Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Disclaimer: The Parliamentary Library does not warrant the accuracy of closed captions. These are derived automatically from the broadcaster's signal.
Inside Business -

View in ParlViewView other Segments

(generated from captions) day and make the Friday night

newses and the Saturday

newspapers. OK. Anabel? I as I

recollect it, there were three

things that really scared the

horses in the Liberal Party

room about the prospects of a

Turnbull leadership. His stance

on Kyoto, his determination to

deliver an apology and the

demand that same sex couples

have equal rights. The party

has followed him on two of

those now. I wonder what will

happen with the third? I think

you're right, everyone is

waiting for Turnbull essentially. That's the

Liberals' problem. As you saw

today, he's not ready for prime

time. Whoever his adviser is on

how to present a tight, taut

media message, bang, one point,

not a million, they need to get

on to him right now, because he

has a period of grace by sheer

luck, he better use the next

year to sharpen his skills. I

think he is still hiring. That's Insiders for this week.

I will be back at 10.30. But

first here is coal Col coal and

Inside Business. Thanks,

Barrie. G'day there. Welcome

back for another year. This

week, BHP Billiton puts up.

Won't be shuting up for another

year or so it seems but Rio

Tinto isn't listening yet. In

our 2020 feature we'll check

out where the battle of the

mining titans is heading now

it's gone pos tile. But peace

has broken out between Telstra

and the Federal Government.

We'll talk to Stephen Conroy

the Communications Minister

about a radical reshaping of

the broadband roll-out. CC

And in First Person home and

away, the business of getting

the grey nomads on the road.

The industry's going to grow

enormously, retirees are going

to double in the next 10 years.

Well having tried to woo and

ska Joel Rio Tinto for three

months, BHP Billiton went

hostile this week, at the same

time raised its bid from 3 to 1

to 3.4 for 1. The arrival of

the Chinese on the scene and

BHP's decision to go for 50%

rather than full ownership have

given the recalcitrant Rio

board and their shareholders

plenty to ponder. Kathy Swan


For months now BHP Billiton

and Rio Tinto have had legions

of financial advisers and

lawyers on the march around the

world. As the contrasting

strategies have been built,

no-one is in any doubt that

they're playing the biggest,

most expensive and highest

stakes game in mining history.

For Rio Tinto there's not yet

been an offer it couldn't re

fuse. Despite the knockbacks,

BHP Billiton won't take no for

an answer. Early in 2007 we

approached Rio Tinto on a

private basis, this was

rejected by Rio Tinto. On

November 1 we made a confidential proposal to Rio

Tinto to combine the two

parties. Rio Tinto rejected the

proposal and refused to enter

into any discussions on the

matter. A month after

November's public spurning of

the 3 for 1 $140 billion

proposal, Rio Tinto moved to

flush out its bigger,

aggressive rival's intentions

by going to the UK takeover

panel and winning a February 6

deadline to force a retreat or

a formal offer. This is a firm

bid, it's the only bid that has

been made and it's a compelling

bid. At a briefing originally

planned for the company's

interim results, BHP Billiton

CEO Marius Kloppers outlined

the new improved $165 billion

script offer and its interesting set of conditions

ranging from winning the

approval of regulators across

the globe to targeting only

half of Rio Tinto's publicly

held shares. We believe that

starting this process with a 50% minimum acceptance

condition gives Rio Tinto shareholders greater comfort

that they will be able to

realise the compelling benefits

offered by this

combination. Wednesday's put up

rather than shut up put fresh

momentum back into what had

become months of tactical

stalking. Immediately after the

announcement in Sydney, BHP Billiton share price dropped

almost 6% but the good news was

Rio Tinto at least responded,

saying it will consider the 3.4

for 1 offer while urging its

shareholders not to take any

action yet. Some hours later,

the Rio board had completed its

considerations and BHP's

improved offer was rejected.

