Saturday, December 10, 2005

John Armstrong: Lapses of judgment costly

While it is not uncommon for the Prime Minister to lecture her ministers about lax discipline, the sermons are normally reserved for the first Cabinet meeting of the year, not one held at the tail-end.

David Benson-Pope's shocking lapses of judgment alone justified Helen Clark cracking the whip, but she would have had other reasons to conduct a lesson in political house-keeping before her Labour colleagues go on holiday.

Clark's cherished third term in power has got off to a bad start. She will not want the mistakes and lingering problems of the past two months persisting in the New Year, when they will start to corrode Labour's standing.

Things got off on the wrong foot with Winston Peters facing widespread criticism for accepting the post of Foreign Minister, then displaying acute discomfort in adjusting to the role.

Civil war broke out at TVNZ, with ministers accused of meddling. Labour had to bow to the inevitability of a select committee inquiry before one was forced on it.

The Treasury tried to be purist, but ended up being political in calling for tax cuts, kneecapping Michael Cullen in the process.

The Reserve Bank's frantic, but so far unsuccessful attempts to prick the property market bubble could now mean "crash landing", not "soft landing" for the economy next year.

To cap things off, Benson-Pope has put Machiavelli to shame in trying to massage public opinion. He has attacked the police. He brazenly tried to weaken the meaning of prima facie.

He secretly leaked the police report on the investigation into allegations that he assaulted students, yet he was publicly saying the timing of the release was for the police to decide.

He told his press secretary to leak the report - and then left him in the lurch.

What will really annoy Clark is that Benson-Pope has displayed the kind of arrogance that people come to expect from a Government in its third term.

She spring-cleaned the Cabinet by giving all her ministers, apart from herself and Michael Cullen, new jobs to ward off arrogance and complacency, the twin dangers of a lengthy tenure in the Beehive.

Benson-Pope's political judgment is all the more wanting for failing to recognise the additional pressures bearing down on the new Clark ministry.

A slowing economy will remove the latitude for mistakes. In boom times, voters are willing to ignore faults. When the economy turns, the mood can sour rapidly. Suddenly everything the Government does is wrong.

Meanwhile, the revolutionary four-party arrangement which gives Clark the numbers to govern remains unproven in terms of whether it will work satisfactorily.

There is bound to be friction at some point between the partners and unforeseen difficulties in applying the convention of ministerial responsibility to some things Peters and Peter Dunne do as ministers, but not others.

The capacity for things to go wrong has increased markedly - even ignoring the Peters factor. That puts the onus on ministers to keep things even tidier in their own neck of the woods.

The unnerving aspect of the Benson-Pope case for Labour is that he actually kept the Prime Minister's office in the loop.

The trouble was he and his staff painted too rosy a picture of the contents of the police report into the alleged incidents of assault when he was teaching at Dunedin's Bayfield High School in 1982.

He had some grounds for doing that. The police's establishment of a prima facie case for prosecution over the claim that he struck a student at a school camp is highly debatable.

But the report's finding on the sticky tape and tennis-ball-in-the-mouth incident was far less favourable to him.

And in neither case was he vindicated, as he claimed in a statement last Sunday.

Benson-Pope forgot Clark's maxim: always under-promise and then over-deliver.

The exposure of his attempt to manipulate public opinion by surreptitiously pre-releasing parts of the report then selectively highlighting elements that backed his denial earned him the wrath of newspaper editorial writers, the scorn of colleagues, and allowed the Opposition to set the agenda in Parliament all week.

For all that, his resignation has never seemed a prospect. Benson-Pope is widely disliked, but Clark sees things in him which others do not. She decided early that he would not lose his job. The reason? Public opinion has not swung against him - at least, not yet.

Sacking him would serve little political benefit. Most people would assume the minister was being punished for his past behaviour as a teacher, not his present machinations as a politician.

Working in Benson-Pope's favour is that he is not a "face" of Labour. As Social Development Minister, his job is to implement the agenda of his predecessor in the portfolio, Steve Maharey.

That includes the single core benefit - a potential administrative nightmare. He must also blunt National's continuing efforts to make welfare reform an election issue.

Benson-Pope's job is to keep the portfolio - and himself - out of the news.

He was further saved by Clark needing to convince a doubting public that her unconventional Government is stable. A ministerial resignation so early would not have helped to foster such an impression.

