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(generated from captions) for joining Insiders. Thank you once again the program for the week.

Alan Kohler and Inside Business. Coming up next, Thanks, Barrie.

G'day to you. Welcome to the program. taking a ticket in Tatt's. This week - of the year's biggest float, We talk to the architect Tattersall's CEO Duncan Fisher. in Internet advertising We also take a look at the boom of 'click fraud'. and the intriguing concept This program is captioned live. And in First Person - not-for-profit adventure. a venture capitalist's between the principles I think there's a lot of overlap

and venture philanthropy. of venture overlap of just how important it is And it goes back to this issue to back and identify people and the vision and the commitment. who've got the passion with the business news headlines. But first, over to Jayne Edwards released in the US on Friday Disappointing employment figures caused a slide on Wall Street. US non-farm payrolls for May were created during the month - showed only 78,000 jobs expected by economists. about half the amount Investors took it as a sign could be continuing, the nation's economic soft patch spilled onto the stockmarket. and the negative sentiment during the week Oil prices rose by a further 7% to above $55 a barrel, weighing on consumer-related stocks. with a jolt on Friday, The tech sector also fell

with giant IBM losing 2% and Apple shedding 5% after it settled a class action with the early model iPods. over battery problems By Friday's close,

of the Dow had gained ground; only two of the 30 components was reflected on the Nasdaq the sharp fall in major tech stocks also finished lower. and the broader S&P 500 the US was down slightly Over the week, but other sharemarkets fared better. above water, London's FTSE kept its head Germany's DAX hit a 3-year high, Japan's Nikkei gained 1% another 2%. and Australian shares added from Deutsche Bank. To tell us more, here's Tom Murphy over the past year Merger and acquisition activity the market mix. has been radically changing already dropped off the exchange Several big-name listings have through acquisitions;

like Australia's Western Mining, others, are about to disappear. that it had more than 55% of WMC BHP announced at lunchtime on Friday just hours ahead of its deadline, its $7.85 per share offer and that it would extend for a further two weeks. from its founder, Lend Lease, This week, GPT's proposed separation of GPT shareholders. got the narrow approval of GPT holders Only 56% of the required 50% voted in favour of the proposal. shareholders are now relieved But it seems that even Lend Lease about this matter. that there is finally certainty Elsewhere, Multiplex has revealed less than market expectations that its earnings will be Stadium project in London. because of problems with the Wembley

are substantially down Multiplex shares

earlier this year. after having reached $6 keeps hitting new highs. The energy sector 33% and 23% respectively Woodside and Santos are now up since the beginning of 2005. some sharp falls in bond yields Australian investors have seen

over the past month. are almost down to 5% - 10-year government bonds than the official cash rate. nearly 0.5% lower this week's stock market rally Part of the reason behind is the low cost of money investors will get from shares. compared to the dividends Australian at 4.5%, will be almost as high. Next year, the stockmarket yield, is heart-pump maker Ventracor, Finally, our winner of the week

and more than 80% in a month up by 22% on the week after re-affirming its plans in a US patient this year. for the first implant not surprisingly, is Multiplex, The loser of the week, on Monday. down 19% after that profit downgrade

legal wrangling, After a year of often spiteful of the Tattersall's estate the 2,500 beneficiaries the media spotlight this week were led blinking into

when the details of of the pokies and lottery empire the $2 billion float were finally released. The prospectus has unveiled most secretive companies, one of the nation's a high price on their privacy - but the beneficiaries have put 80% of the stock. and in any case, they can still own will be keenly sought While the new shares on issue some of their losses, perhaps, by punters trying to make back for a few years profits have been on the slide might not be renewed. and Tatt's licences Duncan Fisher. I spoke to Tattersall's CEO, straight into the numbers if I may, Duncan Fischer, I just want to get to me. because it looks pretty interesting On Tuesday, bought the Tattersall's business Tattersall's Limited

of the late George Adams from the estate for $1.1 billion to the beneficiaries, and issued 570 million shares those 570 million shares On Thursday in the prospectus or $1.65 billion. are valued at 2.90 each from the Tuesday transaction. That's another $550 million a real jackpot to me. So that that looks like on the 31st of May Well what happens in the transaction

