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Lateline Business -

View in ParlView

(generated from captions) Now here

is Lateline Business with Ali

Moore. Tonight - carried away

on the greenback, negative real

interest rates in the US fuels speculation on global markets. Those assets may

simply be term deposits, they

may be bonds, they may be

equities or real estate. Centro shareholders urge the board to shop around for a better

deal. It's a complex big

interrelated group and, you

know, they are hiring

investment bankers to

restructure that. And a radical

plan for the super industry to

fund innovation. The amount of

money, well over a trillion in

that, why not take 5% of that

money and say, "Look, give money and say, "Look, give it

to the current Vcs that

exist." To the markets , and

big gains on Wall Street didn't

flow across the Pacific with

the All Ords closing half a

percent weak,, the ASX 200 lost

26 points, in Japan the Nikkei

slid on profit take and stronger yen. Hong Kong's Hang

Seng's edged back from

yesterday's one year high and

the FTSE is down 16 points in

London on morning trade. Too

close to call, that's how

economists view the chances of

a pre-Christmas interest rate

cut after today's release of

the minutes the Reserve Bank's

last board meeting, but the

minutes left no doubt further

rate rises are planned, in

contrast to the US, where the

US Federal Reserve Chairman

confirmed rates would remain at extraordinarily low levels well

into next year, Andrew

Robertson reports. As it raised

the official cash rate a

quarter of the percentage point on Melbourne Cup Day the on Melbourne Cup Day

Reserve Bank said it would move

away from rates at emergency

levels, analysts and money

markets took that to mean the

diminishing and detailed chances of a December rise were

minutes of that meeting added

to that perception. to that perception. According

to the minutes:

It seems to us that there's

certainly laid down the

possibility that they might

pause in December, and wait and

see how the economy unfolds,

and, in fact, they've talked

about quite a few downside

risks to the economy. The

minutes shows the board was

conscious of balancing conscious of balancing the

risks but decided to lift

risks but decided to lift the

rate to 3.5%. Confidence could

be fragile, it could be

shattered if rates rise too

quickly, they talked about the

difficulty firms have in

getting credit and the high

currency. In the United States

it's a different story it's a different story with

Federal Reserve Chairman Ben Bernanke ruling out an interest

rate rise in the future. The

flow of credit is constrained,

economic activity weak, unemployment too high. unemployment too high. Future

setbacks are possible. All of

which are contributing to the

weakness in the US dollar,

something Ben Bernanke says

he's watching closely. We are

attentive to the implications

of changes to the value of the

dollar and will continue to

formulate policy to regard

against risk to foster maximum

employment and price

stability. The US dollar rose

briefly on those comments but

slid against other major

currencies. Australia's high interest rates provide

opportunities for money to be borrowed cheaply in the United

States and invested here for a

significant return, it's known

as the carry trade, boosting

demand for the Australian

the dollar, keeping it high against

the greenback. National

Australia Bank attempted to

quantify the impact of carry

trades. In the 6 months from

March to September the

Australian dollar rose 20 US

cent in value, according to NAB

the carry trade added 6 of

those cent and was the second

biggest contributor behind

interest rates and ahead of

metals prices with the price of

gold in fourth spot What we

have seen in the past few

months is a lot of people

money buying Australian putting that trade on, a lot of

dollars, pushing it higher. Commonwealth Currency Strategist Richard higher. Commonwealth Bank Chief

Grace says the other side of

the coin is money is being

invested in assets. Those

assets are term deposits,

bonds, equities or real estate.

The definition is broad. The

carrier trade is fragile and

will be unwound when the will be unwound when the US

Federal Reserve eventually

starts raising starts raising rates. AMP's

Chief Executive says a merger

with AXA Asia Pacific is in the with AXA Asia Pacific is in

national interest. In a speech

today Craig Dunn said consumers

would benefit from a stronger

fifth player with an ability to

take on the big four in banking

and wealth management

services. If it were to be

success ful our merger with

AXA's Australian and New

Zealand operations would

provide a new way forward, the

building of a fifth pillar in

financial services in

Australia. However, Mr Dunn

said AMP would not pursue the

deal at any price. This is a

traction that we would surely

like to do. We think it's a

transaction that's attractive

to both groups of shareholders,

but we are financially

disciplined and economically

responsible company. The

proposal has been on the table

for a week, but a firm offer is

yet to emerge, investors are

doubting whether the deal will

get down. AMP shares fell 2%.