There was an additional reason not to serve up a ministerial scalp - a resurgent National.

Benson-Pope became a pawn in the battle between Labour and National to get the upper hand psychologically in the new Parliament.

Working in tandem, National's Judith Collins and Act's Rodney Hide asked all the right questions.

It was a classic example of the Opposition mounting a strong case that the public would latch on to and bring huge pressure on Clark to dump her hapless minister.

But the public seem to have decided to give Benson-Pope the benefit of the doubt on the initial issue of whether he assaulted the two students, and are unmoved by his subsequent behaviour.

Yet something was missing from National's grilling of Clark and Benson-Pope - the party's leader mixing mongrel with heavy sarcasm.

National is never going to get that from Don Brash.

In Parliament - and Parliament mattered this time - he sounds like an academic lawyer trying to prove some arcane point of law when he should be Dracula sizing up Clark's jugular.

Brash will never get a better opportunity to lord it over Clark than he did this week. That he did not will hasten the arrival of someone who will.

John Roughan: Politics puts a knife in the back of humour

In a few weeks we will be into the phase that everyone in newspapers calls the silly season, a period when even politics takes a holiday and pages have to be filled with real people acting as real people do.

The pleasures and problems of real life are supposedly less compelling than the highly charged concerns of politics, but I often wonder.

Imagine if somebody complained in the middle of summer that a Labour MP had an odd way with tennis balls when he was a schoolteacher 20 years ago? Or chose the silly season to treat a plainly jocular email note from a National MP as a threat? We'd suggest they get a life.

The real silly season is with us right now.

It is the fag end of the year, when weariness sets in, patience frays, and common sense gives way to tired ill-judgment, which is most visible in Parliament.

Take the tennis ball nonsense.

I was away in May when poor David Benson-Pope was accused of taping a pupil's hands to his desk and stuffing a ball in his mouth. By the time I heard it, the story had become a political scandal that helped to turn the polls against the Government for the first time in five years.

If he hadn't denied it, I suppose a sense of proportion could have been preserved. Everybody who was at school 30 or 40 years ago knows of a boyish teacher capable of going off his nut in a fairly harmless way. I can recall chalk and dusters being hurled at inattentive classmates.

I dare say that would put professional registration at risk these days, but I doubt the culture had changed that much by 1982 when Benson-Pope made a memorable impact on at least some of the pupils of Bayfield High School in Dunedin.

I will never know how something so trivial became a police investigation. But the file now released by the police with their decision not to prosecute deserves to be preserved in the annals of political absurdity.

Complete with handwritten witness statements and a sketch of the classroom, the file records in ponderous plod-speak that Benson-Pope used to hit inattentive pupils on the head with an object that had a tennis ball stuck on the end and was called a bonker.

An extract from the police notes:

"Philip Lindsay Weaver was in Benson-Pope's 4th Form Social Studies class in 1983. Does not describe himself as a troublemaker but was a talker. Recalls he was talking in class and it was not too long after the start of class Benson-Pope hit him on the head with his bonker.

"Then Benson-Pope pushed the tennis ball taken from his bonker into his mouth. Weaver took the ball out because it was uncomfortable. Benson Pope pushed the ball back into his mouth, which required his mouth to be wide open and quite painful to the jaw, and taped his hands to the corner of the desk using duct tape.

"At the end of the period Benson-Pope un-taped him and Weaver removed the tennis ball himself. States he would have tried to free his hands if he could but the tape was quite strong ... "

Why in the name of reason were self-respecting police officers asked to do this? How much has it cost in police and parliamentary time?

Even Benson-Pope's parliamentary accusers, National lawyer Judith Collins and Act leader Rodney Hide, a teacher once, probably believe privately that the whole thing happened in that exaggerated semi-jest that can strike a chord with teenage boys.

But Collins and Hide had to play the political game and Benson-Pope's May denial was, if false, a misdemeanour the House would have to treat seriously.

Parliament may be an unreal place but question time on Tuesday was good television.

Confronted with the police finding of a prima facie case, a tick in the Benson-Pope cheek grew visibly more convulsive.

He retreated from the outright denial of May to a newly prepared position that he did not remember the incident and did not believe it had happened.