"the restructure", which we describe as as existed on the 31st of May, the assets of the estate, were all valued independently those sorts of assets in terms of how they value like we're going through. in a restructure over to the new company That value is then transferred that go to the - in return for all the shares now new shareholders of the company. effectively, the beneficiaries are

You then go to the market determined valuation criteria in terms of the merchant bankers' for the market purposes of $2.40 to $2.90 and they set a range that it'll settle in. as being the likely range is $2.90, isn't it? Well, yeah, but the retail price Correct. That's the, kind of - and when everyone reports the prospectus and reports it's $2.90 and in fact, you've said, I think, in the presentation that the market - the capitalisation of the company would be $2.03 billion. At the top end of the range which is $2.90, bottom end of the range would be something else so we are talking a range of $2.40 to $2.90. Where's it going to end up? I don't know. I hope that it is on the high end

but I don't think it really matters from a business perspective, I think it's important that it's the right price when we list ultimately and that the retail price is a fair price for the stock. It just seems to me that the beneficiaries have got two sets of uplift in a way - they've got the transaction value, or the "restructuring value" as you put it, including goodwill of $170 million and a $400 valuation on the brand,

and then another uplift, and this is for a company whose profits have been falling for a few years and are predicted to fall again next year.

Well, the beneficiaries on 1 June, yesterday morning, versus 31 May the day before have exactly the same interest in the same business the next day. There is no change in their interest in the business. Part of the restructure was to make sure

that the proportionality had to be the same, or else you wouldn't have your rollover relief and all the court approvals that so rightfully were obtained. So you have to have the same value going forward in terms of number of shares for individual new shareholders. They own exactly the same proportion of the same company the next day. There is no real increase in value to them. What about the fact that the profit has been declining since 2002 which is when the prospectus data goes back to, and next year's profit is forecast to be $115 million, which is lower than this year. And it looks, therefore, that the float is at a premium to the market, in PE terms of 20% to 25%, so how can that be justified, that premium? From the beginning of those figures that you quoted there,

there were smoking bans which were brought in which resulted in a reduction of revenue and a reduction in our profitability. We then went into a cycle of slightly increasing from there and this year, indeed, we have another impost

that was unexpected at the last minute when we were called in and told there was an extra $20 million coming off our bottom line

for the gaming machine levy or the 'health benefit levy' as it's called.

And importantly we had to come back and recast our forecasts and that is the main driver in terms of reduction in value on bottom line for the projections that we're putting forward now. It is that licence fee for machines. Yes. What about the question for licence renewals? Obviously there is a risk inherent in Tattersal's

about the question of whether licences will be renewed? I think it's important, Alan, to realise that Tattersall's has operated in the regulated market involved in renewing licences for over 100 years. There is hardly any time in our history when we haven't been reviewing or applying for some licence. We have processes, we have methodology to work to that,

we have a sound business, we have competencies that add value. We are one of the most cost-efficient lottery operators in the world today and we deliver more for government and more for our customers than almost any other lottery in the world. So we are very confident

those licence processes will result in us receiving and award us some licence or other. But we need to go through the process and make sure that we are ready and that we are putting forward a process that makes sense and value to everybody. I suppose an outsider might look at the big uplift the beneficiaries are getting and the softness in profit in recent years

and the fact that licence renewals are coming up and conclude that perhaps the beneficiaries are getting out on top,

that, you know, this is as good as it's going to get,

that they're sort of cashing in at the best time? Well, we don't know whether the beneficiaries are getting out or not

because the sell down of beneficiaries' interest is not within our control. I expect that there will be some beneficiaries who would want to sell down some part of their interest but I think the most important thing is we are issuing an extra 100 million in shares in this process and that will bring more capital into the business. The other component of available shares

will be those shares, if any, the beneficiaries want to sell down. But we can't quantify that so I wouldn't believe that beneficiaries are looking at this, or new shareholders are looking at this in any way saying that there is a sell-down option here. The prospectus says that the company's vision is to be a leading international provider of gaming-based entertainment products and services. Now obviously you're a long way from being that at the moment,

so perhaps you can explain what that vision means and how you plan to get there? Well, one of the things we recognised a number of years ago is the importance of being an international operator in our space. Before 1999,

