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Inside Business -

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(generated from captions) Sydney, where they could lose

seats like Anthony Albanese Sydney, where they could lose

Anthony Albanese. It wasn't

to the carbon tax conversion, sweetns and light on the road

I'm told Greg Combet was trying

to ping Martin Ferguson for a leak to 'The Australian'

outlining the strategy - quite

unfairly I'm told, but there's

not just the Kevin

told there are others too. I pressure point in Cabinet, I'm

told there are others too. I

think I said last year on

insider, you should look for ta tax that starts with an electricity-only element. Even

listening to Greg Combet today,

we might end up with a proposal

where they start just with the

prices are the hard political electricity sector. Electricity

get issue, so why not isolate that,

get it out there, give certainty to the generators, they can start inverting,

directly compensate that and do

it step by step. That wouldn't

look like they are picking on the big guy - the little guy

rather than the big polluter? Picking

Picking the on big guy, making

it the issue and compensating

that quite staff. We leave you with an

with an unscheduled encounter

in the courthouse of Parliament

House during the

Hawke. He was a gutsy Prime Minister, who believed in

cutting taxes, not raising

taxes. I can hardly not say to

him. He's a legend, even to

us. I thought I was coming out

to have a quiet cigar

to have a quiet cigar and we

get a f---ing unity ticket. I'm the person who is

G'day there, welcome to the

program. This week the Gillard

Government commits itself to

introducing a carbon tax next

year. The plan is

year. The plan is there is detail-light at this stage but

there is enough to win the

support of the Greens and the

Independents and to drive the

Coalition to call for a

people's revolt to fight it.

What does business think? We

will talk to a very unhappy manufacturer, Bluescope Steel

boss Paul O'Malley. We will

catch up with Woolworths chief

Michael Luscombe who has some

real competition deal with.

We will take a look at the big

deal of the week - Kerry

Stokes' complicated plan to deal of the week - Kerry

West Australian Newspapers. merge his TV interests with

It is good for him but is it

good for investors? This Program is Captioned

Live.

Prime Minister Julia Gillard's announcement this week that her Government would

be imposing a tax on carbon

from 1 July next year caught

business unawares and led to

complaints it had been left on

the sidelines as the

politicians thrashed out a

political deal. The scheme is

intended to start with a tax

before converting to

before converting to an

emissions trading system over

the next five years. Among the

most unimpressed are the steel

makers who are already doing makers who are already doing it

tough. Here is blew

Bluescope Steel CEO Paul O'Malley. When you announced

your loss this week, you said

being a steel maker in

Australia is a tough gig, does

impossible? the carbon tax make it

impossible? It makes an even

tougher gig. In manufacturing

in Australia with a high Aussie

dollar, parts of the economy in

recession and steel making

being difficult, more costs

being thrown at us by the

Government just do put a Government just do put a bit

more pressure on the business

than we'd like to have. They

say they will compensate you,

all the money will go back into

trade-exposed industry wliek

trade-exposed industry wliek

like yours. Don't you trust

that process? Imports will get

a free ride and there will be tax because we don't have a commitment to carbon neutrality. Do you mean in Australia or the world? In

Australia. To reduce

greenhouse gas emissions we

have to reduce global

emissions. If you look at the

emissions. If you look at the

Europe, the Europeans are

claiming victory but carbon

consumption has increased 47%.

There has been a hollowing out of manufacturing in Europe and

a hiding of the carbon

overseas. If the same program

is put in place in Australia,

you are assuming that policy is

they don't want manufacturing

in Australia. Your problems

are all about, at the moment,

are all about, at the moment,

high iron ore prices and coal

prices making a margin disappear. Isn't that right?

You have had a $250 million

disappearance of spread in the

latest year because of iron ore

and coal. In that context,

isn't the carbon tax marginal?