Then his interrogators dropped the ball. They didn't ask the one question he probably feared: since the Minister now says he cannot remember the incident and doubts that it happened, how was he able to tell the House on May 12, "I find such allegations ridiculous, and I refute them"?

Refute v. 1. prove (a statement or the person advancing it) to be wrong. 2. deny (a statement or accusation). The Concise Oxford Dictionary, Tenth Edition Revised, 2001.

It is not what men do that is their downfall but what they deny.

Still, it's hard to know which was more ridiculous this week: Benson-Pope's stone-walling or the abject apology from a new National MP, Allan Peachey, for a bit of harmless email horseplay.

Again it was an "offence" that nobody outside politics would take seriously.

Peachey, previously head of Rangitoto College, is an educational conservative. Selwyn College, in his Tamaki electorate, is about as liberal as they get.

Declining an invitation to address the college's prize-giving, he added, "P.S. Yes, I do have a knife in your back, so be careful."

Common sense says he could not resist a ribald comment to philosophical opponents in his old profession, the sort of people he knew. How wrong he was.

When a Selwyn co-principal, Carol White, took it as a serious threat, Peachey apologised.

The next day the Post Primary Teachers Association president Debbie Te Whaiti said the apology did not go far enough.

"It is unacceptable for a politician to threaten a public servant," she said. "It is also representative of the kind of bullying behaviour that educators are striving to eliminate in our schools."

Are these people for real? I don't believe so. Liberal teachers are the foot soldiers of the Labour Party and the PPTA peddles more politics than other professional associations consider seemly.

(Let me here record the PPTA's denial to save it penning a reply too long and tedious to serve to paying readers.)

In any event, Peachey, having watched Benson-Pope writhe, then stood in Parliament and made a statement so contrite you'd have thought he had been caught with the knife.

What is wrong with our public life that we have so few people big enough to laugh at themselves and at anyone who takes these things too seriously?

To make light of anything these days is a little dangerous. But after every summer break even Parliament seems to reconvene with a new sense of proportion that lasts for a week, sometimes two. The silly season is a reality check we need.

Fran O'Sullivan: The not-so-young and the witless

David Benson-Pope is already a two-time political tosser. I can forgive the Labour Cabinet minister for stuffing a tennis ball in an errant teenager's mouth 23 years ago - if he did (whatever happened cannot have been that gob-smackingly brutal given the failure of all of the many witnesses to agree on the severity of the so-called assault, or even if it happened).

Mistakes happen.

More than half the Catholic nuns in the convent I went to could have been hit up for common assault if their former pupils decided to break with the standard practice of looking back on their school days through rose-tinted spectacles.

We're talking primary school here too.

Gym slips.

Rosary beads.

First Holy Communion veils.

And daily belts with the razor strop for the mildest transgression.

Like a 12-year-old girl losing her cool because her younger sister is dying of leukaemia and can't understand why on Earth this is God's work.

Taping a strapping teenage lad to his chair is hardly on the same page - almost laughable, really - and a waste of police time when there are serious crimes waiting to be investigated.

But what I cannot understand is Benson-Pope's ham-fisted attempt to sell journalists a "pup" by letting his press secretary drip-feed the parts of the police investigation report that were even moderately favourable to his boss.

No one worthy of the title Cabinet minister should be witless enough to feed the Herald on Sunday a bum steer and not work out that its sister paper, the New Zealand Herald, would inevitably end up correcting the spin the following day when the warts-and-all report was released.

Stitching a newspaper up - as any journalist who has been fitted up would admit - simply makes reporters and their editors hell bent on getting the last word.

But for Benson-Pope to now hang press secretary Peter Coleman out to dry in a Pontius Pilate act won't wash.

Coleman's already been muzzled from taking issue publicly with Benson-Pope's version - or even commenting on it.

It will be intriguing to see what section of the Employment Relations Act the Parliamentary Service cites as it seeks to persuade Coleman to take the fall for his employer.

If I was Coleman - which thankfully I am not - I would be rather inclined to make a bit of sport out of my downfall and rope in a couple of other Cabinet ministers to share in the fun.

He could start with Lianne Dalziel, now back as Minister of Commerce after being sin-binned for telling media porkies on an immigration issue.

Dalziel's sin was getting caught out (not telling porkies, which is simply stock-in-trade for many politicians).