we effectively were a single-purpose company operating in Victoria with a main licence and not much else going. Since then, we have used our operator-model competencies in Victoria and said, "We can do this in other jurisdictions." We went over to South Africa, put together a consortium and won the national lottery licence in that country. 45 million people, 8,000 outlets, 4 billion rand turnover in the fourth year. Importantly, we have put together a joint venture with a company called EssNet,

a Swedish company that we hold just over 25% in, they were a leading lottery systems provider based in Stockholm, and we put together a joint venture with them whereby we will pursue other opportunities around the world with a system and with operator competencies. And we've already launched our first lottery, a national lottery in Nigeria. We put together a group and we have now set up the operation there. We don't own the licence, we are a supplier to that contract and operationally, it's now working. Do you have any misgivings about bringing mass gambling to a poor country like Nigeria? We are not bringing mass gambling to any country. What we are doing is we are providing the government, first of all, with the revenue-raising facilities and options

that they have determined they need and second of all, we bring a product to consumers - something that they want and something that makes sense and value to everyone involved. Just in Australia, TabCorp obviously has been able to expand from it's base in wagering to casinos and gaming but perhaps because of the lack of capital, Tattersall's has never been able to do that. But now you are going to have access to capital. Any thought of yourselves now moving to casinos or even wagering in Australia? Well we've got a division of the business,

which is business development, which is looking very much at the core competency expansion within the industry, outside the industry, replicate of the operator model, as well as looking at the entertainment sector because we need to spread out a little bit and indeed we will be looking at those areas as part of our overall analysis. Would you be looking to apply for wagering licences? When wagering licences finally come up for review - and I think you'd be referring to the Victorian market, I imagine - would we look very carefully at those applications and see what they mean and determine, then, whether we think it is an appropriate thing for us to do. At this stage we've taken no decisions about wagering. We clearly don't have a wagering competency within our business, because we are a lotteries business, but we'd have a look at it as the opportunity comes up. And what about takeovers in general? I mean, obviously there is growth opportunities off shore, that you mentioned. Any thought of possibly using your script and your position in the market to make takeovers? I think that's a clear option for us going forward and as I said, the ability to participate in capital markets and equity markets to enable us to invest in new business development clearly is looking at saying, "How can we best leverage our financial flexibility now "into growing the business into something bigger and better?" We'll leave it there. Thanks very much, Duncan Fischer. Thank you very much.

This week the big broking house, Goldman Sachs, declared that 2005 would be "the breakout year" for online advertising. And while that survey predicted an increase of around 30% in the US online market this year, that's only half the explosive growth in revenue being recorded in Australia. But as Andrew Geoghegan reports, the growing threat of 'click fraud' could take some of the shine off those figures. It's amazing that it's taken this long for marketers to wake up and go, "Wow, 15% of our consumers' time is being spent on the Internet and yet we barely have a presence there in terms of advertising. We're still only at less than 4% of marketing dollars being spent there, so the catch-up between those two forces is what's driving the growth. The Australian online advertising market grew 64% last year. It generated $388 million in sales - more than cinema and outdoor advertising combined. It's sensational, and we've got a growing customer base, so the more people we get in, they become repeat customers and they're what we call "natural traffic" from that point on.

WebJet is an online travel agent which relies on Internet advertising. The cyberagent buyers add space on search engines. With our model, we're confident that

if we can get someone who's online looking at our ads which are through the search engines. We bring them through to the site. It's immediate, there's no time delay. and we can fulfil the promise because we have the technology at the other end. Five years ago, I would actually have to contact advertisers and ask them to advertise with us when I was running AltaVista.

Now our phone actually rings. Hi, Laura. Hi, Mel, how are you? Can you just let me know, give me a snapshot... Mel Bohse is managing director of online marketing company Overture Australia,

a subsidiary of Yahoo!. Her business has taken off,

as companies big and small realise the potential of placing ads with search engines. AUTOMATED VOICE: Search results are a powerful way for customers to find your website because users are actively looking for the products or services you offer.