From a macro perspective, if

we were at 80 crept cents

we were at 80 crept cents

rather than parity our annual

profit would be up. We have to

deal with that. Raw material

costs cost us $2.5 billion

today. Eight years ago, $400 million. There is no doubt we

are supporting a significant

value transfer to the raw

material supplies. From a

macro policy perspective in

Australia, we are all riding on

the back of resources at the

moment but if you are in

moment but if you are in education, tourism,

dollar and high interest rates manufacturing, the high Aussie

are making it tough. Those

parts of the economy are in

recession. In that framework,

you would expect policy to say

we need to ensure we have more

than a resources economy when

the boom breaks. Throwing a

carbon tax on top of that

basically says 'We don't want

to be anything but a resources

economy'. The question is -

tax or even whether there is a carbon

tax or not, if the Australian

stays at parity, and the iron

ore and coal prices stay where

they are, are you going to be

able to survive as a steel

maker? We have a great

business and good business

model. If you have policy

settings and macro factors that

make it harder for

manufacturing in Australia,

things will be tough. Do you

make money on the steel you

produce in Port Kembla?

produce in Port Kembla? In the

last half, our industrial

business at Port Kembla last

$100 million. In the last

quarter of fiscal year 10 we

made a couple of hundred

million dollars. As steel

prices go up, they have

increased $250 to $300 in the

last four months, we can start

to make money again. An incremental cost, if you take one part of

one part of the policy, which

is there is no assistance for

industry, we would be paying an

extra $300 million a year. It

is economic vandalism. It is economic vandalism. It says

we don't want manufacturing in

Australia. Under the CPRS

regime what the policy said was

'We would prefer steel to be

imported with the carbon produced overseas than

domestically'. That is the

issue. It is unfair and says we don't want manufacturing in

Australia. Under the

Australia. Under the CPRS,

would it have resulted in the

closure of the Australian steel

making? Under the current

environment with the CPRS, you

have to look at the long-term

and see, to your question, is

steel making viable in

Australia. You also have to

look at the intent of the

policy makers to determine

whether they want to support

manufacturing in Australia.

There is a huge question mark

on that at the moment. I have

spent the week talking to investors. They are

investors. They are aghast at

the policy settings we are

being faced with and the

additional costs including the

fact we have to deal with a

high Aussie dollar. The policy

framework at the moment is

wrong. It seems to be

captured by people who don't

care whether there are manufacturing jobs in

Australia. You wonder whether

there is an anti-manufacturing

focus in Australia and people

want jobs to go offshore. Do you think there is?

Absolutely. There is a lack of

of trust between government and

business. There is poor communication between

Government and business.

Things that appear simple to

investors and to ourselves are

completely discounted from a

government perspective. So,

you do question the

sustainability of manufacturing

in Australia. Does business

have to take some

responsibility for that? Is it

all about the politicians not

trusting business, or have business done something to

contribute to that? I think

from a manufacturing

perspective, we have got

perspective, we have got the

support of a great community in

the war war and Western Port in

Victoria, we participate very

well within the community. We

keep our markets, invest ors,

communities informed. I spend

time going back wards between

Melbourne and Canberra and

Sydney over the last few years

articulating the detail the

Bluescope faces. We can't be

Bluescope faces. We can't be

any more transparent. We have

offered to have our information

audited. They don't want to

listen to what we are saying.

I don't know why. I think it

is politics, economic

vandalism. The aspiration of reducing carbon is important

but the detail of the

legislation doesn't achieve

that as it pertains to steel

manufacturing in Australia. Do

you think something needs to be

done about greenhouse gas?

done about greenhouse gas?