But the Cabinet minister did finally offer her resignation to the Prime Minister once the heat got too hot. She did not push the lackeys (who were also involved in the spoon-feeding of the media) to take the fall for her.

Maybe Dalziel could give evidence to the Employment Court on where the buck really stops in a Westminster system and make the case that Coleman was simply acting on Benson-Pope's instructions.

If Coleman is of a more combative disposition he could then call Prime Minister Helen Clark to give evidence over why "selective" leaking of confidential reports is just the sort of dark political art any skilled politician should have up her/his sleeve.

Two words - Peter Doone - sum up this stratagem.

The former Police Commissioner got into a bind when his partner was pulled up driving a car after dark without its headlights on.

There were words. Doone's partner, who had been drinking, was not breath-tested despite the fact the young constable had got the breath analyser out.

Views varied as to the severity of Doone's transgression - particularly the words he was said to have used to allegedly warn the constable off.

But Clark did not wait for the final report to be made public before she also selectively leaked passages to the Sunday Star-Times, basically forcing Doone's resignation.

Clark was ultimately flushed out by the journalistic prey she had arguably sought to suborn.

Benson-Pope has some big issues on his desk.

There are major issues facing the fishing industry - particularly the rapacious practices of some Asian factory ships in Pacific waters.

He has also been trying to steer a pathway through the Resource Management Act logjam that has stymied progress on some development projects that are fundamental to the nation's future.

But his Cabinet career is, in reality, over before it starts.

It's not a matter of high moral principles. Benson-Pope's real problem is that his team scored him an own goal.

Editorial: Manukau right on prostitution

The Prostitution Reform Act 2003 did not simply decriminalise the sex industry, it also awarded greater control of the trade to local councils. They, in the best interests of the community, gained the power to make bylaws regulating the location of brothels.

The industry could, thus, be confined to areas where it was least likely to cause offence. Brothels would not be situated within eyesight of, say, a school.

Yet the same legislation also decreed that street workers could no longer be arrested for soliciting. They could ply their trade anywhere, no matter the degree of offence.

This has created a conundrum, most notably for the Manukau City Council. It has long regarded street prostitution and its attendant activities as a blight, especially around the notorious hotspot of Hunters Corner. The council must have hoped the act would, as proponents claimed, lead street walkers to recognise the health and safety benefits of working in brothels. If so, it was to be disappointed.

Rather than confining prostitution to certified places, the new law appears to have increased the number of street walkers in Manukau City.

This, it seems, is the easy way around the overheads associated with setting up a place of business.

Decriminalisation means, however, that the council is powerless to prevent soliciting occurring in places where the vast majority of people would not want it to be.

The council tried to use a bylaw to ban street walking but was advised that could contravene the Bill of Rights and the reform act. The council's solution now is legislation, the Manukau City Council (Control of Street Prostitution) Bill, which this week was referred to Parliament's local government select committee.

Thus, it is up to Parliament to examine legislation that, among other things, dictates that prostitutes or their clients can be fined $10,000 for soliciting or loitering in a public place.

Only the Greens and the Maori Party opposed sending the bill to the select committee. The Greens claimed Manukau City was trying to reverse the decriminalisation provisions of the reform act.

That is true to a degree. Yet what the council is actually tackling is an undesirable, open-slather ramification of the act.

In effect, it wants a solution similar to that in some states of Australia, where prostitution is legal but soliciting cannot take place in locations where it causes offence. That seems a reasonable approach.

Where the bill becomes more problematic is in its enforcement. Practices such as street walking and kerb crawling create difficulties of interpretation. Proof can be elusive. To try to overcome that, the bill hands the police considerable power. They are able, for example, to demand information from people if there are "reasonable grounds" to believe they have committed an offence.

Anyone refusing to give information could be fined $5000. The police are also, according to the Greens, given a licence to engage in entrapment.

As much as anything else, this points to the difficulty of policing prostitution. The reform act itself contained provisions that cannot be enforced, the likes, for example, of insisting that brothel owners make clients use condoms. Enforcing the Manukau legislation would create another set of problems.

Yet that is not a reason for ditching the bill. The reform act has brought a degree of control and transparency to the sex industry.

But it erred in failing to recognise that soliciting is not acceptable in all public places. It is fair for councils to be able to acknowledge this within their prostitution parameters.

