Saturday, November 26, 2005

Editorial: Minister needs to come clean

The character of a man is sometimes indicated less by what he does than what he faces up to. The decision of the police not to prosecute a Cabinet minister, David Benson-Pope, for actions as a schoolteacher 23 years ago will be a considerable relief to him. But the findings of the police investigation do him little credit.

They are satisfied there is a prima facie case that he did commit the assaults former pupils allege, and which he has denied to Parliament. But they decided the case did not warrant prosecution because the events happened so long ago.

Whatever may be thought of that reason, the decision disposes of the criminal question. For Mr Benson-Pope, though, it still leaves the small problem of Parliament. The House does not take lightly the rule that members must not mislead it. When confronted in the House with the accusation that he had tied a pupil's hands together and jammed a tennis ball in his mouth for talking in class, Mr Benson-Pope answered, "I find such allegations ridiculous and I refute them." Asked whether he had smacked a pupil with the back of his hand sufficient to make the boy's nose bleed, he replied, "This is a disgraceful allegation and I refute it completely". He added that such behaviour was "clearly illegal".

When the result of the police investigation was raised in Parliament this week Mr Benson-Pope could have taken the opportunity to clarify that explanation, made in May when perhaps he did not foresee how far the subject would run. But instead he was absent from the chamber, leaving colleagues to answer for him, while he escorted comedian John Cleese around Parliament Buildings. The English humorist might have found it more fruitful to be in the chamber at the time.

Mr Benson-Pope has dug himself into a deeper hole with his outright denials of the alleged incidents. As his main parliamentary prosecutor, Rodney Hide, said, "Mr Benson-Pope's big problem is that he told Parliament it didn't happen at all. That is not what the police are saying."

In May, when he gave the House his response, we said here, "The strength of his denials has painted him into a corner. If the [police] inquiry finds against him, it must surely block not only his return to Cabinet but set in train a course that will lead to his departure from Parliament."

Many, including other former pupils of Mr Benson-Pope, are prepared to make light of bizarre behaviour in classrooms of that time, though even 23 years ago violence of the kind alleged was, as Mr Benson-Pope said, illegal. The police report has made it much harder to accept his outright denial that it happened.

From the PM down there has been a reluctance in this Government to simply say: 'Yes it happened. It was foolish of me. I regret it." Misrepresentation of a painting, a speeding motorcade, excessive school discipline, are not high crimes. They are lapses of judgment. How good it would be if elected people had the courage to be honest.

Fran O'Sullivan: Of Winston and Helen

One of Hollywood's greatest dramas is Mr Smith Goes To Washington. Despite its 1939 vintage, the film, starring actor Jimmy Stewart, is a timeless pastiche depicting a political environment that can corrupt even the most principled human being.

One man, however, Mr Smith, stands up to his venal peers and fights for his integrity in the Senate to remind everyone what democracy is all about. Sound familiar?

Early next year Foreign Minister Winston Peters plans to go to Washington to meet US power-brokers.

By revealing Peters' plan and suggesting it could be the next step in the Foreign Minister's campaign to strengthen the bilateral relationship I'm probably courting another treason allegation.

But Foreign Affairs officials from both sides would not be going to this trouble for mere exchanges of pleasantries no matter how convivial Peters can be when on form.

If Peters is to be taken seriously on Capitol Hill - or even in the White House if he finally gets the full court meeting with US Secretary of State Condoleezza Rice and other top Bush Administration officials that he wants - he needs to clarify his remit with Prime Minister Helen Clark.

The Bush Administration is already confused over its dealings with New Zealand. This was demonstrated by the embarrassing reception new US Ambassador Bill McCormick got when he said the ball was in (this country's) court over an invitation by his predecessor to move past the Anzus debacle and forge a security and economic relationship for the 21st century.

But after a fortnight on the international circuit, that confusion has deepened as it becomes clear that Peters cannot yet count on the Clark Cabinet's full support for his US initiative.

Clark, and other senior Cabinet ministers such as Deputy Prime Minister Michael Cullen and Defence Minister Phil Goff, has boxed him in by suggesting New Zealand's bilateral relationship with the US is in fine fettle.

Despite earlier denials by Peters that he intended to enlist Australia's support to help New Zealand strengthen its US relationship, he made just such a request to Australian Foreign Minister Alexander Downer at last week's Apec meeting.

This request may not have seen the light of day if Goff had not blown the whistle on the Downer talks.

Downer already made good on his promise to Peters to put in a good word for New Zealand during a meeting with US Defense Secretary Donald Rumsfeld and US Assistant Secretary of State Bob Zoellick in Adelaide last week.

