin could burn within the period notionally covered by correct sunscreen application.But he said the new standard would still offer improved sun protection and partially compensate for inadequate amounts of sunscreen used.

Chairman of the public health committee of Cancer Council Australia, Craig Sinclair, said the council had initially been concerned people would view higher SPF ratings as a ”shield of steel” and leave them less likely to follow other guidelines.

It had also worried people would skimp on such products if they were thicker. But newer formulations were more comfortable to wear, Mr Sinclair said, and the council supported the upgraded rating.

The federal Department of Health and Ageing must now amend therapeutic goods regulations before SPF50+ sunscreens can be sold.

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No bids, but Echo, Fairfax spark buyout fever

TAKEOVER fever has gripped the Australian sharemarket without a single bid actually being launched.
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Echo Entertainment and Fairfax Media could soon be in play as billionaires James Packer and Gina Rinehart increase their stakes in the companies; yesterday rumours swirled Ms Rinehart had lifted her share in Fairfax above 13 per cent and may be intending to go to 19 per cent.

But, after heavy losses on the market in the past three months, cashed-up raiders appear to be preparing to launch attacks on other weakened companies struggling with the downturn.

On the back of Qantas appointing a defence mandate for a yet-to-be-announced offer and news of a possible privatisation of Whitehaven Coal, speculation about the intentions of the suitors has put a rocket under their weakened share prices.

Yesterday, Perpetual Investments became the third company in as many weeks to fall victim to rumours that a private equity firm was circling for a buyout.

Its shares rose 9.8 per cent, the biggest gain since August 26, after newspaper speculation that Perpetual’s board could be approached with an offer in the $30 range.

Perpetual’s shares rose to $23.77 in the morning, up from $21.64 the night before.

The unusual price movement prompted a letter from the Australian Securities Exchange demanding to know if the company was aware of information that ought to have been announced to the market.

”Is the company aware of any information concerning it that has not been announced which, if known, could be an explanation for recent trading in the securities of the company?” the letter said.

”In answering this question, please address today’s press report about a private equity firm preparing to approach the company.”

But Perpetual told the ASX it was not aware of any information relevant to the article and that it had no reasons to believe that the article was ”anything other than mere speculation”.

A spokesman later reiterated that point: ”We have nothing to add to the statement we issued to the stock exchange today.”

In late 2010, Perpetual knocked back a takeover offer worth $38 to $40 a share from the private equity firm KKR.

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Watchdog has bite at big supermarkets

THE competition watchdog is considering laws to limit the steady increase in market power of the leading supermarket chains.
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In his strongest comments since taking over as the chairman of the Australian Competition and Consumer Commission nearly a year ago, Rod Sims has signalled concern at creeping takeovers by Coles and Woolworths that may be leading to reduced consumer choice and competition.

Existing competition legislation does not put a cap on market share or allow the ACCC to assess the cumulative impact of previous acquisitions when studying new acquisition proposals.

His disquiet comes at a time when the big chains are boosting their position in liquor, grocery and home improvement, ”which raises competition concerns”, he said.

”Barriers to entry for other chains or buying groups to replicate the strong market position of Wesfarmers [Coles] and Woolworths are becoming increasingly high,” Mr Sims said yesterday.

”Added to this often are local barriers associated with, for example, access to sites.”

The ACCC is concerned to ensure further acquisitions do not lead to retail or wholesale industry structures that reduce market competition or choice for consumers.

”Because of these concerns the ACCC has been paying increased attention to incremental acquisitions to identify which acquisitions require review and, of those, which raise competition concerns,” he said.

”I don’t think any other country in the world has an effective law here, which just shows it is difficult,” Mr Sims told journalists yesterday of any legislative response to creeping takeovers.

”It is not an easy area of law, to actually construct a law that works effectively in the marketplace in all circumstances, because if you had a creeping acquisition law it would apply to all sectors. So, doing something that does more good than harm is difficult to construct.

”We’re going to be thinking about it. I do acknowledge the difficulties.”

The ACCC would be in a better position in the next six months to judge the problem of creeping takeovers and rising market power, Mr Sims said.

As an interim step the ACCC is to speed up its review of acquisition proposals in the retail sector by seeking earlier disclosure of plans by retailers, which will then be reviewed by a special team to provide a quicker decision.

”Our processes can be streamlined,” Mr Sims said. ”This can, however, only occur with appropriate notification, co-operation and upfront information.”