But chairman Paul Skinner also

indicated a willingness to talk

staying his company's plans

will remain unchanged:

The only sensible outcome is

that the two parties begin to

talk and find some common ground and proceed together

because otherwise the whole

process of regulatory hurdle clearance and the preservation

of value is going to be

threatened. John Robinson,

chairman of Global Mining

Investments which holds shares

in both miners says what needs

to be resolveside how much

equity ends up in each

shareholders' hand. I would

guess there is a psychological

barrier in the BHP camp once

that equity distribution starts

to get much above the sort of

45% mark. I mean I don't know,

I have no particular insight as

to where that psychological

hurdle might be but my guess is

it's getting closer as this

thing moves along. BHP can

offer 3.75 of their shares for

each Rio Tinto share and that

would effectively see the Rio

Tinto shareholders owning 47,

just under 47% of the combined

company whereas at the moment

BHP think the more

representative ownership is

more like 44%. Austock Resource

analyst Tim Gerrard says the

mechanics alone of getting a

deal done will take months

adding to existing pressures

felt by BHP Billiton. There's a

real sense of urgency that BHP

doesn't want to wait. It thinks

that within one or two years

the global resource sector

could have - could undergo a

massive consolidation with

surprise players everywhere,

including maybe oil majors,

including governments directly or government sovereign

funds. The aluminium

corporation of China, Chinalco

and Alcoa crashed the party

last week buying a 9% stake in

Rio Tinto's combined group on

London markets after close of

business here. BHP's

downplaying the impact of that

move. We've regarded this as an

interesting, although not

entirely unforeseen set of

events. We note that there's

been much speculation on

motive. Chinalco's described

the investment as strategic in

character. I don't think it's

unexpected or unusual to see

the Chinese wishing to get

involved in all sorts of things

at the current point in time

because of the dire need they

have for copper and zinc and

aluminium and iron ore and all

these other products. Tim

Barker, portfolio manager aft

BT Financial Group says the

Chinalco, Alcoa dawn raid on

Rio shares did influence BHP

and its decision to go for only

50% of Rio Tinto's combined

group shares. Go to full

ownership or 90% ownership of

the two companies would have

been difficult with a 9% or 12%

holding in PLC, 9% holding in

the combined group that

Chinalco and Alcoa hold. So

putting 50% on actually puts a

little bit more pressure on

that joint venture to indicate

exactly where they wish to

go. The fact that Chinalco's

on the register is an

indication that life will never

be the same as far as the Rio

people are concerned. So where

it finally ends up is anybody's

guess but the game is in

play. But talk of a counter bid

for Rio from Chinalco is

largely seen as just that. I

think it unlikely. I've got no

particular idea as to what the

Chinalco end game is but

clearly they've got a seat at

the table. What this whole

thing about is that Pilbara's

been the engine room for

Chinese growth, who's going to

control it and who's going to

pick up the value of

that. Concerns emerged BHP/Rio

Goliath would monopolise the

Pilbara's rich red dirt is one

of the issues that will have to

be sorted by regulators like

the ACCC. It will take six to

nine months or more for

authorities here as well as

Europe, North America and South

Africa to look at and maybe

approve any merger but BHP is

already trying to soothe

customers worried about price

controls. As one can clearly

see in the existing iron ore

market where there is a

shortfall and the marginal

producers in China are the ones

setting the high end of the

cost conserve. The iron ore

price settlements with China

this year could be anywhere

between 35% and 75%. Coking

coal prices could double and

thermal coal export prices

double. Despite strong prices,

BHP's interim results were

disappointing this week and Rio

Tinto's may also underwhelm

markets next week but other

factors like the strength of

the US dollar are at play. Rio

and BHP shares ended the week

down, an illustration perhaps

of each miners' plaint of being undervalued. Both companies

have to be perhaps a little bit

more public about their

strengths and weaknesses over

the next 12 months to two years

and allow the market some

method of justifying both

positions. More shoe leather's

already wearing thin now the

merger impasse has spilled out

of the board rooms and on to

the streets as strategies shift

to winning over the fidelity of shareholders.

