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Inside Business -

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(generated from captions) a genius! She meant Christian

Arabs, I guess. Japanese

Christian ... who knows?

Whatever! We're always

interpreting! Final

observation? When we get an

announcement from the Prime

Minister shortly about more

trips for Afghanistan, there

will be a new contingent of

Special Forces that will change the nature of the operation

there. They're currently doing

reconstruction. That contingent

will be doing more forward

offensive work. The work

they're doing now is dangerous

that will be really dangerous

work. The government's decision

to bring forward the

interraceal report and hive it

off from the budget signals the

start of trying to switch the

flick --

flick the switch to the

economic debate. If Labor had

been elected to power say two

years ago or even one year ago,

David Hicks would be walking

free probably, whereas now he

admitted he was an al-Qaeda

trainee. And that's it for this

week. There will be no Insiders

next weekend, Easter Sunday but

I will be back with-off siders

at 10.30. Next, Alan Kohler and

Inside Business. Thanks,

Barrie. Welcome to the program.

This week, Alinta throws itself

into the many arms of Babcock &

Brown. But is it the best deal

for investors? We'll talk to

the deal's chief architect, Babcock & Brown's Trevor

Loewensohn. And we'll also talk

to Myer boss Bill Wavish about

how his business has become

Australia's best advertisement

for private equity. And we'll

investigate the $200 million

collapse of Fincorp and the

grim news for its investors.

CC In First Person , on the

move in a stationery business.

We looked at other retailers

like The Body Shop, that took

skincare and cosmetics and we

thought, "Athise a niche there.

We could do something similar

with stationary." After a

week-long meeting, Alinta

Energy's independent gave

The deal distributes a third

of Alinta Energy's assets among

three Babcock and Brown trusts,

with the other ending up with

Singapore Power. The deal

trumped a proposal from Alinta

Energy's former adviser and

Babcock's rival, Macquarie

Bank, while offering a higher

headline figure of 15.45,

offered a script default that

didn't impress the board. I

spoke to Trevor Loewensohn. Are

you glad to have knocked off

Macquarie Bank? I have said to

a few people we don't run our

business as a competition against them but it's nice to

be appointed the preferred

bidder. Was it a difficult

deal to get up? It's obviously

a complicated one. Yes, it has

been a complicated transaction.

Lot of moving pieces and

different parties involved, our partnership with Singapore

Power as well as various

funds. How important is the deal for Babcock and Brown and

the various funds you run?

It's obobviously a large deal

and accelerates our growth for

the year. In its own right it's

not the be all and end all. It

is a significant deal. We have

a lot of deals on the go, a lot a lot of deals on the go, a lot

of transactions across the

world. This does accelerate

growth in our key funds in

Australia ahead of where we

expect ted too be. About

two-thirds of the assets go to

Singapore Power and one-third

to Babcock and Brown funds. How

did you decide the split-up of

who gets which assets? It's a

fairly natural positioning of

the various assets in a

combination of synergies combination of synergies and

fit with the various funds as

well as complying with the

various regulatory regimes

where we might have had cross

over and so and so. It fell out

naturally in terms of the

compatibility between the two

partners. The destiny of Alinta

Energy has been uncertain for a

while, what point did you

decide to get involved? We

have been maintaining a watching

watching brief on this form for

quite a while as people

probably know. We originally

bid on Duke assets many years

ago, which Alinta Energy

secured at that time. We

accumulated a small stake and

to the extent that a formal process was started

post-announcement of the MBO

proposal. We got involved at

you that point in time. When did

you approach Singapore Power?

We have had a long relationship

with Singapore Power and it was

just a fairly natural evolution that came through prior contact

with them. What is going to

happen with the relationship

with the Australian pipeline

trust and the management

contract with them? I think

that's yet to be determined. At

the moment we are disrieBting

out the shares to the Alinta Energy shareholders. The

contract will default to where

it is at the moment and I think

that can be decision for

later. What is the time line

from here? How long will the

deal take to conclude? I

think it is going to steak

quite a while to get the scheme

documentation completed. We

wouldn't expect it to be

completed unil-July/August. The

market reacted differently to

the deal in relation to the

have gone funds. Some have gone up, some

have gone down on the stock

exchange. What do you make of

that? To the point you asked

me earlier about the somewhat

complex nature of the deal. It

is going to take time for the

market to absorb the value of

the assets for the various

funds. Babcock and Brown has

gone up, Babcock and Brown

infrastructures is down a cent

or two, so it's pretty flat.