The Downer decision to look past New Zealand's nuclear stance - which he personally regards as ridiculous - and talk to Zoellick on our score can not be underestimated.

Zoellick is Rice's deputy and a powerful figure in the US Administration.

His long memory over New Zealand giving the US the two fingers by banning nuclear ships from our ports is also said to have played a part in our failure to get in the negotiating queue for free trade deals with the States - irrespective of Washington fudging.

By throwing his considerable weight behind Peters, Downer - who has a fine appreciation of political subtleties - is also signalling to the Clark Cabinet to move on. But Peters and Downer may be reckoning without Clark's obduracy. Peters' plea to Downer to be "less than neutral" on New Zealand's behalf is likely to stick in her craw.

It's not in her interests for Peters to create a political legacy as the politician who mended the relationship where she failed. Clark has already spent considerable political capital on supporting the US military campaigns - with little to show in terms of strategic payback from Washington.

The left-wing members of her caucus grumble about their failure to score a free-trade deal despite sending the SAS to Afghanistan. Clark's vision is one of independence on the global stage, whereas Peters seems to be opting for the interdependent stance similar to that of Australia.

At issue is whether a small country that must piggyback on bigger players to do its bit on the world stage - particularly in military affairs - can truly claim to be independent.

This conflict of basic visions is at the heart of the internal "government" conflict over the US relationship.

New Zealand's relationship with the US is by its nature asymmetrical.

But unlike the Howard Government which takes the initiative to stay squarely in the frame with Washington by investing strongly in their mutual interests, the Clark Government has so far shied away from having a full-on discussion with Washington over "the dead cat on the table" which is the nuclear issue.

Australia is an ally of the US but neither the Australian nor US governments pretend there is a relationship of absolute equals.

There is recognition by both sides that there needs to be constant reinvestment in the relationship to ensure it stays relevant to both side's national-interest concerns.

But it is also underpinned by the Anzus Treaty which the Australian Parliament somewhat symbolically invoked or the first time in 50 years after September 11.

Peters is right to try to overcome the impasse - but so far Clark is not playing Jean Arthur to his Jimmy Stewart.

Roll on the movie season.

John Roughan: Mural saved by PC fanaticism

Every so often I like to lose myself in visual art. I know nothing about it, as might very soon be evident, but find if I blank out the mind, drift around a gallery and refuse to let conscious thought intrude on what comes through the eyes, the odd painting or object works a treat.

It stimulates some sort of mental activity that is not thought and should not be forced into words. It feels like a connection with something fine and true that surprised even the artist, I suspect.

As I say, it happens rarely, but often enough to draw me to a gallery if I have a few hours to myself. It has to be done solitary; there is nothing I want to say about anything I see.

With such a primitive appreciation of what I like I probably should resist the urge to criticise what I don't. But when a piece of art is put on the public landscape and is so jaw-droppingly bad that its very presence is an insult to the community, criticism feels like a civic duty.

It is more than insulting when it stands in the name of one of the causes protected by the modern puritanism that we call political correctness. It then becomes slightly chilling.

Bad art in public places has been one of the hallmarks of authoritarian regimes of the left and right. Places like the former Soviet Union were littered with terrible monuments and murals to worthy causes and indeed, Auckland's memorial to women's suffrage, a tiled mural in Khartoum Place, does bear a resemblance to socialist realism.

It lacks the firm jaws, brave families and big flags of the old workers' paradise but its amateurish flourishes, witless symbolism and shallow realism carry the same implied message. It says, "We know this is terrible but that is the point. We are strong enough to put this here and you can't do anything about it."

Embarrassed citizens might be able to pass it off as a relic of 1893 were it not for the fact that it prominently proclaims its dedication to the centenary of women's suffrage. Just 12 years ago a committee of sensible women adopted this kitsch to commemorate the vote won by their Victorian forebears and are determined the city must keep it.

When they heard the council's civic designers were contemplating its removal as part of a facelift for Khartoum Place, they arranged to meet at the monument, summoned the Minister of Women's Affairs and resolved to put the mayor on the spot. By Wednesday, Dick Hubbard had already bent with the breeze and promised the memorial would remain. But the women cheerfully assembled anyway.

Lianne Dalziel, looking bemused, called it "this wonderful mural" and declared its survival to be "a win for Auckland, a win for women, a win for the country". The mayor said it was important to preserve the city's heritage.

But heritage can be highly selective. While the women would not ditch an eyesore of only a dozen years, they would happily see the little plaza lose its Khartoum commemoration and be renamed Kate Sheppard Place.