And now with a wrap up of the

latest market and business

news, here's Rebecca

Nash. Thanks, Allan. The Friday

session on Wall Street failed

to provide relief to battle

weary investors and traders

with the Dow Jones experience

ck its worst week in five

years. The Dow fell about 0.5%

but in contrast the NASDAQ was

up 0.5% as investors snaffled

up tech stocks which have

recently taken a beating.

Financials such as American

Express led Friday's decline

amid renewed suspicion the

extent of the credit crisis is

not yet known. The crude oil

price has shot up 4% to just

below US $92 a barrel. There are concern concerns supplies

will be disrupted as tensions

grow between Venezuela and

ExxonMobile. Over the week the

US market led the decline with

the indices in the UK, Europe

and Japan following closely

behind. The Australian market

fared only slightly better as

Tom Elliot from MM ?E Capital

explains. The share market

thrashed around like a wounded

beast this week as investors

grappled with rate cuts in the

US, rate rises in Australia and

the launch of the second biggest takeover in history.

With the Reserve Bank deciding

to inflict further pain on

Australian households,

financial stocks, including the

big banks, were generally weak.

Macquarie Group shareholders were perhaps surprised when

long-serving CEO Alan Moss

decided to vacate the big chair

in favour of Nicholas Moore.

Cynics reflected Moss's

departure must have something

to do with business getting

tough and dumped the stock

accordingly. Another sector to

feel interest rate pain was

retailing. The shares of discretionary retailers like

Harvey Norman, JB Hi Fi and

David Jones were all weaker.

Interestingly however, one of

the two big basic needs

retailers, Woolworths, also saw

its shares head south. If the

market feels that consumers

will soon cut back on food and

grog then the Australian

economy could be headed for

hard times. Zinifex

shareholders were also not

spared the pain as consistent

falls in base metal prices on the London Metals Exchange cut

forward earnings estimates.

Weak commodity prices didn't

stop new BHP chief Marius

Kloppers from finally launching

his formal, or script takeover

for arch rival Rio. At 3.4 BHP

shares for each Rio share,

Kloppers has walk add fine line

between paying too much and

getting a growing proportion of

the Rio share register on side

his tactical nous came to the

fore when he made the offer

conditional on just 50% acceptances level, a move

clearly designed to marginalise

Chinese aluminium producer

Chinalco which just over a week

ago bought 9% of Rio on the

London Stock Exchange. Finally

takeover target Symbion moved

closer to admitting defeat when

it said it might reverse its

opposition to Primary's $4.10 a

share bid if acceptances went

over 50%. Primary's biggest

shareholder, ed Bateman,

appears to have played out his

long-running bid extremely

well.Winner of the week is

Queensland Gas which announce

add deal to build an $8 billion

plant with British BG Group.

Loser of the week is funds

management group IOOF which has

been punished after a shrinking

asset base forced it to cut its

profit forecast.

A new era dawned in

Australian tele communications

this week with Telstra saying

it will switch on its

high-speed ADSL 2 plus network

because it now has Federal

Government and a regulatory

regime it can work with. The

thawing of relations comes at a crucial time with the

Government due to offer $4.7

billion to the builder of a

national fibre broadband

network very soon. I spoke to

the new Communications

Minister, Stephen Conroy, about

his plans to put the project to

tender and how he would like to

take fibre all the way to the

home. Well senator Conroy,

you wrote to Sol Trujillo this

week, the CEO of Telstra

reminding him of repeated

assurances from the ACCC that

they won't require third party

access to ADSL 2 plus and you

said that you agreed with that

and then Telstra said that you

announced a decision on that

and had removed a road block

and in fact you just reminded

them of ACCC assurances, have

you made a commitment? Under

law I have no role. Any

decision that I purportedly

make would actually hold no

standing in law. This is a

malter for the ACCC as I

explained in my letter and in

all my public statements, I made it very clear this is properly the matter for the