Babcock and Brown power is down

a few cents or so and we've got

a lot of work to do to explain

to people the complimentary

nature of the assets, it

continues our growth profile,

maintains our cash distribution

philosophy and we think there

will be a strong rerating. You

probably have a bit of work to

do with Alinta Energy

shareholders. A lot are hedge

funds or small holders who will

end up with bits and pieces of

Babcock and Brown funds they

never expected or wanted. Do

you think the would be a

problem with that? On the

contrary, we hope the Alinta Energy shareholders seize the

merits of having the

opportunity to invest in our

dispunds we think one of the

proposal reasons the board chose our

proposal was because they recognised the consideration we

were offering the various funds

Wazza tractive to their

shareholders. Thank you for

joining us, Trevor Loewensohn.

Thank you. Now with a wrap up

of the week's market and

business news, here's Kate

Tozer. It was an uninspiring

end to a turbulent quarter on end to a turbulent quarter on

wallset Street with the Dow

Jones and as daconly managing

minor gains. America unset

China by imposing tariffs on

some imports and Britain's

stand-off with Iran helped push

oil 8% higher. A strike by

French dock workers has left

dozens of oil tankers stranded, affecting production across affecting production across

Europe. Earlier in the week,

Ben benanky said inflation was

the Federal reserve's main

concern, lowering the

expectations of a cut any time


It was a good week this

week. We went up whilst Wall Street went

Street went down. We're 1% off

our all-time highs and it seems

the correction a month ago has

been rede fined as little more

than a temporary loss of

com-Porsche. BHP will be

sending out around $3.5 billion

worth of cheques to

shareholders on Monday and a

lot of that should find its lot of that should find its way

back in to BHP and the sector.

We saw a huge endorsement for

the long-term outlook of the

nickel price with bids for

Lionore mining. We saw brokers

upgrading their forecast on

uranium prices which was good

for uranium stocks. No such

luck for the building material luck for the building material

sector, one broker down

forecast falls by 6 to 8%

across the sector. The media

sector had a fantastic fraied

after Helen Coonan told us

changes to the media

legislation will take effect on

Wednesday. One broker describes

this as a 20-year opportunity

for the media companies to

shuffle the pack. We had

results this week from the

Coles group, the results

weren't very impressive, in

fact the were some down grades

the next day. No-one is really

interested in the results, we

want to know who is bidding for

them and at what price. On the

bid front, we saw Alinta Energy

agree to a bid from Babcock and

Brown consortium and we also

saw another bid for Flight

Centre and their shareholders

had a great week. Telstra's

share price was up this week.

We have heard one broker with a

target price on the stock now

of $6 which is significant ly

higher than the current share

price, which is well below $5.

We have an RBA meeting next

week and a short trade week

because of Easter. The winner

of the week this week was

Bolder Steel and loser was Fortescue Metals.

The news out of Friday's

creditors meet fring the failed

property company Fincorp was

appalling. More than 1,000

unsecured investors, mostly

elderly retirees, are likely to

lose everything. While secured

investors who probably thought

they would be safe, will only

get 30 cents in the dollar.

Kathy Swan reports. Fincorp's

investors turned up to Friday's

credit briefing to hear just

how badly they'd been done on

their investments. I just hope

I get something back. Hope. I

thought it was safe. It was

targeted at the over 60s, the

retirees. I'm devastated. The

luckiest of the Fincorp Group's

8,000 or so investors, that's

the ones with secured

investments and collectively

owed about $178 million,

they'll get about 30 cents in

the dollar back. But

the,000-plus with unsecured

notes, owed $23 million, will

most likely get nothing. It's

all my life savings gone. I'm a

retired person. There's a

Government body that should be held responsible for it and

that's the end of the story. ASIC should have investigated

further before it got this

far. Fincorp took investors'