Others are bound to follow Manukau City's lead.

Paul Thomas: Cinema gets bigger, louder and dumber

One thing we can safely say about Peter Jackson's 8000kg gorilla of a movie is that it's bigger than Ben-Hur. Although Ben-Hur had the proverbial cast of thousands, extras come cheap compared to a mountainous ape that can rip limbs off dinosaurs, scale the Empire State Building and reduce an audience to tears.

The old maxim that bigger isn't necessarily better doesn't apply to Hollywood blockbusters. Better is beside the point; size is everything.

This, presumably, is what Jackson's collaborator scriptwriter Philippa Boyens was on about in last weekend's Time Out. "When other directors see this movie," she gushed, "they're going to [expletive] give up."

The early signs are that King Kong will be another triumph for Team Jackson, although my source here is Wellington's daily newspaper, a tireless booster of the Wellywood concept and which covered the New York premiere as if it was the Second Coming.

Still, I think Boyens got a bit carried away. I seriously doubt that Martin Scorsese, Jean-Luc Godard, Bernardo Bertolucci, Woody Allen or the Coen brothers will simply give the game away on the basis that Kong is the last word in film-making.

But her underlying assumption - that the monstrously expensive, special effects-driven, essentially childish blockbuster is what the game's all about - has some validity.

Kong is another step in the transformation of film from an activity in which art and entertainment were awkward bedfellows into a branch of the global entertainment industry, alongside theme parks, casinos and computer games.

There have always been big, loud, dumb movies, but some time in the past 30 years they went from being a branch of cinema to the trunk.

There are various theories for this, ranging from the dawning of the post-literate society to the drug and ego-fuelled excesses of superstar directors who blew a historic opportunity and handed control of the industry back to the suits.

The vastly increased spending power and therefore economic clout of the youth market must surely be a major factor. In our household, the kids go to 10 times as many movies as the adults. If this is the norm then it's little wonder that so many movies are made for a youthful audience.

But it's a chicken-and-egg process: grown-ups don't go to as many movies because there aren't as many grown-up movies.

I was a movie buff in my 20s, which roughly coincided with the 1970s, a time when films such as The Wild Bunch, The Godfather and Raging Bull showed what could be achieved when Hollywood budgets and technical expertise were deployed in worthy causes.

Queen St was movie mile but there were also plenty of suburban cinemas, and the Sunday night double-feature was a sacred part of the weekly routine.

The film festival showcased new work by masters of European cinema, whereas today - understandably, given the spread of Hollywood values and formulae - festival programmes seem to favour exotica and experimentation.

In his book Monster, John Gregory Dunne tells a story that illuminates Hollywood's decline into infantilism.

Dunne and his wife Joan Didion decided to write an action film. They drafted a treatment crammed with what they thought was the requisite amount of mayhem (or "whammies" as they're known in the industry, a term covering anything that involves deafening explosions, spectacular destruction and lavish loss of life) and sent it to director Renny Harlin, whose credits include Die Hard 2.

His feedback went as follows: "First act: better whammies. Second act: whammies mount up. Third act: all whammies."

What most differentiates cinema from other media is money. Movies are expensive, and the greater the cost, the higher the anxiety over their fate at the box office.

That anxiety can lead studios to hedge their bets by stripping the project of elements that might confuse or alienate the audience (usually the most original elements and those that attracted them to it in the first place) and making it as similar as possible to recent hits.

Kong cost $294 million, and many more millions are being spent on marketing and promotion because its backers simply can't afford to let it fail. It's like that law of the business jungle: if you owe the bank $10,000, you've got a problem; if you owe them $10 million, they've got a problem.

This is the Catch 22 logic of the blockbuster: they cost a fortune, so you then have to spend another fortune to ensure they make money.

And as almost anything will sell if you hype it loudly and expensively enough, when the profits start trickling in, the studio bosses pat themselves on the back for having got it right again.

And where the stakes are high, so is the price of failure. A film producer I knew in London remembered going to a Hollywood party at which an abject creature cringed on the fringes, shunned by the sleek and the beautiful.

"Who is that wretch?" he asked.

"Oh, him?" came the reply. "He's the [expletive] who turned down ET."