The acquisition of smaller retailers was giving the major chains ”substantial economies of scale and scope in, for example, distribution logistics centres and advertising, as well as brand promotion”, Mr Sims said.

This was making it more difficult for competitor groups to emerge, which, together with the difficulty of gaining access to sites, was entrenching the market power of Coles and Woolworths.

”When the major supermarket chains acquire an independent player they remove an alternative from the market, with potentially a different product range and service offering. That competition is unlikely to be replicated by either a chain or new independent given local and/or national entry barriers.”

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Germany thaws on debt pooling

THE German government has begun opening the door to shared debts in a profound change of policy, agreeing to explore proposals for a €2.3 trillion ($2.9 trillion) stabilisation fund to stop the eurozone’s crisis escalating out of control.
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Officials in Berlin say the Chancellor, Angela Merkel, is willing to drop her opposition to plans for a ”European Redemption Pact”, a ”sinking fund” that would pay down excess sovereign debt in the eurozone.

”It is conceivable so long as there is proper supervision of tax revenues,” a source in the Chancellor’s office said. The official warned there would be no ”master plan” or major breakthrough at the European Union summit later this month.

Dr Merkel rejected the pact in November as ”totally impossible”, even though it was drafted by Germany’s Council of Economic Experts and is widely viewed as the only viable route out of the impasse. Fast-moving events may have forced her hand. She is under immense pressure from the US, China, Britain and Latin Europe to change course as the crisis engulfs Spain and Italy, threatening a global cataclysm.

The European Commission’s chief, Jose Manuel Barroso, said Europe faced a ”social emergency”. ”We must recognise that we have a systemic problem. I am not sure the urgency of this is fully understood in all the capitals,” he said in a thinly veiled attack on Berlin.

Yields on 10-year Spanish debt hovered at danger levels just under 6.8 per cent on Wednesday on doubts that the EU’s €100 billion rescue for the country would be the end of the story, with drastic knock-on effects in Italy.

”The crisis will inevitably roll on to the next domino, and that is Italy,” said Simon Nixon, from Societe Generale.

Rome had to pay 3.97 per cent to raise €6.5 billion of 12-month debt this week, compared with 2.34 per cent last month. ”I feel very sorry for Italy,” Andrew Roberts, the credit chief at RBS, said. ”They have done the hard work over the years and have a cyclically adjusted surplus. This is pure contagion.

”The fact that the rally lasted just two hours after Spain’s bailout is very corrosive. We are now accelerating into the endgame. Either we have fiscal pooling of one sort or another or we are heading straight into euro exits and defaults.”

Italy’s Prime Minister, Mario Monti, told the Italian parliament on Wednesday he expected the redemption pact to be ”on the table” at the EU summit, even if it did not come into force immediately.

In Germany, the opposition Greens and Social Democrats both back the plan. Dr Merkel cannot ignore them since she needs their votes to ratify the EU Fiscal Treaty, which requires a two-thirds majority.

The redemption pact covers all public debts of Economic and Monetary Union states above the Maastricht limit of 60 per cent of gross domestic product, roughly €2.3 trillion. The idea is to treat the first decade of monetary union as a learning experience and allow a fresh start. The excess debt would be paid down over 20 years. The beauty of the proposal is that this would return Europe to the Maastricht discipline where each state is responsible for its own debts. It is the exact opposite of fiscal union.

Officials at Germany’s top court say it appears compatible with the country’s constitution – unlike eurobonds. There would be a limit to costs and the fund would not endanger the tax and spending sovereignty of the Bundestag. The debt would be covered by bonds, paid for by a designated tax. Each country would be responsible for its own share of debt – Italy €960 billion, Germany €580 billion, France €500 billion and so forth – but would issue bonds jointly.

It is not yet clear whether Dr Merkel can persuade her party to support the pact. Her Finance Minister, Wolfgang Schauble, poured cold water over the idea earlier this week.

Experts say this overlooks the tough conditionality. Italy and other states would have to pledge gold and other forms of collateral equal to 20 per cent of their debt in the fund.

Telegraph, London

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School out of touch on contact ban for students, parents say

Children at Mount Martha Primary School flout a new rule banning contact between pupils.A MORNINGTON Peninsula primary school’s snap ban on pupils hugging or giving each other high-fives has attracted disbelief from parents, who yesterday called the move ”outrageous” and ”unbelievable”.
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Parents at Mount Martha Primary School claim they were informed of the new rule, which extended a ban on contact sports to a ban on any physical contact at all between students, only when children arrived home from school on Wednesday.