ACCC but on the basis of the

public statements and the

conversations that I had with

the ACCC, I was happy to write

to Telstra and if that gave

them the comfort to be able to

switch on 900 exchanges that

reached 2.4 million households,

then this was a win/win and if the relationship between

Telstra and the previous

government wasn't as good as it

could be, well Telstra have

drawn a line in the sand and

they want to move forward on a

positive agenda about

delivering genuine high-speed

broadband to Australians. On

the subject of third party

access to ADSL 2 plus which was

the issue this week, isn't it

the case that this means that

there will be competition in

the cities on ADSL 2 plus

between Telstra and a range of other operators but no competition in the bush and

therefore potentially higher

prices for ADSL in regional

areas? Well what's happened in

the market over the last couple

of years is the actual cost of

a Deslam has plumetted and so

companies can make a decision

so you've got actual

infrastructure competition so.

Companies are in a position

where they can install a

Deslam. If if they're not get

access to exchanges to install

Deslamers that's a matter

rightly to take to the ACCC and

seek a ruling from the

ACCC. But you're not addressing the actual question which is

Telstra has got an assurance

now that there will be no

access necessary for its ADSL 2

plus network and the other

members of the industry iinet

and others, are demanding it,

they're calling for it. So that

does imply that there will be

no competition in those

areas. Well I think as I've

explained earlier, my letter

confirms what the ACCC have

said but Telstra haven't

received a decision by Stephen Conroy because Steffen Conroy

can't make a decision. What I

did was after speaking with the

ACCC, confirm the view that the

ACCC had put forward and agreed

with the position of the ACCC.

If there's a problem there,

then that should be rightfully

taken up with the ACCC but

there's nothing stopping any of

the competitors to Telstra

accessing the exchanges and

putting in the Deslam

technologies to create the competition. And what does this

week's announce ment by Telstra

mean for the Opal joint venture

between Optus and Elders which

was announced last year and

regional broadband business

based on a government subsidy,

is this going to affect their

business case? Well we said

from day one that the Labor

Government would honour any

existing contract and so we're

engaged in a process of

fulfilling the contract. There

are certain milestones and

hurdles that need to be met.

The Opal consortium have lodged

their undertakings and lodged

their plans. My department are

considering them, there's a

process under way at the moment

and I can't comment too much

further because for obvious

legal reason. Isn't it possible

if Telstra rolls out ADSL 2

plus for the first time in

those regional areas that are

going to be served by the Opal

consrt yum that it must affect

their business case? That's a

question you should put to the

Opal consortium. They have been

aware Telstra has had these

Deslams in the exchanges for

the last 18 months. I'm assume

ing they took into account

this. Then there's your policy announced before the election

of spending $4.7 billion to

promote a minimum of 12

megabytes a second for 90% of

Australian. The ADSL 2 plus

delivers 12 megabytes for

second. Isn't it the case that

your plan is no longer

necessary? Even in the way you

described your question you

actually got to the nub of the point. We're talking about

delivering a minimum of 12

megs. What ADSL 2 plus delivers

is an up to speed, up to 20. Up

to 20 is pretty fast. Up to 20

but the average is considerably

affected by the distance from lower and the average is

the exchange. ADSL 2 plus is a

component of Labor's fibre

network but it isn't sufficient

to reach 98% of Australians'

homes and businesses with a

minimum and that's the key here

really is the word minimum.

When you talk about ADSL 2

plus, great technology if you

live within 1.5 kilometres of

an exchange and that's the key

difference with fibre. We take

fieb inteer the streets so the

point you have to start using

the copper is vastly reduced.