Two years ago, let's just say a well-known brand - let's just say Qantas -

they would say, "We don't need to advertise online "because everybody knows our brand." But what actually happens is

if you're not there advertising online - and I know what users actually search for. They don't necessarily use a brand name to search for, they'll use generic terms. Search-based ads link an advertiser to a search term, such as "cheap flights". The web user is then redirected to the users' website. Anything that's actually listed as 'sponsored results', that's Overture-paid listings. Users pay every time their listing is opened

at a pay-per-click rate that they've already bid for. They're listed in order of rankings, depending on the bids that they're paying. So the top listing might pay $1, the second listing might pay 80 cents and the third listing might be, say, 50 cents. AUTOMATED VOICE: Our research shows that advertisers who bid on 20 or more key words

experience the greatest success. We don't just guess. We have an enormous -

we devote an enormous amount of time to making sure we get those terms correct, refine them, working out which ones work better than others,

which ones get us higher conversion rates. From an advertising perspective, in my view, the debate is no longer about whether the Internet works as an advertising medium, but rather how to get the most out of it. Out of the 500 to 600 million online searches done every month in Australia, the NineMSN portal has the highest market share. NineMSN is an ongoing partnership between PBL and Microsoft, and also provides a search engine - a key tool in cashing in on increased advertising revenue. We have always been a strong believer in the Internet and its ability to offer

a better, faster, quicker, easier and less expensive means of communicating and conducting business and accessing revenue streams. Of those Australian homes connected to the Internet, more than half do so with Broadband. That is prompting advertisers to spend even more on display ads, featuring moving images and interactive graphics.

They can now run video ads, they can run audio and other flash animation ads

which are very attractive to them. There is absolutely a difference in terms of how we as consumers use the Internet media. Sometimes it's in an entertainment and news mode and in that case, display advertising works, because we're borrowing the time and attention of the media. Rex Briggs measures media effectiveness. He estimates Internet ad placements are priced at about half the value they should be and that inflation will kick in as demand increases. And then you have the thing of, "Uh-oh, we spent all this money in building this website, "we'd better buy some online ads so we can get people to this website "so we can advertise our investment." What marketers need to recognise is that they actually need two different budgets set for search-based and display-based advertising

if they really want to get the Internet right.

But as advertisers spend more on Internet, some are having second thoughts, concerned that they could or have become victims of online fraud. Given that advertisers are charged each time their ad is clicked in a search engine, there is potential that they could be paying for links that are far from genuine. Click fraud is where either individuals or automated programs

click on paid listings within the search results for the pure purpose of increasing advertiser cost. The motivation is either financial gain or competitive advantage. Gavin Appel is a search specialist at Hit Wise, a company which monitors Internet traffic and advises business about online marketing. In Australia, we're very lucky in that it's quite limited, the amount of click fraud that is taking place. the amount of click fraud that is taking place. But on the global scale, it's a very hot topic. Are advertisers here, though, expressing concern to you?

Not yet, no. And they would, because this form of advertising is very measurable. Prospective advertisers should look out for increases in traffic on a particular day or over a particular period. It might only be a couple of minutes or a couple of hours.

And they should also look for any decreases in conversions, so whether that's a lead, or sales on their website during that period. Close to 11 million Australians now have Internet access. While the advertising potential is obvious, media organisations such as PBL will need to find a balance across all forms of media as convergeance technology begins to blur the lines between Internet, print and television. Recently, the Logies, for example,

where with 'TV Week' the magazine, the Nine telecast and then online, you can put together packages that are very attractive and unique to advertisers. Most media will go the way of the Internet, in terms of their digitisation. That's why it's so important for marketers to figure out how to master this media today when the stakes are a lot lower before it comes to television - and it's coming a lot faster than you think.

So WMC has finally been sold to BHP, which will now do a sort of Noah's Ark integration - the top two executives in each business will be replaced by BHP people. Also, the head office will be vaporized - all personnel will convene for coffee in nearby Southbank in Melbourne to plan the rest of their lives. But here's the thing about this takeover - BHP reckons that at $7.85 a share or $9.2 billion in total, it got a bargain, while most of the shareholders, but not quite all, think they got a great price. One way to look at that

is that this is what makes capitalism tick - happy buyers and happy sellers. But another way is that one of them is badly wrong. And you know what? One of them is wrong. It is a bargain. Before the bidding started last year, WMC was selling for less than $5 a share. Most analysts and fund managers valued it at around $5, based on spreadsheet models that predicted commodity prices would fall. That's $3.5 billion less than BHP was happy to pay. But spreadsheets don't know jack about commodity prices. Rising theoretical supply from new mines

and declining theoretical future demand from China might look reasonable on the flickering screen, but the forecasts are already wrong and are unlikely ever to be correct. And while WMC had shortcomings when Hugh Morgan was in charge, it's now very well run. BHP did get a bargain - one of the great resource bargains of all time.