money till stumps and

individual losses range from a

few thousand up to a million or

more. After a week afflooking

at the books, administrators

Korda Mentha have drawn up a

miminary list of Fincorp's

failings. In short, it all

comes down to extremely poor

management. This is a property

development company and they

spend a lot of their money

upfront. They have been paying

interest for three years so

it's probably $60 or $70

million they have been paying

overheads, advertising et

cetera so what tends to happen

is the money gets spent and

then you realise your

developments later on. Six

properties in Victoria and four

in Queensland will be sold off

over about five years. Bank

with their first-ranking

mortgages will get all their

$95 million back. If they

hadn't had 10 properties that

were not developed - there were

only a comof properties that

were developed, most were still

in globo land and that cuts to

the previous question, there's

a lot of overheads. You've got

to develop the propers to pay

for your overheads. Despite the

fancy overheads which include

slick ocean racers, there's

only one director left for the

administrators to talk to and

so far the man who started it all, Eric Krecichwost, hasn't

been sighted. I haven't asked

where he is. We have been busy

with the company and

employees. Do you want

certainty from your

investment? Fincorp paid a lot

for advertising, with campaigns

successfully targeting older

and less sophisticated

investors. At Fincorp, our

goal is to pull in the same

direction as our investors, towards a stronger financial

future. What's happened here

with Fincorp is they've

deliberately marketed and sold

to retail investors, un

sophisticated investors who

aren't necessarily going to

know thou do the calculations.

They've effectively taken advantage of a

loophole. Fincorp did atrack

the attention of the Australian Securities and Investment

Commission which forced some

corrections to its marketing

and sales materials but Nicole

Rich of the consumer law centre

says ASIC could have done

more. You're not allowed to

engage in mis leading and

desendive conduct or unconscionable conduct. They

may not be 100% clear but

obviously the regulator is not

brave enough to take action

where they're not 100% sure

they'll win the case. ASIC has

extensive powers. The question

in this circumstance is the

degree to which they're prepared to exercise

them. Fincorp first worried

Victorian ALP backbencher Tony

Robinson four years ago. I

looked at the advertisements

Fincorp were placing in 2003

and I couldn't believe thought

I was reading. The interest

rates were much higher than the

prime lending rates at the time

and the nature of the

investments raised some

questions in my mind. Tony

Robinson wrote to ASIC and

Fincorp and two years later

more ads raised more concerns

so he wrote to Federal

Treasurer Peter Costello and

his parliamentary secretary

Chris Pearce. Mr Pearce wrote

back saying under the

corporations act, ads for

financial products must refer

to the debentures being issued

as unsecured notes or unsecured

deposit notes unless certain

conditions are met and the

responsibility for monitoring

such ads rests are ASIC. I

think it's see no evil, hear no

evil, speak no evil. The

Federal Government wants a

light touch regime and you have

an agency employing that with

ASIC. From the backbenchers,

John Watson says ASIC's asleep

at the wheel. Where debenture

offers are made to retail

investors, ASIC should be

looking not only at the

disclosure of risk to investors

but at the ability of the

debenture issuer to meet its commitments with particular

regard to property valuations

and the financial stubilityed

of the organisation in to group

funding and financial

arrangements. ASIC have spent

considerable time and resources

warning about the risk of

exactly this style of

investment, unsecured notes,

debentures, promisary notes. On

Friday ASIC placed an interim Friday ASIC placed an interim

stop order on another debenture

issuer, Australian Capital

Reserve. Financial adviser

Scott Francis says read the

fine print and points to a Fincorp product disclosure

statement that tipped him off.

Fincorp wr acting in two roles.

One role they were holding

themselves out to investors

saying, "We are the people who

are going to carefully,

cautiously and appropriately invest your money and at the

same time they were lend the

money to themselves. That makes

it hard for them to

appropriately assess the risk

and appropriately act on the

two levels. So it's the

investors providing top-up

capital after banks have kicked

in the secured funding who

carry all the risk. With that

risk now startlingly obvious,

courtesy of the Fincorp and

Westpoint collapses, a wave of

fear is growing in the property

debenture game andagy edgy

investors are reaching for

their life jackets. It was

another shocker of a week at

Coles. No sooner had they put

out the dreadful results last

month than the private

equiteers announced they had

lifted earnings on Myer by 80%.

Embarrass ing. I spoke to Bill

Wavish about the benefits of

private equity. Myer seems to

be the greatest advertisement

yet for private equity. Do you

see it that way? Dwroo I think

it's early days. We have been

please would the results to

date but it's only 10 months in

to what we believe is a

50-month turn-around. What do

you think is the single-most

important thing you did to the

business? In a way there's not

a single-most important thing,

that's the point. We tried to

do 100 things simultaneously.