So those properties of laws of physics apply much closer to

people's homes than they do

from exchanges and that's why

it's important and critical, in

fact, to get a fibre network in the ground here in

Australia. Do you have an open

mind to taking fibre all the

home? Absolutely. Have you way to the

talked to anyone about

that? There's a number of

consortiums talking to us about

engaged in a number of fibre to the home and I've been

discussions. Our specks that we

will be releasing in the next

couple of weeks will allow the

possibility of a consortium to

put forward a fibre to the home

proposal. Do you think someone

will put forward that? I think

there's definitely interest.

Whether they can build the

business case that's a matter

for the consortium. What we

have said is we won't contribute more than 4.7

billion whether it's a fibre to

the node or fieb tore the home

proposal. So we're very, very

keen to encourage fieb tore the

home. The benefits of fibre to

the home when you combine it

with smart meetering is that you could be demand managing

electricity supplies, water

supplies, gas supplies, and the

impact on a greenhouse

production just - greenhouse

gas production just from those

sort of technologies if you

combine these sorts of things

have very exciting so. Fibre to

the home has some wonderful

potential but it's more costly

and people have to build the

business case. They can't

expect the Government to give

more than $4.7 billion. Given

the extra benefit of that that

you're not going to increase

the amount, wouldn't it be

better to call it or are you

prepared to call it a fieb tore

the home proposal with a

possible fibre to the node

fallback if necessary? Why not

say it's a fibre to the

home? But we've said it's an

open process which would

welcome fibre to the home

proposal s, so that will be

absolutely clearly laid out.

Fibre to the node you've got to

meet the minimum benchmark, 12

megs 98%, after that if you

want to go further and build

faster speed s we welcome all

of those proposals. And this is

why we've been prepared to put

forward a plan about building

this because it's already

generating these newer

proposals with new Eck

technologies fibre to the home

possibilities. This is what

this country has been crying

out for. We've been falling

behind further and further, the

Howard Government just didn't

get it and what you've seen is

Kevin Rudd and the Labor

Government does get it and

understands that the potential

productivity gains, the

improvements in people's

welfare, this is a very

exciting proposal. And what is

the 4.7 billion? Is it an

investment by the Government in

a joint venture with somebody,

a public private partnership or what? Our preference is for it

to be an equity proposal but we

have an open mind. What we're

saying is the proponent should

tell us what the style of

structure that they would

favour and that will then be

part of the discussions through

the... They'll say well just

give us the money. To be fair

that is true. Everyone would

like a $4.7 cheque from the

Government, that's not going to

happen. We're not handing over

$4.7 to anybody, Telstra, G9,

fieb tore the premisconsortium,

absolutely not. Our preference

is for an equity consortium but

we have an open mind and we'll

be saying to people put forward

your proposals. Thanks for

joining us, Minister. Thanks

very much, Alan.

Well it's nearly two weeks

since stock broker Tricom dramatically failed to settle a

big trade. The first such

failure in 34 years. It caused

turmoil in the market pros

ducing a much bigger fall here

than anywhere else as well as a

lot of problems for other

brokers which had to get

overdraft extensions from their

own banks. Since then Tricom

has been reducing its margin

loan book under intense

pressure from its banker ANZ

and the ASX has put the firm on

some kind of probation with

audits and supervision,

although we're not exactly sure

what's going on because nothing

has been said since. Does the

ASX seriously expect that if

everybody keeps quiet about all

this for a while and they all

Australian stock market's just lie low that the

little hiccup at the end of

January will be forgotten? Well

if so they're zreeming. Other stock brokers and those who

invest in this market are still

seething. Overseas investors

are incred louse. They don't

want to trade with Tricom but

because the identity of

counterparty brokers has been

hidden by the ASX they can't

know. The Australian Securities

and Investments Commission is

now looking into how the

Australian securities market is

being regulated and it seems

that Treasurer Wayne Swan will

soon announce a major inquiry

into financial regulation more

generally, which would include

a look at whether the ASX

should continue to regulate its

own market. Now the ASX chief

Robert Elstone said in an

'Financial Review' yesterday interview published in the

that there is no conflict and

that he wants to continue co-regulation. But the idea

that an organisation which

profits from lots of securities

activity can also regulate that

activity is preposterous. The

soon they're ASIC takes it over

completely the better.

