It's 'beam me up' time for Telstra chief

By GILES PARKINSON

Sydney view

Telecommunications companies can do many things, but they cannot (yet) go back in time.

That is bad luck for Telstra chief executive Ziggy Switkowski, who, if he had the option, might want to wind back a couple of weeks and reassess his campaign for full privatisation.

It began on March 8 with the announcement of Telstra's profit results, at which Mr Switkowski had the pleasure of reporting a record net profit of $A2.1 billion and the pain of revealing plans for 10,000 job cuts.

The job cuts were designed to win credibility in the markets, which are wondering how Telstra can maintain its earnings growth.

It failed to work, because what the market really wanted to know was Telstra's magic formula for keeping up with the "new economy" stocks and fending off its rivals for the mobile phone business.

The market wanted to see something akin to a float of Telstra.com - instead it got a lot of politics.

Mr Switkowski's problems were compounded by his loss of credibility in the political corridors of Canberra, which has been struck dumber than usual with near-hysteria over votes in the bush.

The job-cut announcement, Mr Switkowski's appearance in front of a Senate estimates committee and his letter to federal parliamentarians were ham-fisted attempts to force the issue of Telstra's privatisation and the restrictions placed on its activities by the presence of a 51 per cent shareholder called the Government.

The issue was highlighted by Moody's downgrading of Telstra on Friday, a move that is hugely significant for Australia's biggest company.

But Mr Switkowski has come out of this campaign with a big loss. In the past few days, three major publications have written long feature articles questioning his strategy and his ability to do the job. "Has he got it?" one article was headlined.

Mr Switkowski has lost one campaign and now he must start another: to convince the market he is the right man for the job.

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AMP shareholders got the shock of their lives when they woke up on Thursday to discover that one broking house had valued their shares at just $A12 each.

BNP Equities issued a report on Wednesday with a big "sell" recommendation on AMP, claiming it had run out of capital, would require a massive rights issue and would not be able to pay a dividend.

AMP described the report as absolute nonsense and, after a quick lesson on the use of statutory funds and other balance-sheet items, the BNP analyst sort of admitted it as well.

The interesting point is not so much that an analyst got it wrong, but that any broker would dare to issue a damning report on AMP - Australia's biggest funds manager and payer of brokers' commissions - in the first place.

It turns out that BNP has had a sell recommendation on AMP shares for some time, although most other brokers are now valuing the company as a potential takeover target. Warburg Dillon Read, for instance, values AMP at around $A27 a share, just in case the NAB feels like making a bid.

AMP's problems do not stop there. It appears that Ian Burgess has had to fight to keep his place on the board in the face of considerable investor disquiet over the GIO debacle.

It is ironic that AMP, for so long the standard-bearer of corporate governance in the absence of a decisive regulator, should now be on the receiving end of institutional agitation.

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The vultures are out for Pacific Dunlop. The confirmation that the Ansell float would be canned and "other options" investigated suggests that a breakup of the Melbourne manufacturing conglomerate is a real possibility.

Ansell has, for nearly half a decade, been the standout performer in the conglomerate's confusing mixture of assets. In the end it could not be floated because the US stockmarket is applying woeful multiples to stocks such as Ansell and its European earnings were diluted by the slump in the euro.

Was it the final roll of the dice in the Pacific Dunlop board's efforts to find value in the company as a going concern? Time will tell, but the breakup merchants are hovering.

Roy E. Disney's Shamrock Holdings has announced its intention to play a role, although it will need to be more convincing than it was during the darkest hours of Brierley Investments.

As with BIL, Shamrock made a lot of noise about buying a significant stake, but appears to hold only a small block of shares to date. Just as well, because the shares are still wallowing around $A1.66, and this former top 20 stock is stuck at number 68 on the top 100.

Meanwhile, Merrill Lynch and Warburg Dillon Read are jointly working on Pacific Dunlop's options. It will not be an easy task: buyers consider it to be a fire sale.

* Giles Parkinson is deputy editor of the Australian Financial Review.