They were all simple but the

trick is to do them in it right

order. Weren't they things the previous management were

doing? Some of them were. The

previous management focused on

two or three things. They did a

great job on improving the

quality of merchandise but for

example they described certain

categories as famous four which

meant you didn't put the same

attention in to other

categories. They said they

hadn't got around to cost cut

and by the time they did the

sale was under way. Sounds

like the Gerald Ford problem,

you can't chew gum and walk at

the same time. I'll leave you

to make the analogies on that.

We have 100 programs under way

and they're 40% complete but

there's two or three years more

yet. Is part of the issue that

your board of directors are

more expert and demanding

because they are private equity

representative s? I think it

is great to have that degree of

expertise and be able to bounce

ideas off Rob from Debenhams,

he was executive chairman of Debenhams. At one stage Texas

Pacific came to us and said,

"Do you think you're try to do

too many things at once?" Are

they more demanding? No,

probably less so. I think the

general feeling in private

equity is here is the business

case we acquired the company

under, if you do better we'll

give you pretty free reign. To date we haven't had to discover

what happens if you do less

well but I would su spect it

wouldn't be so pleasant. What

about the management? Are you

and Bernie Brooks, the managing

director, and the team more

motivated since you'll be able

to make a lot more money as

equity participants? I think

that's part of had story. One

of the things about retailing

is because you're working on it

6 or seven days a week, it's

also a fair bit about peer

pressure and being proud of the

business that takes up so much

of your time. We retained of

the top management about half

of the people including a lot

of fashion expertise and

brought in people from a

variety of backgrounds. Given

that it's relatively simple

things we're try to do, it's

worked very well. Those

management people and you and

Bernie Brooks for that matter,

obviously working harder than

you did when you worked for the

public company? No, I don't

think so. Working longer

hours? I think Innes the first

six months or so that was true.

We had plenty of sessions past

midnight but that's settled

down and we're probably working

no harder than we did at Woolworths. Why can't the

performance you've shown be

produced by a public company?

I think there's a lot of little

subtle things. It can be

produce by a public company but

there's lot of things put in

place that make it difficult.

I'm executive chairman, the ASX

have a tick-the-box arrangement

that that's not desirable. I

suppose I raise the question

why would anyone want to buy

Myer off the private equity and

become a shareholder when it

goes back to being a public

company and presumably sinks

back in to the mediocrity the

public companies have by

comparison? That is a good

question. We believe by the

time we have finished the

process we will have put in

place permanent culture and

permanent way of going about

business that will last. I

think we will have put in place

a new store program that will

see sales growing in the high

single digits and we've already

said we intend to grow the

chain through to 75, but I

think at the point that we go public, we might have completed

the things we have to do to

improve the business but the

benefits won't have all flowed

through. There will be plenty

left for people in due course.

Does your knowledge of Coles

tell you the same improvement

you have seen in Myer would be

available to private equity

owners of Coles? Some of them

would have too too be there.

We, in our detailed

presentation this week, talked

at some length about culture.

Culture sounds like a fuzzy

thing but it is a very, very

important thing. I think the

most important thing as they

break up Coles will be each of the businesses will develop

their own culture and it's not

one culture fits all businesses. They've got different businesses and they

require different cultures. Why

are you acting like a public

company - putting out public

releases of your results, doing

interviews like this? Most

private equity businesses don't

have to do that. That's true

and I think we would have

preferred to stay under the

radar a little longer. As part

of our fundraising we have a

listed hybrid note that has an

equity conversion feature and

as a result of that the ASX

have decreed we must give

half-yearly updates on our

profitability. We probably went

in to more detail because we

have a lot of stakeholders and

if we're going to do it we

should do it properly and talk

to our landlords and staff, who

are important stakeholders and

the most important stakeholders

are our customers and they read

the press too. Are you try to

keep the investors' appetites

whetted for when you sell the

business back to them? I think

there will be a time for that.

We talked about three to five

years away. We're a year in to

that. I think it bead at the

short end of the three to five

years if the business continues

as it is. This is retailing and

it could all change tomorrow.