I kept waiting for the PC eradicator to pop up. If Wayne Mapp was on the job that Don Brash has given him he would have been there. When Hubbard corrected himself for saying the word "ladies", I realised finally there was no hope.

Seriously, the National leader's silly creation has succeeded only in giving political correctness renewed confidence. Puritans immediately demand that Brash and the hapless Mapp explain exactly what they meant by the term and of course they couldn't, not in a sound bite anyway.

So the PC concluded that the phrase meant whatever its users wanted it to mean, and therefore it meant nothing, as they suspected all along. Since then we have been seeing, hearing and reading political correctness with a vengeance.

This week, an Auckland Regional Council transport committee member, Sandra Coney, issued the kind of complaint we haven't heard for a while. She had heard a bus advertisement that referred to "birds" and that was sexist. That sent the Regional Transport Authority chief executive, Alan Thompson, scrambling for a transcript.

"We'll take it up [with the advertising agency] as a matter of urgency," he said.

On Thursday Charmaine Pountney positively glowed with political correctness. "Personal rudeness, institutional racism and sexism are unsafe, unjust and unacceptable," she wrote. " If we want a better society, we all have to be PC - personally courteous, professionally competent and publicly civil."

Brash and Mapp are on a hiding to nothing because political correctness is exactly that - correct. It is cannot be opposed, let alone eradicated, with respectable politics. It is correct but excessive; it is principle applied to a ridiculous degree.

At one level it operates by the oppressive use of terms such as "unacceptable" and "inappropriate" without explanation. In other contexts it demands that we suspend our critical faculties.

It is sexist, I suppose, to condemn a feminist monument not matter how abysmal its art, and racist of London rugby writers to find the haka unpleasant, though it is meant to be. When Tame Iti's deliberately fearsome visage is by a British firm to promote home security, it seems sacrilegious.

Thank heaven for Pansy Wong. When a parliamentary opponent mimicked her accent she rebuked a colleague for acting on the assumption she would care. At the end of a gagging week that was a breath of fresh air.

Paul Thomas: Dead ducks and rucks

Astounding news. Research conducted by a British insurance company indicates that almost a quarter of male drivers can be distracted by billboards of scantily clad women.

Not to be outdone in the believe-it-or-not stakes, a Danish survey has concluded that women who drink eight or more cups of coffee a day during pregnancy have a 59 per cent increased risk of miscarriage.

These bombshells have caused consternation here at the Moeliker Institute where our mission is to corner the market in spectacularly pointless research, preferably at taxpayers' expense.

The institute is named after legendary Dutch scientific investigator Kees Moeliker who earlier this year alerted the world to the threat posed by homosexual necrophiliac ducks.

Actually, there is just the one recorded case so far, the infamous Rotterdam mallard which did its vile thing for no fewer than 75 minutes while Moeliker looked on, recording every merciless thrust.

But in the pointless research business it is never too early to sound the alarm, and surely we all want a world that is safe for dead ducks.

Things will have come to a pretty pass if a boy duck (what we professionals in the field call a drake) can't croak without running the risk of a posthumous and protracted rogering.

The warning hasn't gone unheeded. In the Languedoc region of France, renowned for dishes such as caneton aux cerises and magret de canard, chefs are said to be keeping an eye out for low-flying mallards, fearing their kitchens might be targeted by rampant drakes hell-bent on ... well, you get the picture.

Anyway, here at the institute the pressure's on to devise even more spectacularly pointless research projects to re-establish our cutting edge credentials.

So far we've come up with:

A survey to establish whether bull-riding in rodeos during the advanced stages of pregnancy endangers the unborn child.

A research project to quantify the risk of brain damage from playing Russian roulette with a fully loaded revolver.

An analysis of the life expectancy of suicide bombers.

I think you'll agree that the future of pointless research is in safe hands.

* * *

Not everyone is thrilled that New Zealand has been awarded the right to host the 2011 Rugby World Cup.

The Japanese are hugely hosed off that they didn't get the nod.

Their take on it - that the old boys' club of the International Rugby Board missed a historic opportunity to transform rugby into a global game - is shared by most of what used to be Fleet St.

It's an indication, perhaps, that the Japanese campaign attached too much importance to taking journalists to lunch and not enough to getting into the ears of the 20-odd people who actually had a say in the matter.

Two aspects of their complaint puzzle me. First, what's the significance of 2011 in terms of this unique historic opportunity? What about 2015 or 2019?

In other words, why don't they stop whinging, absorb the lessons, and have another go?

Second, how does this going global stuff work?