For a look at the rest of the

day on the markets and thoughts

spoke to Marcus Padley on some of today's news , I

spoke to Marcus Padley at

Patersons Securities. A

mid-session turn around for our

market today. Yes, not good. We

were well marked up on the

open, up 44 points, ended up on

a low, down 26 points, we had a

70 point turn around and the

culprit was financials, that

sector down about 1.5% against

the resources which were up

half a percent. Down to Ben

Bernanke telling us that US

growth is going to be

restrained, interest rates

aren't going up any time soon aren't going up any time

in the US, the US dollar fell over, commodities flew and

there's a rotation out of

financials, helped, I think, by

a few comments by Meredith

Whitney in the US about the US

banks, basically out of

financials, out of cyclicals we

saw falls in the likes of

Brambles, Boral, Fosters,

Westfield into resources which

seem to be flavour of the

decade. If that was all to do

with what was going on in the

US and the comments from Ben

Bernanke, what about Bernanke, what about the

Reserve Bank here and the

latest minutes, was there much

reaction to them. I don't think

so. The last meeting they had

mentioned the word they'd put

up interest rate gradually,

people thought we wouldn't get

an interest rate rise in

December, they haven't changed

the rhetoric, they warned about

the risk of leaving interest

rates too low, everyone is

expecting an interest rate rise

25 basis points in December,

there's no meeting in January,

and another in February,

another in March. If we look

across the other sectors,

insurers had a poor day. Yes,

poor day, but after a good past

week and a bit since AMP bid

for AXA, and it happened

because Craig Dunn, CEO of AMP

spoke today saying that their

current bid was compelling

value, in other words implying

we don't need to put it up, but

said it's not a vital deal for

the AMP. In other words, they

could walk away. There are a

lot of stocks not just AXA, but

a lot of stocks going up on the

whole wave of enthusiasm for

wealth management, the idea

that there's value in wealth

management and on the back of

that you have seen IAG has been

up 8.7%, Suncorp up 10%,

Challenger up, and AMP up

14%. Thank you for joining 14%. Thank you for joining us

Marcus Padley. My pleasure. To

the other major the other major movers,

Leighton Holdings down 3%

despite winning a $300 million

road building contract.

Recently listed Myer fell 2%,

Wesfarmers one of the best

performing large caps up 77

cent, Worley Parsons gained

half a percent. On currency the

Australian Australian dollar. Centro Properties Group has

revealed it's seeking advice on

how to restructure the company

and its $17 billion worth of

debt at its annual meeting the

company faced a barrage of

questions over debt

stabilisation program. Despite

those concerns and ASIC's legal

action against Centro

directors, the company's

chairman was re-elected with

near unanimous support. Neal

Woolrich reports. After a 3 hour annual hour annual meeting Centro

Properties Group was keeping a

tight rein on the media, forbid

ing the ABC from filming its

press conference, sending a

print photographer packing. You

are out of line. Please

leave. Right, good. It's

unlikely this year's annual

meeting will mark the end of

the turmoil at sent roe. In

early 2008 the shopping centre

operator was on the brink of

collapse and is struggling

under $17 billion of debt. Last month month the Australian Securities

and Investment Commission

compounded Centro's woes,

taking civil action against

eight individuals over the

company's 2007 financial

statements. Chairman Paul

Cooper is one of those targeted

along with Jim Hall, who chairs

the company's audit committee,

Paul Cooper says ASIC's

allegations are untested and

will be defended and

shareholders re-elected Mr

Cooper as a director with Cooper as a director with 98%

of the vote. He is right of the vote. He is right leader

in the company at this current

time because Centro is still,

you know, it's a tough time, we

need an intelligent capable and

experienced person to lead the company. He's put it around

the market that he was the

whistleblower, he did the hard

yards to turn it around, he

made the hard decisions. You

can see from the way he

conducted today's 3-hour meet,

he's a clear thinker, he's

calm, across the detail and

understands the company.

Someone has to lead the Centro

mess into the future. But

Centro will have to do without

its Chief Executive of nearly

two years, Glenn Rufrano, he is

returning to the United States

when his contract expires in

February. While shareholders

seem pleased with Glenn Rufrano's efforts, several

remain concerned about the

hybrid securities that Centro

issued this year as part of debt stabilisation debt stabilisation programs.

Kevin Zhang holds proxies for

12% of shares and fear hybrid

security yits gives away too

much to the banks. Shareholders

lose 90% of k witty, we hope in

the future -- equity, we the future -- equity, we hope

in the future, by the work of

the management, they can talk

with the banks, so they can,

you know, revise the terms of

hybrid securities, so

shareholders can get their

money back. Now Centro has

revealed it's asking advisors

to make submissions on how to

best restructure the group. The

company stresses the program is

in its early stages, with no

potential ideas ruled in or

out. So it's a very complex,

big, interrelated group, and,

you know, they are hiring some

investment bankers to try to

restructure all that. The risk

is the banks will scoop up all

the value, and there'll be

little left for the long-suffering shareholders.