To a hard headed economist,

the caravan industry must be

something of a quaint

throwback, dominated by

independent businesses that use

labour intensive building

methods. But with the ranks of

retirees growing, manufactures

are rolling along at a pretty

healthy pace.

The majority of caravan

buyers are baby boomer, 55 to

65 but what we're finding now

is younger families buying

caravans, 40, 45 plus, that

have got the disposable income.

The total size of the market in

Australia is, well, year before

last was 18,400. We haven't got

the final figures for last year

yet but we anticipate that it

will be well over 19,000 units

a year.

Tony Bellamy has seen the

highs and lows of the caravan

industry after managing a major

manufacturer through the 1970s

boom, he started his own business, Roadstar Industries,

20 years ago. I think

Roadstar's niche market over

the past few years has been in

custom building. What we're

trying to do now is to develop

a standard range of product

that satisfies the majority of

people's needs but we still

have a model range that we can fully custom build for people. Caravan building is

still something of a cottage

industry. The three big

manufacturers hold about 60% of

the market with the remainder

divided between about 35

smaller companies. And while

Australia's car manufacturers

struggle, the caravan industry

is cruising. We only have

between a 5% and 7% market

share but we're on the upper

end of the market. The annual

turnover of the company is $25

million and that will increase

to $30 million this year.

Building a caravan remains a painstaking and labour

intensive business. Roadstar

employs 150 staff using almost

identical techniques to those

used a generation ago. The

chassis arrives in the factory,

then we add the walls and the

fronts and the backs and then

we put the furniture inside the

shell. We use builders to do

that. The roof's put on, then

the electricians will wire the

van, the plumbers will do all

the plumbing and then it will

go to the aluminium section to

have the external aluminium

cladding applied. The biggest

challenge that we face, and the

industry faces, is actually

labour. We've got an ageing

work force, we need to transfer

those skills. I'm sure that

most manufacturer s like us

would want to increase

production but of course to

increase production you need

more labour. So that's why the

lead times for most

manufacturers have gone out.

If we go back to 1976 there

were 38,000 units produced in

Australia. That dropped to

5,000 in the mid'90s and since

the mid'90s it's grown

significantly, approximately

13% a year up to 18,400 or over

19,000 units that it will be

this year. Interestingly

enough, if we have an interest

rate hike, that actually

assists our industry. Retirees

get more interest on the funds

invested and it encourages them

to spend more or to buy a

caravan or to buy a more

expensive caravan. Fuel prices

don't affect caravan sales

significantly, if at all. What

people have done when we get a

fuel hike increase is they will

do a shorter trip or they will

spend longer time at the destination. Freight costs have

also kept imports to a trickle

but while Australian manufacturers essentially have

the local market to themselves,

Tony Bellamy believes they will

have to consolidate down the

road. I think there will be

vertical integration in the

future. I think it's an obvious

step for the industry to take.

The industry's going to grow enormously, retirees are going

to double in the next 10 years

so there's going to be

significant opportunities. And

while Roadstar isn't about to

go shopping for a smaller

competitor, he's comfortable

with it being a takeover

target. I think all businesses

are for sale. It all depends on

the price at the end of the

day. Jayne Edwards reporting

and that's it for the program.

Thanks for your company. We'll

see you next week and now it's

back to Barrie and the

offsiders rr team. Welcome to a

brand new season of jaf

offsider. Australia and India

go into battle again at the MCG

this afternoon and the story of

the summer was the cricket

crisis whether it was accurately compared with the

bodyline searies is another

matter. Now the dust has

settled what was it all about?

Has the summer of cricket,

despite all the controversy

actually boosted the game? If

for no other reason than that

offered by Oscar Wilde, the

only thing worse being talked

about is not being talked about.