Richard Inder: Behaviour needs changing too

Sean Wareing, chairman of the Kiwi Income Property Trust's manager, was less than gracious as unit holders yesterday voted in a new governance regime for New Zealand's largest listed property company.

Indeed, his behaviour only reinforced the necessity of the landmark changes, which make a start on aligning Kiwi Income Property Trust's governance with those of most other listed companies.

Wareing began the special meeting in Ellerslie with a seven-page, often bilious address, to unit holders, much of which was devoted to the manager's perspective of the later carried proposals. He then asked for questions and comment from the floor.

After this he tried to block Brook Asset Management's Simon Botherway - the driving force behind the powerful investor coalition that had forced the special meeting on the manager - from putting his side of the story.

"Please tailor your comments to the resolution," Wareing sniffed.

Botherway deserved to be heard. The resolutions cut the threshold for unit holders to requisition meetings from 10 per cent to 5 per cent, laid out clear time limits for convening meetings and made it easier for unit holders to put matters up for discussion. Most investors would find such provisions reasonable. In many cases, they would be surprised they were not part of the trust deed.

Unit holders only requisitioned the meeting because the manager, Kiwi Income Properties, had demonstrated undue sensitivity to criticism when it refused to allow motions to be put to the trust's September annual meeting.

Finally, the manager was dragged kicking and screaming to the meeting by a coalition of professional investors, who owned 22 per cent of the trust's units.

And then only after a flurry of expensive legal exchange and public spats between investors and the manager. The trust's ultimate owner, the Commonwealth Bank of Australia, yesterday said it would support the resolutions.

But Wareing's poor form did not end there. Investors' discontent with the manager - and their determination to push through improvements to the trust's governance - has its roots in the latter's mixed messages over the huge Sylvia Park development in south Auckland.

The facts are not in dispute.

Between 2001 and this year, the trust's manager went from insisting the development would not be carried on the trust's balance sheet to disclosing it would take on the entire development and the attendant risks itself.

Wareing yesterday did not resile from those statements, saying they were true at the time. And then he started to deconstruct the concept of property development risk, declaring: "The board does not accept the global use of the term development risk."

Development was a necessary part of any property company and Sylvia Park was such an opportunity that it had to be taken, even though it would weigh on unit holder distributions.

Most investors do not disagree with those statements. However, they want to buy something in the certain knowledge that what is in the tin is the same thing that is written on the label.

Kiwi has arguably not delivered this. As Brook Asset Management's Paul Glass noted, the trust is called Kiwi Income Property Trust.

Wareing's protests seem to suggest the manager still may not have fully grasped this point.

If a presentation yesterday by the manager's chief executive, Angus McNaughton, is to be believed, the Sylvia Park project offers real potential.

Meanwhile, property and the trust need a level of reinvestment (read development) to maintain their value. The important question, however, is what level? On this score, the manager still has given no real comfort other than promising to publish a statement about investment and management philosophy. It is long overdue.

Paul McIntyre: Branson looking to Toll to get back at Corrigan

Richard Branson is plotting his revenge against Chris Corrigan, the former merchant banker turned corporate chief who snatched majority control in a bloody battle earlier this year of Branson's Australian aviation baby, Virgin Blue.

Corrigan is not a bad street fighter, of course, playing a key part with the Federal Government, in smashing the union's control of the waterfront in 1998.

But Branson, in Sydney this week for Virgin Blue's fifth birthday celebrations and a meeting or two with a new anti-Corrigan ally, is loosening up his rhetoric on Corrigan and the listed company he runs, Patrick Corp.

Patrick is trying to defeat a hostile A$4.6 billion ($4.92 billion) takeover bid from a sometimes joint-venture partner, Toll Holdings, led by its chief executive, Paul Little, who is backed by Branson. Both companies are large transport and distribution groups in road and rail and for Patrick, ports is a big earner.

It was Branson who provided renewed impetus for Little to make a raid on Patrick after Corrigan played turncoat with the British knight - the two were friendly enough joint-venture partners in the listed Virgin Blue airline until earlier this year. But that was before Corrigan wooed investors against Branson's will to gain majority control of Virgin Blue.

Just how furious Branson is at Corrigan surfaced this week when he accused Corrigan of costing Virgin Blue more than A$100 million in lost profits by failing to hedge against rising oil prices and for a slow introduction of a frequent flyer programme.