With a huge debt burden With a huge debt burden hanging

over the company. Fixing over the company. Fixing the

balance sheet won't come

cheaply. One of Australia's successful entrepreneurial

exports is turning 20. ResMed

makes money through breathing-related sleep

disorders started 20 years ago

with Sydney University, it's

based in the US with a market

capitalisation of more than $4

billion, it reported first strong quarter sales despite

the economic woes of its

biggest market America. It's

listed in America and US, it's

founder and Executive Chairman

is Dr Peter Farrell. I spoke

with him earlier. Welcome with him earlier. Welcome to Lateline Business. Thank

you. Is it fair to say if your

major market is going to go

through a long drawn out

recession, the best business to

be in in terms of earnings is

health care I think you can

make a case for that, yeah.

Although in our case, with

sleep disorder breathing, it's

more elective, you don't know

how well you'll feel until

after you are treated. It's not

like you have a cancer that has

to be immediately cut out. When

you find out about it. Yeah,

it's fairly - I think it's

recession proof. In terms of it

being elective, how much room

for growth is there, I guess it

boils down to economics, not everyone diagnosed will be able

to afford treatment. Again, we

are in 70 countries, and the

three big countries for us are

the United States, which is

roughly 50% of our revenue,

last quarter was 54%, and

Germany is around 16, France

around 12, so three of those,

if we don't get that right -

that's three-quarters of our

business, the other 67 don't

matter. The reimbursement -

it's fully reimbursed in the US

and fully reimbursed in

Germany, mostly in France,

that's not an issue for us,

here in Australia, of here in Australia, of course,

it is, because the Government

doesn't reimburse it, we have economic Darwinism happening

here, you know, the people that

can afford to be treated by the

device, and those poor device, and those poor buggers

in the western suburbs of

Sydney and Melbourne, it's bad

luck, they can be paid for

being diagnosed, but not to be

treated. When you look at the

size of the business now, how

much bigger can you get, doing

what you are doing what you are doing now. Well,

to be quite candid, this is a

marathon, we are lacing our

shoes, our run rate now is over

a billion US dollars, the

market cap is somewhere around

4.3, 4.4 billion, 4.3, 4.4 billion, honestly,

sort of strange thing to say,

but we literally haven't

started. The reason I say that

is published data shows this is

20%ful all adults have sleep

disorder breathing - 20" of all

adults have sleep disorder

breathing at some level, not at

a level where they should all

be on treatment. Our internal

data says 30%. Let me take

examples, 80% of people examples, 80% of people have

sleep doord breathing for those

that have heart problems. The

good news is if you treat you

treat hypertension. Roughly

it's 80% prevalence, we haven't

started. It's huge. So if it's

a marathon and you are lacing

your shoes, what are the potential impediments to

growth, I'm thinking of CSL,

huge in its market, wanted to

do a big merger in the US and

was knocked on the head by

regulators, will you come under

those pressures. We don't face

the same challenges, we are in

the health care space. You and

one other player in the US have 80% of the 80% of the market. It's

Phillips of iron Hoven, the two

of us have 80% of the market as

best we can determine, and I

think we are a shade ahead of

them now, you know 41/39,

41/40, something like that, and

- but, you know, we are not

likely to merge with them. Our

growth is primarily organics,

in other words we can put the

stakes in the ground, if you

grow organically, you are not

subject to as much regulatory

concern. You have a lot of cash

on the balance sheet. You

bought a couple of

complementary technologies,

what will you do with what's

left. There's close to half a

billion on the balance sheet,

we have announced - I can talk

about this, we have an active

buyback program going, we have

dry powder if we see something

we need. We made a small ak

situation of Narval in France,

a mandibular repositioning

device, that made sense, it's

fully reimbursed in France, we

think we can leverage it into

Germany, Swedan and eventually

the US. Would you go further,

go outside the purview, into a

different area. Given the fact

that the penetration is

something like 10% of the

market as we perceive it now,

we have so much on our plate,

and just, you know, we talked a

little about the cardiac area,

and we'll be having a lot more

to do with Cardiologists and

cardiac surgeons.