Absolutely. I have got four

young kids. My wife and kids

want me as CEO of want me as CEO of a

manufacturing company to reduce

your carbon emissions. As a

company we are doing that. To

make steel, you cannot make

steel through the blast-furnace

technology without emitting

carbon, whether it is made in

Australia, Korea, Taiwan, China

or Japan. Those producers or Japan. Those producers send

steel to Australia and compete with us. They

with us. They are emitting

carbon. On average, we are more efficient in producing steel

with less carbon than those

companies that import into

Australia. If you shut us

down, you don't actually reduce

the amount of carbon because

steel will still come into

Australia. That's the bit that

doesn't make sense. Are you

saying Australia can't have a

price on carbon before those

other countries? There is

fundamentally an issue for manufacturing that says

manufacturing that says if you

are an exporter and compete

with imports you must tax

imports if you are going to tax the local manufacturing

business. Not to tax imports

says you would prefer the steel

to be produced overseas. That

does not make sense. In

relation to energy, there is

absolutely an argument that

says there needs to be a carbon

price so we can have natural

gas base load generation in

Australia. No-one will build new

new coal-fired generation

because it is not going to make

sense and it is too carbon

intensity. You need a price

signal for natural gas. A carbon tax around energy is a

good thing to do at the moment

and will have a big effect in

reducing carbon. Taxing steel

simply to move it offshore will actually increase global carbon

emissions. That doesn't make

sense. The problem is the

growth in knix carbon

emissions is transferring

emissions is transferring to

resource-extraction industries,

coal and natural gas, LNG. They

are the ones responsible for

the projected growth in

gurtions carbon emissions. It

is interesting. We are a

company at the moment that is

jumping up andon with - up and

down with glee because we are

exporting carbon overseas. It is being

is being transformented into

steel and we are importing the

products back. There is a race

to hide the carbon which is

horrid. We need good policy

around energy and carbon

intensity energy. We need

practical policies that says we

have the lowest CO 2 emissions

in producing steel but we

shouldn't be hiding the carbon

shouldn't be hiding the carbon

overseas. Thanks for joining

us.

Now with the latest business

and market news, over to Jayne

Edwards. Thanks Alan. A sharp

rally in the US on Friday has

raised the prospect of a better start to the week on start to the week on local

markets. The buyers came back

to Wall Street lifting the Dow

by half a per cent and the

broader market by more than 1%.

The share market rebounded after the week

after the week in the doldrum s

on news US consumer sentiment

has hit a three-year high and

the news Saudi Arabia has

increased its oil production.

In New York, the oil price

jumped by 14% while in London

the Brent crude finished above

the Brent crude finished above

$112 US a barrel. All eyes

are on the Middle East in the

coming week and Wall Street

analysts are warning of a bumpy

ride aread. You can see the

evidence of oil price worries

in stock markets over the week.

Europe and Japan slumped by 3%.

With all the news on the local

front, here is Marcus

Padley. Scary week this week as

the market responded to the

Libyan oil price spiked which

threaten global economic

recovery, although if the Iraq

wars are anything to go by, wars are anything to go by, it

will be a temporary affair. Telstra ex-dividend on Monday

14 cents. We also had to 14 cents. I contend contend with the earthquake in

Christchurch which didn't do insurance

insurance companies any good.

There was Cyclone Carlos in WA

which shut in some of the iron

ore operations. Fortescue is

reeling from the ASIC corp win

against Andrew Forrest. We

saw 130 companies report

results this week. A big week.

The worst performances on

results came from Pacific

brands Infigen which is the old

Babcock and Brown, Virgin Blue,

Roc Oil. The best performances came from Wotif

which is recovering from a 44%

share price fall. Aristocrat

Leisure back into profit.

Iluka, Amcor, Emeco all good.

We all saw announcements of the

We all saw announcements of the

BHP-Billiton share buy-back.

Let me warn you the Woolworths

share buy-backs are likely to

be more popular. We saw Origin

up. Kerry Stokes engineered a

bid for the Seven Media Group for West Australian Newspapers.

We had thought that would

happen the other way around.

We saw the billionaire club put Lachlan Murdoch

Lachlan Murdoch in charge of 10

Network. That share price

didn't do well on the back of

that. One final riddle, the

Australian economy has been

knocking the socks off the US

economy, so why ask the US

market up 94% and we are up 58.

The winner of the week is aluminium extrusion company

Capral which was up 29% after announcing a

announcing a 6.7 million profit

after seven years of losses.

Loser of the week was West

Australian Newspapers down 12%

of its bid for Seven Media

Group and a rights issue. Group and a rights issue. The

emergencier of Seven Media Group with West Australian

Newspapers is deal making 101

of the Kerry Stokes business

school. Gaining control of a company without the

inconvenience of paying a

direct takeover premium. The

direct takeover premium. The

Perth media and magnate's

pursuit of a $4 billion deal

between two companies he chairs

and has substantial stakes in

is about the high watermark of

related party transactions in

Australian corporate history.