Branson's other airline operations, such as Virgin Atlantic and Virgin Express, all hedged their oil contracts. Last month, Virgin Blue reported a full-year drop in profit to A$105 million for 2004-05. The decision not to hedge oil also amplified Virgin's troubles because Qantas did, giving it a lower operating cost base and handing it more flexibility to cut airfares.

Branson also complained this week about Corrigan raiding Virgin Blue's cash reserves by voting for the airline to pay out A$262 million in dividends, 62 per cent of which went to Patrick. And in an unorthodox move for boardroom politics, Branson "outed" Virgin Blue's chief executive, Brett Godfrey, and Virgin Group's representatives on the board for opposing the big dividend splurge.

All of these supposed Corrigan naughties are fuelling Branson's resolve to get control back. And if Toll succeeds, it will deliver Branson that. He and Little have struck a deal which will allow Branson to buy back majority control of Virgin Blue if Toll gets Patrick.

Branson also flagged his intention this week to take Virgin Blue into other international markets, namely the US and Japan routes, and to introduce business class seats, all at the risk of upsetting Singapore Airlines, which holds a 49 per cent stake in Virgin Atlantic. Singapore Air is desperately trying to convince the Australian Government to allow it to operate Australia-US flights as well as access to the domestic market.

But Virgin Blue's expansion, says Branson, is contingent on his regaining control. On the Singapore Airlines conflict, Branson is unmoved (if he does expand further abroad he is unable to use the Virgin mark due to an agreement with the Singapore carrier).

"I offered Singapore Airlines [the chance] to come in with Virgin Blue when we originally [launched] and they decided not to," he said. "So they've always realised that we would be competing in one part of the world and be friends in another part of the world. But that's business.

"I think the Australian Government just needs to decide whether to allow Virgin Blue to get up and become a strong competitor to Qantas domestically and internationally."

Before all of that can happen, though, Little and Toll Holdings have got to convince the competition regulator that a Patrick takeover will not lessen competition, particularly in railways.

So far the regulator is unconvinced and is in ongoing discussions with Toll over concessions in a post merger. A final ruling from the Australian Competition and Consumer Commission is due on December 21 and Branson, at least, is upbeat.

"If, God forbid, Toll fail in what they are trying to, my best guess is that I'll have to dig deep into my pockets and get a few other friends and try to find another way of buying out Patrick Corp."

But first he'll have to again cuddle up to a cross Corrigan. Not a pretty thought.

Brian Gaynor: Greenmail set-ups rolling down tracks

The NZX is vulnerable to a major outbreak of greenmail.

This is a strong possibility given the present state of takeover bids for Capital Properties, Carter Holt Harvey, Metlifecare and, to a lesser extent, Mike Pero Mortgages.

In strict terms, greenmail is the purchase of shares in a company threatening to make a takeover offer and forcing the company or its owners to buy back the shares at a higher price.

The term greenmail can also be used when a shareholder or shareholders accumulate a block of shares to stop a bidder from reaching 90 per cent and moving to compulsory acquisition. The objective of this strategy is to force the bidder to make a new offer at a higher price to remaining shareholders.

This type of greenmail has been used on Tranz Rail, now called Toll NZ. When Australian-based Toll Holdings raised its offer for Tranz Rail from 95c to $1.10 a share on September 5, 2003, the target company's independent directors recommended acceptance. At that stage, the bidder had only 19.99 per cent of Tranz Rail.

It ended up with 83.46 per cent, frustratingly short of the 90 per cent target.

There were unconfirmed rumours after the offer closed that Toll was having talks with a number of the remaining shareholders to determine the price they would be willing to accept under a new offer. This would allow the major shareholder to reach 90 per cent.

Toll Holdings probably regrets not pushing these talks to a successful conclusion because it could have reached 90 per cent with an offer of around $1.25 to $1.30. Toll NZ's share price is now $3.30.

Things have deteriorated as far as Toll Holdings is concerned because Third Avenue, a New York-based investment firm, has purchased 10.01 per cent of Toll NZ at an average cost of $1.63 a share. Toll Holdings cannot acquire 90 per cent of Toll NZ unless Third Avenue agrees to sell.

The Australian transport giant has been checkmated because it didn't strike a deal with Tranz Rail's non-accepting shareholders two years ago.