Thanks for joining us, Bill

Wavish. If you believe the

stories in the past week or so

you would have already cut back

a cappuccino a day to prepare

for an interest rate hike next

week when the Reserve Bank

board meets nex t Tuesday. Will

rates go up? As Roy Robertson,

the interest rates strategist

at Macquarie Bank told me on

Friday, that's certainly what

the RBA wants us to think. We

were all fairly comfortable a

fortnight ago with the view the

bank would wait until May

before it did anything further

after it saw the Q1CPI in April

but the Reserve Bank prodded us

and encouraged markets to

believe they were considering a

rate hike at the meeting this

week. We haven't had any extra

information since then. The

main thing that's happened is

that the official family in the

US has got a bit more worried

about US growth which might

make the Reserve Bank think

again and perhaps remain on

hold this week. So according

to Rory we went from not

knowing what would happen to

knowing after the RBA prodded

us and then back to not knowing

again because the US economy is

falling in to a hole. We've

known for a long while the US

housing sector is shrinking and

we've got the problems in the

sub prime mother-in-law market

there. There is a weakness in

the manufacturing sector and

the thing we've seen recently

is the business investment

demand has fallen away. Problems in the US

economy definitely make a rate

rise next week more dangerous.

In 1981 and 1989, Australia

raised interest rates just

before an American recession

which made the 1982 and 1990

recessions in Australia doubly

worse. Global down turns

deepened by higher interest

rates here. The best way out

for the Reserve Bank is to

encourage everyone to think

rates are going up and cut back

on the cappuccinos and then not to put

to put them up. In the world of

retailing, a shop designer is

usually a hired gun, someone

who comes in, fits out a store

and moves on, but one Melbourne

designer has taken a punt by

putting his retailing theories

in to practice and the ideas on

the shelves. The result is

Smiggle, a line of pens,

pencils and office pencils and office gear that's

anything but stationary. We

release a new product every two

weeks in to our business and

definitely drive it through

innovation, new products all

the time because it keeps it

exciting and fresh. I've

learned that lesson from

dealing with fashion retailers

and working with them over the

years. It's all about the

moving forward and never

sitting on your hands. A

decade ago, store designer

Stephen Mers was doing serious

window shopping overseas,

looking for ideas for big-chain

customers, when he spotted

something for himself. Through

my travel I could see there was

an emerging trend just

beginning to happen that you

could actually take stationary

and convert it in to a brand

and concept. We looked at other

retailers like a The Body Shop

that took skincare and

cosmetics and we saw the was a

niche the and we could do

something similar with stationary. Smiggle has 17

company-owned stores and is

also stocked in Australia Post

shops, with plenty of options

for further distribution. The

products are big with school

kids but half of all customers

are adults. We have two

targets. One is teenage female,

although we have addresseded a

more male product now and

expanded the range. Primarily

we're looking at a high school

student and a young

executive. Smiggle's big sales

pitch is designer style and

value for money, which is

achieved by imp porting from

Asia. We have a very

aggressive value-driven pricing

strategy. We want to be a mass

market value-driven product.

Smiing mig is for everyone

Smiggle is for everyone. That

makes it harder for our

competitors to put similar

product on the mark frt the

prices we deliver. The first

year of business was tough

because we were doing a brand

new concept that hadn't been

seen before in Australia or

many parts of the year so

first-year sales were meagre.

It was tough. We actually made

a loss flsly. From then on,

we've doubled in sales every

year to what is now a

multimillion-dollar growing

business that probably doubles

in sales every year. Despite

Smiggle's success, it is only a

sideline business for Stephen

Mers. The other idea is too

move the timber floor and it

have the concrete through the

middle. Most of the stores we

design a new concept for, we

get a 25% lift and it can be up

to 50% if their previous stores

have been really bad but they

have great product. You can

turn that tine a 50% lift. Most

landlords require the tenant

upgrade their stores every five

years with a refit or a major

renovation to the store to keep

the centres looking fresh and

new all the time. Usually if

I'm not enjoying what I do in

Edge, I'll visit the teem in

Smiggle and see what I can do

to upset everyone. That it for

the program. Thanks for your

company. Now it's back to

Barrie and the 'Offsiders'

team. Thank you. A rather apt conjunction of events this

week. On the very day the 2007

AFL season started, Ben Cousins

left the country. That gesture

alone did nothing to bury the

issue that threatens to damage

more than the AFL brand - sport itself. Now questioned have

been raised the most highly

regarded sportsman in the

country, the great man, Ian


Everybody has a right of

appeal. That is what FINA has

done. He's always got my

sport. It's a joke.