How long before it turns its attention to Rio Tinto?

BHP is now more than three times the size of Rio. Perhaps it will be the main course after the entr e of WMC. When Michael Triall stepped off the production line at the so-called Macquarie Bank millionaire factory, he didn't do it because he'd been offered more money elsewhere. He did it with idea of taking some of the tools he'd used

to help build up the bank's highly successful venture capital arm to see whether they could be applied to the not-for-profit sector to fix some of society's more intractable problems. UPBEAT MUSIC PLAYS If there was a particular epiphany, it came during a weekend where we were about to go to the board with a $20 million investment at the front end of our third round so it's quite a significant deal.

Now at the point where we were due to go to the board with this deal, I woke up at five or six in the morning thinking about positional changes in my kid's footy team. And as I reflected on that, it was pretty clear to me that was what I was really passionate about was the opportunity to work with particularly one or two kids in my son's team who'd kind of - I knew they were struggling a bit at school. I guess what I concluded was that there was a real sense of purpose and passion about what I was doing there and I wasn't actually getting that to the extent that I had, historically, at the bank.

By the time Michael Traill left the Macquarie Bank's executive director ranks, he'd built up an impressive history in a relatively short time. Recruited from the Harvard Business School's MBA alumni, he worked through mergers and aquistions before becoming a co-founder of the bank's venture capital arm. The $50 million seed fund grew seven-fold over the next decade or so with direct investments in more than 40 start-ups. What we learned, I think, particularly in the early years was the significance of focusing on a good quality business opportunity. I think the other part of what we did - we were fairly conservative in our investment strategy. Venture capital can be pretty risky. But perhaps not as risky as tossing it all in to develop the distinctly less lucrative cousin of venture capitalism, venture philanthropy. I certainly am on an income

which is a fraction of what I earned at Macquarie Bank

but I certainly feel as a family we still live in very fortunate circumstances. I've always felt very strongly that Australian society is about the opportunity to participate and contribute and I'd certainly had, I thought, a pretty privileged run at doing that. From there, with seed capital of just $250,000, the start-up Social Ventures Australia was born. We're in our fourth year. We have seen over 600 community and social enterprises and really from a broad range of Indigenous enterprise, environment programs, disability services, youth at risk programs. Our focus is really on backing innovative programs. They give us a date for work experience... I think there is a lot of overlap between the principles of venture capital and venture philanthropy and it goes back to this issue of just how important it is to back and identify people

who've got the passion and the vision and the commitment. The differences, I think, are principally around the time it takes to build relationships. If this opportunity creates five years of employment for 10 young people that they won't otherwise get - i.e. they'd still be in that circumstance of being on a benefit -

there's a social return of $850,000. Apart from tapping into the business world to raise funds, the other essentials of the SVA business model are finding corporate mentors for the aspiring entrepreneurs as well as developing benchmarks for success. Clearly in the commercial world, a bottom-line focus that ends up in a cash-flow or profit number is fundamental. In the non-profit world, we work very hard in trying to clarify what it is that the organisations are trying to achieve. What, realistically, do you think you'd expect in terms of outcomes of this over - I mean, what's the vision that you would over five or six years as to how this would work, if it worked as well as you would like? We'd want to give a return to the project partners - so, people who are investing into it. They need to see a return.

We are very explicitly focused on organisations that have as their primary goal a community or social positive. We were having a bit of a play with this before... There are in some cases organisations that we've seen where they have the capacity to generate significant revenue, but it's very important to us in our mission that the focus of any surplus cash or profit that's generated

is recommitted towards the social outcomes. We love working with the battlers and the whole point of the footy story to me and what I got a particular personal satisfaction out of was not the superstars, because the superstars can often look after themselves. Stephen Letts reporting there. Transcripts of all today's stories and interviews will be available at:

Coming up next, '7 Days' with Felicity Davey. Thanks for your company. See you next week.

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