When Mainfreight raised its takeover offer for Owens Group from $1.03 to $1.10 a share in September 2003, the independent directors recommended acceptance.

Toll Holdings jumped into the fray and purchased 11.88 per cent of Owens at $1.15 a share. Mainfreight had 79.6 per cent of Owens when the offer closed.

After the bid terminated, Mainfreight entered negotiations with Toll, which agreed to sell its stake at $1.17 a share. Mainfreight then made an offer at this price, the Toll shareholding took the bidder above 90 per cent and it moved to compulsory acquisition.

The most obvious case of a holdout at present is Fisher Funds' refusal to sell its 11.6 per cent stake in Metlifecare.

Fisher wrote to Metlifecare stating that it did not intend to accept the $3.90 a share offer. The bidder's best option is to let the offer close as planned on December 17 and either negotiate a deal with Fisher Funds or allow Metlifecare to remain a listed company with Fisher as a significant minority shareholder.

Under the Takeovers Code, the offerer would have to pay any higher price paid to Fisher under the current bid to all accepting shareholders. However, the offerer could allow the $3.90 a share bid to expire and negotiate a higher price with Fisher. The bidder would then make a new offer at this negotiated price, Fisher would accept and the compulsory acquisition provisions would apply. All remaining shareholders would receive the higher price.

In light of the developments at Tranz Rail/Toll NZ, the new controlling Metlifecare shareholder may be willing to offer a reasonable premium to Fisher under a new offer in order to move to compulsory acquisition.

The situation regarding Capital Properties is more difficult to predict although it appears as if AMP Property Portfolio won't reach the 90 per cent target.

As at December 2, shareholders with less than 90,000 shares owned just over 11 per cent of Capital Properties and ING controlled an estimated 4.7 per cent (ING told the NZX on November 16 that it had a 4.86 per cent holding but it has sold a small number of shares since then).

No other shareholder appears to own more than 1 per cent of the Wellington-based property group.

The outcome for non-accepting Capital Properties shareholders will be heavily dependent on ING. If ING doesn't accept the present offer, it will be in a strong position to negotiate a higher price with AMP, and AMP would then have to offer the same price to all remaining shareholders under a new offer.

If ING accepts, AMP is expected to go over the important 85 per cent mark and could use the creep provisions of the Takeovers Code once the bid lapses.

Under the creep provisions, a holder of between 50 per cent and 90 per cent of the voting rights of a Code company can purchase a further 5 per cent in any 12-month period (AMP couldn't begin to utilise the creep provisions until 12 months after the present bid expires).

Once a controlling shareholder goes over the 90 per cent mark under the creep provisions, it has to move to compulsory acquisition. In effect, an independent adviser determines the compulsory acquisition price after the controlling shareholder reaches 90 per cent under a creep.

As the mid-point of Capital Properties' valuation is $1.605, dissenting shareholders could expect to receive more than $1.48 a share under this creep scenario.

The Carter Holt Harvey situation is fascinating because Graeme Hart has reached 84.8 per cent and has extended the offer until December 23.

Hart will want to avoid public scrutiny of his CHH carve-up. If he doesn't reach 90 per cent, he will be keen to do a deal with several major shareholders, make a new offer and reach 90 per cent.

It will be relatively easy for Hart to do a deal because most of the small shareholders have sold out and big institutions dominate its share registry. In the two weeks to December 2, the Accident Compensation Corporation raised its shareholding from 1.58 per cent to 1.64 per cent and the holdings of a number of nominees also increased.

Hart and his advisers will be aware that CHH is likely to attract overseas hedge funds that are more willing to take risks than New Zealand institutions. As Hart won't want to end up in the same situation as Toll Holdings in relation to Tranz Rail/Toll NZ, he may be willing to offer dissenting shareholders $2.665 (the mid-point valuation) or more under a new offer.

That would raise his overall purchase price from $3.272 billion to about $3.304 billion.

Under this scenario, Hart would be able to take full control of CHH for an additional $32 million, delist the company and undertake his restructuring with minimal public scrutiny.

A totally new offer for CHH at a higher price would be a satisfactory outcome for an emerging form of corporate greenmail.

* Disclosure of interest: Brian Gaynor is an executive director of Milford Asset Management and a CHH shareholder.