Like this it seems: you stage a major sporting event in a part of the world where they're hopeless at that sport - if they play it at all - and, hey presto, everyone in the region goes nuts for it at the expense of the games they have traditionally played and followed.

So, if you were to stage the World Chess Championships in a clearing in the Papua New Guinean jungle, within a year or two the boulevards of Port Moresby and villages throughout the Pacific Islands would be teeming with nerds clutching chessboards and well-thumbed copies of the serious chess players' bible, 101 Nifty Opening Gambits? It doesn't seem all that likely, does it?

Throughout the bid process Japan's growing-the-game theme was presented as a given. It was never substantiated, quantified or developed.

Has soccer made huge strides in the US as a result of hosting the 1994 World Cup?

Or does it remain essentially a recreational activity for middle-class children with over-protective mothers and no serious sporting aspirations? It would be quite interesting to know.

Besides, rugby is already played - badly in most cases - in 115 countries.

There's no obvious benefit in it gaining a toehold in more places where culture and physique ensure that the locals will never be any good.

The idea that rugby can ever match the global reach of soccer, a game of negligible physical contact and beautiful simplicity played by normal-sized people, is demonstrably absurd.

A more pertinent strategy would be to address the problems of second-tier outfits like Ireland, Argentina and Samoa with the aim of increasing the number of countries that have a realistic chance of winning the World Cup.

A cynic would suggest that the likes of England and Australia voted for Japan not because they have an urge to grow the game in Asia but because they worry about what hosting the World Cup could do for the game here.

If Japan tries again, it should downplay the global game line and campaign on its unique positioning.

Of all the countries that play rugby and are capable of hosting a World Cup, it alone can provide what is effectively a level playing field and guarantee a financial killing.

Ruth Berry: Old guard under threat

As National chips away at the "unholy alliance" between the Government and Winston Peters, Labour has retaliated by questioning its opponent's recent love-in with the Maori Party.

Both relationships are something of a sight and may have left voters wondering if politicians indulged in some kind of partner-swapping post-election bacchanal from which they have yet to recover.

As the stability of the Government depends on it, there is much more at stake with the Labour-Peters partnership.

National will take every opportunity to drive in a wedge.

Its newfound friendliness with the Maori Party is nevertheless raising broader questions about National's direction.

It's not just coming from Labour, but from within its own camp confused by the contrast between its campaign rhetoric on Maori issues and its subsequent coalescing.

Dr Brash conceded as much in his newsletter this week.

"I should also make it clear, because I know there was some concern among some of our supporters on this issue, that we did not abandon any important policy positions during the discussions we had with other political parties."

National had, however, accepted there was some policy that, with only 48 MPs and no other political support, it could not have enforced should it have become the Government, he continued.

It was a clear reference to negotiations over its previously "bottom line" stance with the Maori Party on the Maori seats.

The maiden speeches of National's MPs raised more eyebrows in the House because of their repeated acknowledgments of matters Maori by the new male provincial MPs in particular.

They included salutes to Maori Party MPs, references to explorer Kupe and Aotearoa, opening mihi, the use of Maori proverbs and acknowledgment of the impact of land confiscation.

National's PC eradicator Wayne Mapp must have wondered where he was supposed to look when Napier's earnest Chris Tremain delivered nearly half his speech in te reo.

Deputy Prime Minister Michael Cullen went for the jugular, claiming the new MPs were "subtly distancing themselves" from Dr Brash and his pre-election Maori policy.

If the MPs were staking out new territory, Dr Brash had made a mockery of the Orewa ground he'd previously defended with his post-election talks with the Maori Party, Dr Cullen suggested. These had revealed National "as firm as a bit of jelly sitting on the equator when it comes to political principles".

Naturally the National leader denies all this, as well as any plan to reposition on Maori issues, although he wants to correct any perception that party is "anti-Maori".

But the perceived flip-flop has clearly dented the confidence of some core supporters and the maiden speeches at the least suggest new members are concerned to pitch things differently.

While key Maori policy won't change, there is a widespread view in the caucus that it needs to be softened or "re-presented" with more emphasis on positives such as National's support for Maori economic development. MPs say the browning of the New Zealand demographic - and therefore voter - is an obvious incentive.

Similar noises within the party are being made about reaching out to Pacific and women voters - as Thursday's white ribbon anti-domestic violence photo opportunity by the party's MPs demonstrated.

In Parliament the numbers game also helps explains the new Maori Party relationship.

With New Zealand First a declared enemy, United Future in a relationship with the Government and Act so tiny, limited opportunities exist to build useful allegiances.