They say the rule was first announced to pupils over the public address system, and students were left to tell their parents.

A group of year 6 students were so disgusted by the new rule that they staged a sit-down protest on the school oval at lunch on Wednesday before they were moved to the school gym and given a dressing down, parents say.

One parent, Tracey, said her son was winded on the playground on Wednesday and, when his friend tried to console him by putting his arm around his shoulder, the friend was told his actions were against the rules.

The friend then had to walk around with the teacher on playground duty for the rest of lunch as punishment, Tracey told radio 3AW.

”I’m just a bit outraged that it has come to this. There must be other ways,” Tracey said.

Another parent, John, said his children were told they could not high-five each other.

”I have a couple of children and they have been told that if they high-five one another that’s instant detention, and if they do it three times they will be expelled,” John said.

”I mean, what are they actually trying to teach?”

One child was reportedly told that if students wanted to high-five, it would have to be an ”air high-five”.

Principal Judy Beckworth said it was ”not actually a policy, it’s a practice that we’ve adopted in the short term as a no-contact games week”.

She said the new practice was introduced after students suffered a number of injuries on the playground in recent weeks, and the new no-touching rule would last one week.

”In response to an increased number of recent student injuries, including a broken collarbone, wrists and concussion, we decided to have a ‘no contact games week’ at our school,” Ms Beckworth said.

”We are very serious about student safety and that’s why we decided to do this.”

Ms Beckworth said when the children were told of the new rule, some of them asked about high-fiving to clarify the rule.

”We spoke about it being contact, but of course that’s something that children really would find that would be acceptable, and I will be talking to my staff about that, chatting with them about trying to get the message across,” Ms Beckworth said.

Ms Beckworth said the protesting year 6 students were removed from the oval because they had overstayed their allotted time.

She said parents would be told of the new rule in this week’s school newsletter.

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Rinehart dressed for success

CONTROL by stealth is the new black in corporate fashion.
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And the world’s richest woman, Gina Rinehart, is parading the catwalk. Having amassed at least 15 per cent of Fairfax, she is dressed up to get at least one seat on the media group’s board.

There is an expectation that she will move to the 19.9 per cent takeover threshold, but there are no suggestions this will be followed by a full takeover bid.

She picked up at least 42 million shares – or about 2 per cent – yesterday. Given the volume through the market, Rinehart could now have up to 17 per cent of the company.

Regardless of this flurry of share activity, the dial on the company’s share price barely moved – testament to the fact that the market does not see the company as being in play.

Until this week, Rinehart had been sitting on 13 per cent of Fairfax and unsuccessfully agitating for two seats at the board table. Fairfax chairman Roger Corbett had stood firm and some would say provocatively appointed an independent director, James Millar.

But it now appears likely that Rinehart will get board representation.

Her case has been bolstered by support from another of Fairfax’s large shareholders, Allan Gray Australia. With a 9 per cent stake, its boss, Simon Marais, said of Rinehart’s move, ”I don’t have a problem and I think it’s good for the company to have people [on the board] with their own money invested – they tend to be more careful.”

From the Fairfax board’s perspective it seems like a fight it no longer wants to have.

It is believed that neither Rinehart nor her representatives contacted Corbett before wading into the market yesterday and she has visited the company only once since taking her initial holding.

It remains to be seen whether Rinehart, once on the board, will attempt to exercise influence over the company’s evolving strategy or the newspapers’ editorial content.

For Marais and the other shareholders sitting on the register and hoping for some corporate takeover action, including Maple Brown Abbott and Colonial, they could be waiting a while.

Rinehart is the latest in a list of entrepreneurs who have used the cheap control option of taking a stake in a company and placing their people on the board. Kerry Stokes took de facto control of West Australian Newspapers using this play and, more recently, James Packer has been attempting to do the same at Echo Entertainment – the owner of Sydney’s Star Casino.

Echo’s chairman, John Story, resisted the move but was ousted by his own board last week after relentless pressure from Packer.

Packer has only 10 per cent of Echo and does not yet have a seat at the directors’ table. But he plans to increase this when he gets a regulatory green light.

Rinehart has already experienced some success at this game. She was offered a seat on the board of television group Ten, having picked up a 10 per cent holding.

The boards of these targeted companies understand that the predators can move beyond 19.9 per cent by legally creeping up the register by 3 per cent every six months without the need for a takeover.

Using what is called the ”creep” provisions, a suitor can move to near 26 per cent in a year in order to gain a controlling shareholding.