Endocrinologist with Type 2

diabetes, another huge area is occupational health and

safety. It seems in Australia

when we talk about successful companies starting here and

going global, we talk about

ResMed, CSL, Cochlear, the same

companies over and over and

over again. Why don't we have

more? Well, it's a complicated

question. I think we need to be

more proactive in looking for

these opportunities, now, for

example, with ResMed it was

Colin Sullivan who came up with

the idea and opportunistically

when I worked with Baxter we

were looking for low hanging

group. We did it with Baxter,

they didn't know what to do

with it, we bought it for a

buck and a quarter. You had the

money to move the process

along, is that the key. Of

course, without money it's -

that's the gas in the tank, if

you look at, say, Graham Clarke

at the university of the

Melbourne, and Paul trainer put

the money in to start the money in to start Cochlear,

that was opportunistic, and CSL

was a Government entity was a Government entity and

Brian McNamee came in and did a

fantastic job with it. I don't

believe that they are the only

opportunities that exist within

Australian universities, we have creative imaginative

people here. Why are we not

finding them. We need to be

more proactive and we need to

take a few risks, one could

look at it as being risks but I

think it's opportunity seeking,

we need to shake the tree. It's

not going to come from

governments, they are not

innovative, you don't say cash,

we want creativity, let's go. Governments talk about

fostering innovation. It never

happened anywhere ever. It's

like we apparently think here

and the United States you can

spend your way to prosperity,

at some point we'll have to

deal with the issue of

excessive spending. I tell you

what I would do, I take the

super funds, look at the amount

of money, well over a trillion,

why not take 5% of that money,

saying Look, give it to the

current VCs that exist, you

have the innovation capitals,

there'd be an uproar, if you

look at the returns over the

past few decades, they are

negative. That is true, in fact

even in the US, I mean

obviously you have the Googles

and the yahoos and so forth.

But look, look at the biotech

industry, the billions that

have gone into the United

States. I mean... You are

saying it's worth the risk. I

think so, people will make

mistakes, but they are learning

by the mistakes, you can say to

people listen experimental

teaching is without a doubt the

best way to do it. If that was

my super money for someone to

learn on the job... Ut don't want the governance that goes

over it, by the way the way I

would do it is say it's an opt

in thing, do you want part of

your super to go to high-risk

high-return ventures, you can

opt out saying no, I don't want

that to happen, you have to

give people choice, it's a good

point. I'd be doing it, 5%,

gee, look how many Microsoft's

or Googles or ResMed or

Cochlear do you need to make a

return. Typically in the VC

area, if you are really good,

one out of five will make

it. When you look at VC and

private equity, it can be

enormously useful for areas

like biotechle Absolutely. When

you look at what is happening

in terms of the Myer float TPG

making a profit, repatriating

that profit overseas and the

ATO has been chasing them, what

message does that send. I don't

know the full details, what I

read came in Sunday. It's very

odd. I would like to see

transparency, what is going transparency, what is going on.

I don't know what is the reason

the ATO feels TPG owes them the

money, why do they feel that. I

don't have a clue. But I don't

think the signal is a good

thing, if you were TPG would

you rush back to Australia

again and see if we can sort

this out. I think it's a bad

news - I think it's

unhealthy. It would be negative

for Australia as an investment destination. It can't be

anything else. If in 20 years

you can build a company that's

$4 billion market cap. Another

20 years. Gee, you know, there

are other things to do. I mean

I'm sort of you know, 10 index

golfer, and occasionally I

play. I would like to get more

confident in playing to that.

No, I don't think - I think

more meant orroring would be

working with smaller companies

and helping them think through

the role. Thinking in terms of

20 years, starting on a 20 year journey, I am not thinking in

those terms to be honest. Where

could ResMed be in 20 years. We

had a compound annual growth in

the top line through to the

20s, and in the bottom line in

the 20s, I think we can

maintain that, I really

do. Peter Farrell, many thanks

for joining us. Pleasure, thank

you. Now a look at tomorrow's

business diary, and the Reserve

Bank's Guy Debelle speaks at

the Australian Securitisation

Conference, the ABS releases a

price index, BHP Billiton price index, BHP Billiton CEO

Marius Kloppers speaks at Marius Kloppers speaks at the

Lowy Institute, and in Lowy Institute, and in the

United States inflation figures

for October are out. Before we

go a look at what is making

news in the business sections

of tomorrow's papers, 'Herald

Sun' - Reserve Bank leaves the

door open to a pre-Christmas

interest rate rise.

'Australian' - battle over

access to BHP Billiton's rail

line in the line in the Pilbara.

'Australian Financial Review'

US Federal Reserve Chairman Ben

Bernanke takes the step of commenting on the weak US

dollar. And the 'Sydney Morning

Herald' looks at tax

liabilities of private equity

deals like the recent Myer

sale. That's all for tonight.

FTSE down 35 points for 0.6 of

1%. Dow futures down 8 points

or 0.3 of 1%, I'm Ali Moore, goodnight.

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