Having confirmed it will not necessarily align with Labour, the Maori Party is now a potential future partner for National - ironically added reason to tone down its opposition to the Maori seats.

Labour was the key target of much of the "one law" offensive.

The Maori Party's presence in Parliament has shifted Labour to a "centrist" position within the Maori issues debate, replaced by the new party as the prime upholder of rights.

This, too, requires National to review its line of attack. While also accepting the need for changes, party strategists are sensitive about internal post-election hand-wringing over its race relations "hits", believing polling proves these were responsible for bringing National into contention during the campaign.

They will want to retain the ability to hike up polls in similar fashion again, but hope to avoid alienating potential, non-traditional voters by having worked harder to brand National as a broader church.

Dr Brash may struggle to get on top of that more complex task.

While liberal on a number of social issues, many floating voters' impression of him on that front is contrary; he is perceived as old-fashioned and tunnel-visioned.

This is just one of the reasons Dr Brash knows his leadership of National into the next election is far from assured.

He openly conceded in a Weekend Herald interview he expected to be dumped post-election.

A perfectionist and a clinical analyst, he was as admirably tough on himself as he has been on non-performing or recalcitrant MPs.

But the public concession - which surely weakens his authority - is further evidence of the political naivete his colleagues worry about, as is the naming of his potential successors, John Key and Bill English.

While he displayed an ability to charm audiences on the election trail, Dr Brash's lack of dynamism and agility in the House is an ongoing concern.

It is undisputed that he will retain the leadership for at least six more months, but it is privately understood it's a probation period.

The talk is that the 23 new MPs are intensely grateful to him for getting them into Parliament and are right behind him.

But from here in, his performance will determine how long that loyalty lasts - and his House performance could undermine this.

Having won more parliamentary questions at the expense of the downsized smaller parties and with Mr Peters set to tone down his attacks on the Government, much more of the spotlight in the House will fall on National.

Dr Brash will be judged by the successful or otherwise of the stewardship of this.

While his address and reply speech was rated poorly, the National frontbench gave a strong performance this week and it was a question from Dr Brash to Dr Cullen on a student loan loophole which set Thursday's news agenda.

There is no shortage of potential leadership successors, most obviously Key and English.

There is agitation, but it will be kept low-level as the various pre-election factions wait to assess the impact and potential allegiances of the new MPs.

Dr Brash's handling of the group will be critical - it's a large bunch of new and eager MPs to keep gainfully employed.

He is rated an effective manager, but if his grip becomes less certain his undeveloped political antennae may let him down.

The class of 2005 is meeting on a regular basis and, depending on how solid a block they form, has the size - nearly half the caucus - to significantly threaten the old guard.

Returning MP Tau Henare, who with former MPs Ann Tolley and Eric Roy is part of the group, is already being seen by some as trying to punch above his weight.

Dr Brash then, has a lot on his plate.

Paul McIntyre: Murdoch's not the One.Telling

What a relief. Even billionaire media heirs cry.

In a packed Sydney court this week, Lachlan Murdoch dobbed on his mate James Packer about a tearful session in 2001 just days before their combined A$600 million investment in phone company One.Tel went belly up with debts of A$2 billion.

Murdoch's Supreme Court appearance was the talking point of the Australian business scene and it was surprising just how bad a memory Rupert Murdoch's son has.

The Australian Securities and Investment Commission is seeking A$92 million in damages from One.Tel co-founder Jodee Rich and former finance director Mark Silbermann, alleging they misled the One.Tel board about its financial position.

Junior Murdoch and Packer were both board directors of the company after James convinced Lachlan to invest in it in 1999.

But Murdoch used "I don't recall", "I can't recall" and "I have no recollection" so often in the box that Justice Robert Austin intervened.

"Mr Murdoch, could you listen carefully to the questions before you answer them?" the judge said. "Sometimes the answer 'I do not recall' is not an answer to the question asked."

If the good judge seemed frustrated, Jodee Rich's counsel, David Williams, SC, was even more uptight at Murdoch's empty brain space - and there were echoes of the infamous memory loss defence used by convicted entrepreneur Alan Bond.

On one occasion, Williams showed Murdoch an email from Rich dated February 7, 2001, requesting a chat about various matters including the make-up of the One.Tel board, year-end forecasts and "life".

After drawing a series of blank answers, Williams asked: "You don't recall very much about One.Tel, do you?"

"Not outside of board meetings, no," said Murdoch.

"You don't even recall very much about what happened in the board meetings, do you?" retorted Williams.

"My memory is hazy, to use your words, yes", Murdoch said.