Fairfax, which owns The Age and The Sydney Morning Herald, has been under serious financial pressure as advertising leakage to the lower margin digital businesses and a poor external environment for advertising have crimped profits across all its newspapers – particularly the metropolitan dailies.

But the company’s chief executive, Greg Hywood, this week announced the board expected earnings before interest, tax, depreciation and amortisation of $500 million for the full year.

While this was $20 million below analysts’ forecasts and 18 per cent below last year’s result, there were predictions it could have been worse.

Marais, who did not sell any Fairfax shares yesterday, said he was relieved by the news.

Expectations for a downgrade had been building among some analysts following major profit downgrades from Ten in February and Seven West Media in April and amid continuing gloom about the sector.

But the announcement left the share price unmoved at 60¢, above last week’s record lows of 57¢.

Hywood said revenue for the second half would be about 8 per cent below last year, after the 7.5 per cent fall in January revenues revealed at the company’s half-year results in February, and that ”the difficult trading environment” had continued, as predicted.

However, cost savings under the ”Fairfax of the Future” project were ahead of schedule, he said, ”with the 2012 run-rate exceeding the targeted $40 million and accelerating”.

There are expectations that if Rinehart has a say in the company’s operations, she will be looking to step up the cost-savings target – although this can’t be confirmed given that the mining magnate plays her cards very close to her chest.

She might also be seeking a break-up of the business. Some analysts suggested that a break-up play would only stack up if the Fairfax share price was well below its current levels.

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Chinese market in airport’s sights

SYDNEY Airport was ”stepping up its role” in the tourism space, its chief executive, Kerrie Mather, said, and there had already been two recent wins with the arrival of low-cost Asian airlines AirAsia X and Scoot.
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At a business lunch yesterday in Sydney, Ms Mather signalled closer co-operation with Tourism Australia and NSW Tourism. She said she had travelled to India as part of the NSW Tourism delegation, and hoped that direct flights to India from Sydney would eventuate. She had also just returned from China, which was a ”market with potential for us”.

Ms Mather said last year 640,000 passengers from China came through the airport, and this year China would move to second place, behind New Zealand, as the dominant nation for visitors through the airport.

She reiterated earlier comments that Sydney Airport Corporation welcomed the federal government identifying a future airport site for a second Sydney airport, and securing transportation corridors, but said the existing airport could deal with demand through 2045.

Last week the corporation issued legal proceedings against the Federal Minister for Transport, Anthony Albanese, after the government brought forward to next year a deadline for the airport to produce a draft masterplan.

Ms Mather said the airport was consulting about a new plan it announced last December, which will see a reconfiguration of the airport, including moving the jet base and air traffic control tower, and integrating domestic and international flights from the same terminals.

”We are halfway through that period of consultation, so we were on track delivering our master plan by 2014,” she said.

”It is important we incorporate [this vision] in the masterplan, so we need time to work through.

”So we have asked for the reasons why the masterplan has been bought forward.”

The airport had discussed with Qantas buying back its long-term leases for its jet base and terminal, which were not due to expire until 2019, considering that the Qantas sites took up 30 per cent of the airport’s footprint, she said.

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Literacy rewards in doubt

Government scheme to lift literacy and numeracy rates ‘yet to make a statistically significant improvement,’ audit finds.A $540 MILLION government scheme to lift numeracy and literacy rates has made no discernible difference to the performance of schools taking part, an audit has found.
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The Australian National Audit Office said yesterday the success of the scheme, which has so far delivered $322 million in reward payments to the states and territories, had been ”mixed”.

When the then-Rudd government introduced Literacy and Numeracy National Partnerships in 2008, it was one of the first times the government had tied performance targets to financial incentives. But Auditor-General Ian McPhee said in his report, it was far from clear that the money had been well spent, and there was no evidence the money had lifted students’ scores in NAPLAN testing.

He wrote that analysis of NAPLAN data indicated the literacy and numeracy program ”is yet to make a statistically significant improvement, in any state”. Schools receiving funds were compared to those that did not. And he wrote that states had been paid bonuses before demonstrating that student performances had improved.

Across Australia, about 10 per cent of government and non-government schools – some 1050 in total – took part.

Education Minister Peter Garrett and the Australian Education Union yesterday defended the programs, insisting they had brought positive effects.

Mr Garrett’s spokeswoman said it could take several years for the effects to be felt.

But opposition education spokesman Christopher Pyne said continuing to fund a program that failed to produce identifiable results was, ”a terrible indictment on Labor’s education credentials”.

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