Andrew Forrest has amassed a personal fortune of around US$20 billion after he built up the mining company Fortescue Metals Group. Photo / Supplied
Andrew Forrest has amassed a personal fortune of around US$20 billion after he built up the mining company Fortescue Metals Group. Photo / Supplied
OPINION:
It was inevitable that Mike Cannon-Brookes and Andrew Forrest would fall out.
The two billionaires joined forces to build the world’s largest solar farm in Northern Australia and send the power along the world’s largest and longest submarine cable to Singapore.
And they planned to raise A$30 billion incash to build the Sun Cable project, as it’s known.
But instead, software innovator Cannon-Brookes and iron ore magnate Forrest are at loggerheads over the future of the Sun Cable company. And the project is just in its preliminary stages.
Cannon-Brookes partnered with his university friend Scott Farquhar to create software company Atlassian, with a current share market value of US$39b. His own fortune is about US$14b.
Both men are passionate about renewable energy. They are also single-minded, highly opinionated and extremely confident in their own abilities. The qualities which made them so successful have also caused them to fall out.
When they were unable to agree on the way forward for Sun Cable and the conditions under which they would inject new capital into the cash-burning business, the project ran out of money and was put into administration.
But it might yet live on.
Both the Cannon-Brookes and Forrest camps have indicated that they’d like to buy Sun Cable out of administration and revive the project.
This is great news for Australia.
With abundant wind and sunlight and vast amounts of undeveloped land, Australia has all the ingredients to become a huge exporter of renewable energy, either via cable or as liquified hydrogen. This will become increasingly important as the global economy decarbonises and phases out its use of Australia’s coal, oil and gas.
Sun Cable is a good first step. That project alone will supply 15 per cent of Singapore’s power if it gets off the ground.
It’s a renewable energy project at a scale never seen before and with several major technical challenges. If anyone has the vision and determination – and indeed bloody-mindedness – to get it off the ground, it’s Forrest or Cannon-Brooks.
Just as long as they don’t try to do it together.
Will the Virgin Australia share market listing be good value for investors? Photo / Supplied
Virgin float
Is aviation in Australia going through a bit of a post-Covid purple patch or are record profits here to stay?
This is the question investors will ask themselves when they decide whether or not to buy into Virgin Australia’s initial public offering later this year.
Private equity firm Bain Capital bought Virgin after it collapsed in August 2020, when airlines were grounded as a result of the Covid pandemic.
Now, less than three years later, Bain is planning to relist the company, which it bought for an enterprise value – debt plus equity – of A$3.5 billion.
In its two-and-a-half years of ownership, Bain has recapitalised Virgin and repositioned it as a low-cost domestic carrier.
News of the planned float comes just weeks after Qantas forecast record profits thanks to pent-up demand from travellers released from Covid lockdowns, with bulging wallets after two years without travel.
At the same time, airlines still can’t find enough staff and so are running fewer flights. The pent-up demand is allowing them to charge much higher prices.
Qantas expects to have earned A$1.4b in the six months to December, and while we don’t know much about Virgin’s earnings because it’s a privately-held company, we can be sure they are also strong.
The question is whether they will remain so.
Airlines will gradually add more capacity and drive down prices and at the same time, Australia’s economy slows, which could cool demand for travel.
There is also what could be termed the private equity factor. Australian investors have been burned after buying companies from private equity firms in recent years, companies that include retailer Myer to data analytics company Nuix. Both made a lot of money for their owners and the investment banks that sold them but were disasters for the investors who bought them when they floated.
Private equity companies are adept at timing IPOs when the companies they’re selling are in a sweet spot. They know how to maximise earnings that bolster a company’s value, even if those profits can’t be sustained in the longer term.
Qantas shares are currently sitting at A$6.52, up about 45 per cent from pandemic lows.
On the face of it that looks good, but we should remember that the airline floated at A$1.90 a share in 1995, so it’s hardly hit it out of the park in the past three decades compared with a lot of other investments.
Potential investors will be wondering if Virgin can do better.