"You don't even know if you were at the January [2001] board meeting, do you?"

"I have a question mark over the January board meeting, yes."

And on it went. In all, Murdoch used various "don't recall" responses more than 200 times but as Murdoch painted it, the last days of One.Tel were a blur for him.

But the clouds suddenly lifted when he actually did recall events on Sunday, May 27, 2001 in Murdoch's kitchen downstairs in his Sydney harbourside pad when James Packer stared at him whitefaced and woeful, just days before One.Tel's collapse, repeating the words: "I'm sorry."

Until last week, Murdoch had omitted this little incident from previous witness statements.

It has since been described as the "money shot", as it kept the media focus well and truly on James Packer and not the media heir who recently dumped his executive responsibilities at News Corp.

Indeed, Lachlan happily disclosed in court that his new free-range lifestyle by the Sydney beach suburb of Bronte meant he no longer checked his emails daily.

You could argue it wouldn't matter if he did - based on his court performance there was little chance of it fusing with any grey matter.

Both Packer and Murdoch have said they were "profoundly misled" on One.Tel's financial position when it collapsed in May 2001 and now they've got to prove it.

So back to the money shot. In an affidavit tendered to the NSW Supreme Court last week, Murdoch said he had a private meeting in the kitchen of his Sydney home with Packer on May 27, 2001.

"I also recall Mr Packer appearing to be shocked and very upset during the private conversation and saying to me repeatedly, words to the effect 'I'm sorry'," Murdoch said.

Williams asked Murdoch if Packer mentioned during their private meeting whether Kerry Packer was angry with his son.

Murdoch replied "no".

That proved to be wrong as James was sent to the PBL sin-bin for a long period by his father before returning to executive responsibilities.

Williams asked Murdoch if Packer was crying by the end of their kitchen session.

"Yes,"' Mr Murdoch replied.

He was asked if Packer was saying he was sorry.

"Yes," Murdoch said.

Williams asked Murdoch if he too had cried. "No," he said.

According to Murdoch, Packer asked him what they should do about One.Tel needing extra cash and broke down when told News Corp would not put in any more money.

"I believe it was at that point that he became emotional," he said.

Murdoch told the court he comforted Packer.

Interestingly, there wasn't much due diligence prior to the media barons blowing their hundreds of millions on One.Tel.

In fact, Murdoch told the court he didn't bother doing any formal due diligence on One.Tel before investing A$340 million.

No one else at News Corp did either. There was a dinner with James Packer in 1999 to discuss the deal and a meeting in New York with Rupert, News number two Peter Chernin, James Packer and the One.Tel boys, Jodee Rich and Brad Keeling. (Keeling has since rolled to the commission, admitting to failing in his duties as a director.) There were also two more meetings in Sydney, where a few business plans and forecasts were traded.

With Murdoch's time in the stand now up, the attention will now turn to James Packer. We shall see what grenades he will lob Murdoch's way - if he can remember.

Brian Gaynor: Left to pick up the crumbs

Graeme Hart has displayed many of the characteristics of a classic private equity investor during the past few weeks. Investors should be aware of this before they participate in the Goodman Fielder initial public offering.

A private equity investor purchases poorly managed and under-performing companies below their intrinsic value. The acquired company is privatised, loaded with debt and restructured.

Private equity operators are particularly ruthless when it comes to cost-cutting and restructuring. This usually results in a substantial increase in earnings and shareholder value within two to four years of the original purchase.

These investors are not long-term holders. After earnings have been raised, and substantial shareholder wealth created through debt leverage, the acquired company is sold through a trade sale or an IPO.

Private equity investors usually adopt a low profile as it enables them to avoid public scrutiny when they are restructuring and slashing costs.

However, they transform remarkably when they are selling a company through an IPO process. Instantaneously, they become accessible and communicative, and act more like high-powered salespersons than investors.

We have seen that with Feltex, Freightways, Frucor and Vertex, all sold through an IPO by private equity investors.

In the past few weeks, Graeme Hart has undergone a major transformation. He has become communicative and willing to talk to potential investors and the media. This has generated a huge amount of publicity, a very useful development when he is trying to sell Goodman Fielder through an IPO process in a short timespan.

The problem with private equity IPOs is that most of the value has been extracted during the privatisation process, and only limited upside is left on the table for IPO and trade sale purchasers.

One of the main questions potential Goodman Fielder investors have to ask is how much value has Hart left for them.

Hart first became involved in Goodman Fielder on December 12, 2002, when Burns Philp, which he controls, acquired a 14.9 per cent stake on market.

