Sydney view: Get basics right, rewards will follow

By GILES PARKINSON

If you don't believe in cycles, just ask Roger Corbett and Dennis Eck. Or even Michael Chaney and Alan Jackson.

The two pairs have a lot in common. Mr Eck and Mr Jackson are yesterday's heroes.

Mr Corbett and Mr Chaney are the glamour executives of Australian industry, and have created extraordinary wealth for their shareholders in the past six months.

Less than a year ago, Mr Eck was still the kingpin of Australian retailing. He had dragged Coles Myer out of its post-Yannon torpor and had built it into the biggest retailing stock (in terms of market capitalisation) in the country.

Woolworths chief executive Mr Corbett was still trying to win trust from the majority of the market analysts, who were accusing him of not being his predecessor, Reg Clairs.

This week, we saw how the tables turned. How Mr Eck lost the confidence of the market. How Mr Corbett, has become a hero in his own right.

In the past year, Woolworths shares have doubled. The stock is now valued at $A11 billion ($13.7 billion). Management changes, acquisitions, supply chain initiatives and good earnings performance have been key.

The confidence in Coles, on the other hand, has been shattered by a series of downgrades to the extent that some in the market are now calling for a change in management and a restructuring of the company.

The company has been further undermined by the limited options it has in senior management ranks.

Mr Eck has given a timetable for his departure, but there is no obvious heir. The most favoured successor to date, Warren Flick, has had his case undermined by the wretched performance of the divisions in his care, the department stores.

The difference between Mr Chaney and Mr Jackson is just as stark, though for different reasons.

Conglomerates have been a dirty word for some time, but in the late 1990s, both made a virtue of building diverse industrial groups.

Mr Jackson won fans simply because of his past record in building BTR Nyelex.

His reputation attracted investors to his new vehicle, Austrim Nylex, which inflated the share price, and in turn allowed him to trade his high price/earnings multiples into purchases of poorly performing companies.

But a merger assumes that the businesses will be properly knitted together.

International surveys bemoan the fact that more than 50 per cent of merged companies fail to deliver the promised synergies. Austrim seems to have failed too.

On Tuesday, after several profit downgrades, a procession of departing executives and the withdrawal of Mr Jackson himself, Austrim revealed a further $A258 million of writedowns.

Mr Chaney, however, apparently can do no wrong. The proposed merger of his Wesfarmers giant with struggling hardware rival Howard Smith has had the commentators and analysts rushing for superlatives.

Normally when a company makes a scrip bid for another, its shares weaken.

But this bid is perfectly synergistic. Wesfarmers stock have instead gone into overdrive, piling on a further 20 per cent since the bid was announced.

Both Mr Chaney and Mr Corbett have struck upon a simple formula. You pay attention to the detail, you get the basics right, you get the results, you get the rewards.

* Giles Parkinson is editor of AFR.com