The next day, Burns Philp announced its intention of making a full takeover offer for the company at A$1.85 ($1.96) a share. This valued Goodman Fielder at A$2.2 billion.

The takeover was extremely acrimonious but the Goodman Fielder board finally capitulated after the offer was raised from A$1.615 to A$1.635 a share (the original offer was reduced to A$1.615 after the payment of a special dividend by the target company).

The Australian media was already reporting huge redundancies at Goodman Fielder before the company was delisted from the ASX and NZX on June 12, 2003.

At the time of the takeover, Goodman Fielder had historic revenue of A$2.48 billion and earnings before interest and tax (ebit) of A$185.2 million on a pro forma basis.

Goodman Fielder's historic revenue and ebit, excluding New Zealand Dairy Foods, are now A$1.92 billion and A$274 million respectively.

Since the acquisition, revenue has fallen by A$560.7 million and costs by A$649.5 million. This has been a result of Hart's cost-cutting, product rationalisation and exclusion of the snack foods operations from the float.

As a result, Goodman Fielder's ebit margin has risen from 7.5 per cent to 14.3 per cent since acquired by Burns Philp.

The Sydney-based group borrowed $1.3 billion to fund the original acquisition.

A substantial proportion of this debt effectively remains on Goodman Fielder's balance sheet. The IPO company will have A$1.1 billion of interest-bearing debt, whereas Goodman Fielder had only A$392 million of debt when it was acquired in 2003.

Although few private equity deals are through listed companies, the purchase, restructuring, cost-cutting, increased gearing and sale of Goodman Fielder is a classic private equity transaction.

The other asset included in the IPO is New Zealand Dairy Foods, which was acquired by Hart's Rank Group for $245 million in 2002.

The company underwent major cost-cutting and restructuring following Hart's purchase.

In August 2005, NZ Dairy Foods and Fonterra agreed to swap assets whereby Hart sold most of the company's operations, except the block and specialty cheese businesses, to Fonterra for $754 million.

The other part of the deal was NZ Dairy Foods' purchase of Fonterra's domestic fresh milk, cultured products and meat business including food services distribution networks for $416 million.

But the Hart money-making machine doesn't stop here.

As part of the IPO, Hart will sell NZ Dairy Foods to Goodman Fielder. The price, which will be determined by Goodman Fielder's ebitda multiple at the IPO price, could be as high as $885 million. This is based on a final IPO price between A$1.85 and A$2 and NZ Dairy Foods achieving annualised ebitda of $103.6 million.

Thus Hart purchased NZ Dairy Foods for $245 million and has the potential to realise nearly $1.2 billion, including the profit from the recent Fonterra asset swap.

The earnings forecast of the operations acquired from Fonterra, including the block and specialty cheese businesses, has been lifted from $72 million to $103.6 million on an annualised basis.

This projected profit uplift, which has a large cost-cutting contribution, is one of the main reasons why Hart is going to achieve a huge profit on the sale of NZ Dairy Foods.

One of the problems with the Goodman Fielder IPO is that Hart has already extracted an enormous amount of value from the original Goodman Fielder purchase and from NZ Dairy Foods.

Another important feature of the float is that it is aimed at New Zealand and overseas investors. As it is far too big for the New Zealand market, the success of the issue will be highly influenced by the uptake across the Tasman.

It is difficult to know whether overseas investors will be keen on the issue.

A negative feature of the float for retail investors is that the final price, which has an indicative range of between A$1.85 and A$2 a share, will be set after they lodge their applications.

The top indicative price appears to be too high and the institutional price-setting mechanism is expected to establish a lower price. There is a strong incentive for institutions to bid low because every 1c movement in the IPO price represents about $2.5 million as far as the payment to Hart for NZ Dairy Foods is concerned.

Hart told the media briefing last Friday that investors should "sell Carter Holt Harvey and buy Goodman Fielder".

That is the advice one would expect from a private equity investor who was looking after his own interests.

Why would investors sell Carter Holt on a historic ebitda multiple of 7.3 and purchase Goodman Fielder on an historic multiple of 9.4 to 10 at the A$1.85 to A$2 a share indicative price range?

The main reason is that the Goodman Fielder forecasts are positive and Carter Holt's negative. But the latter's forecasts do not take into account Hart's restructuring and cost-cutting expertise as demonstrated at Goodman Fielder and NZ Dairy Foods.

Based on Hart's track record, Carter Holt would seem like a far more exciting but riskier prospect for investors.

Depending on the IPO price, Goodman Fielder is little more than a safe and conservative investment offering a reasonably high dividend yield with limited growth prospects.

Disclosure of interest: Brian Gaynor is a Carter Holt Harvey shareholder and an executive director of Milford Asset Management.

Hart of the matter
* Graeme Hart became involved in Goodman Fielder on December 12, 2002, when Burns Philp acquired a 14.9 per cent stake on market.
* The next day, Burns Philp announced its intention of making a full takeover offer for the food company at A$1.85 a share.
* This valued Goodman Fielder at A$2.2 billion.
* The takeover was extremely acrimonious but the Goodman Fielder board finally capitulated after the offer was raised.
* The company was delisted from the ASX and NZX on June 12, 2003.
* At the time of the takeover, Goodman Fielder had historic revenue of A$2.48 billion and earnings before interest and tax (ebit) of A$185.2 million on a pro forma basis.
* Goodman Fielder's historic revenue and ebit, excluding New Zealand Dairy Foods, are now A$1.92 billion and A$274 million respectively.

Richard Inder: Hart a victim of his own success

To describe Graeme Hart as a victim is to risk ridicule.

He has an apparently contented family, more money than you can wave a stick at, a mansion in Auckland's eastern suburbs, a huge pleasure boat, a holiday house on Waiheke Island ... and a handsome golden retriever named Walter.

Nevertheless, in the face of scepticism over the prospects for the A$2.55 billion flotation of his transtasman food giant, Goodman Fielder, the adjective may be apt.

Those who have decided not to buy into Goodman - owner of the Molenberg, Meadow Lea, Edmonds, Kiwi and Meadow Fresh brands - reckon the business will offer a sharemarket return not much better than a utility.

Goodman operates in mature markets which will - at best - grow in line with household disposable income. Meanwhile, Hart is not to be trusted. Having made the easy gains, he is moving on.

Both arguments deserve a more thorough examination, especially the latter as it is this - a fear of Hart - that is perhaps having a greater impact on investors' rejection of the float than some would care to admit.

Hart may be in some measure a victim of his success.

The argument is partly rooted in the spectacular deals that he has negotiated with dairy giant Fonterra. Exactly how much he has made is difficult to judge, but the bald facts are: he bought New Zealand Dairy Foods from Fonterra in a deal that values the business at about $310 million: about two years later, he sells most of these assets back to the dairy giant for $754 million.

Under the deal, he was paid with $338 million in cash and $416 million in assets including the Meadow Fresh and Hutton's brands.

Three months after they were acquired these ex-Fonterra assets are to be sold into the new Goodman Fielder for a gross profit of at least $240 million.

In light of such gains, it is no surprise that investors ask: "Why would you buy anything from the man?"

Hart's response is instructive and reasonable.

"People do not want the risk or the rewards that we get," Hart told me this week.

He makes big gains because he took control with a mandate for radical change - a mandate that was simply not available to the prior management.

"We do get companies like Goodman and we take the risks that others will not. And we get those businesses into superior positions and then it is time for us to take our capital to invest in the next higher-risk, higher-reward investment." (Here he was referring to the $3.3 billion he has put on the table to take control of forestry giant Carter Holt Harvey.)

Hart continued: "That does not mean what we are offering to the next party is inferior.

"What it means is that the business is properly positioned for their risk appetite."

Three other factors should be considered.

Goodman has forecast profits for two years into the future. This is more than the 12 months that is required under the securities law.

He could have exited the entire business in the run-up to the float - having reached agreement with a consortium of private equity firms to sell for the price he expects to achieve by floating Goodman Fielder.

Finally, via Burns Philp's commitment to retain a minimum 20 per cent stake in the business until late 2007, Hart will have economic stake of at least A$270 million at least until then.

This is not small beer, even when set against Hart's $2 billion fortune. It seems more than is required to convince investors to buy into the float.

These are not arguments to buy into the float. It is one merely to temper investors' fears that Hart is pulling a swifty.

Meanwhile, shunning Goodman Fielder just because it largely operates in mature markets may be, as Hart says, to squander an opportunity. DB Breweries, now part of the Heineken empire, has grown its earnings by a compounding 10 per cent a year over several years, despite the flat state of traditional beer markets.

It achieved this employing exactly the same strategy that Goodman is counting on - product innovation and driving consumers into higher-value categories.

Hart says no matter what investors think of the market, they are still getting a good deal. Goodman will trade at a multiple of this year's trading profits to enterprise value of 8.3 to 8.5 times.

This is lower than comparable companies such as transtasman brewer Lion Nathan and international food companies such as Danone and Heinz.

As a result, investors may get short-term capital gain as the company trades up to a value similar to its peers.