Will other smaller shareholders

share in the spoils? Neal

Woolrich reports.

This is a big opportunity for

This is a big opportunity for West Australian Newspapers. Far

from the flash offices of

Australia's corporate deal

makers, small shareholders are

watching yet another big merger

take shape which they are

powerless to stop. powerless to stop. Certain

aspects of that proposal is

very unfair on ordinary retail

shareholders, though I can

imagine that the institutional shareholders will be rubbing their

their hands in glee. Roger

Pratt has been a shareholder with West Australian Newspapers

since 1993. He doesn't like a

new plan to make WAN mart part

of a media conglomerate and he

is upset small shareholders

will be diluted if they can't

con strieb to a rights issue.

I think the Independent directors have to explain

themselves. I find it

extraordinary they would allow

their name to be associated

with a proposal that is a with a proposal that is a penal on the ordinary retail

investor. Less than a year

after merging his media assets with the Caterpillar equipment

franchise, Kerry Stokes is

shuffling the deck again. His

late else restructure will see

late else restructure will see the West Australian Newspapers

join forces with the Seven

Media Group. This is a really

big opportunity for West

Australian Newspapers. We are

delighted the Independent board

have unanimously recommended

this proposal. We have got a

whole group moving side ways.

Valuations have changed radically. When West Australian

Newspapers was run by an Independent management team,

they looked at deals like this

every year. They could never every year. They could never I

make the numbers work. West

Australian Newspaperses, which

is a quarter owned by Seven

Media Holdings, will buy Seven

Media Group for $4.1 million by

issuing shares and convertible

notes, repaying a loan and

taking on $2 billion of debt.

As chairman and biggest

As chairman and biggest

individual shareholder of both

Seven and WAN, Kerry Stokes

won't be able to vote. Doug

Flynn has led the negotiations

and says his team has struck a

good deal for shareholders.

This massively changes the

opportunity for the company

over the coming years. It

secures WAN's future and

creates a new growth path for us.

us. A new holding company,

Seven West Media, will house

the newspaper, television,

magazine and Internet

businesses. Seven Media

Holdings, which is two-thirds

owned by Kerry Stokes, will

keep a quarter stake in

consolidated media which has an

interest in Foxtel, along with

Westrac which holds the Caterpillar equipment

franchise. That's where the

growth is. I know where I'd

want to be in the boom. I'd

stay upstairs in the Westrac.

If I was a West Australian

Newspapers sht shareholder, I

would be concerned at the huge

increase in debt. I'd

worried about what's 2012 going

to bring. It is a very to bring. It is a very much

expanded company. It has

diverse fiication that didn't

exist before.

exist before. While analysts

agree the deal is good for

WAN's major shareholder, Seven

Media Holdings, come are

worried it could divest the

shareholders of more than a

sixth of the value of the group. The proposed deal

sparked a raft of earnings

downgrade and sell

recommendations. Those

recommendations. Those

shareholders have had a bad

ride. Peaked out in 2007 at

$16 plus a share. A dilution

made the deal work at $5.20. That's

That's a big reduction in West

Australian Newspapers's shareholding division. We have

acquire ed Seven Media Group for

for $4.1 billion. It was

assessed at $4.6 and $5.1

billion. We have cut a good deal for our shareholders.

Mike Mangan from 2MG Asset Management says this deal is

straight from the Kerry Stokes'

play book, wresting control of the company without having to

pay a premium. There is a

track record that goes back

over 15 years at least of Mr

Stokes buying and selling

assets into and out of the

company of which he controls.

He always comes out on top.

Despite that history, Doug

Flynn says there is strong

support for the deal with 90%

participating in this week's

first stage of capital raising.

He argue's WAN's share price

fall over recent years is

largely due to factors outside

largely due to factors outside the control of management or

the directors. West Australian

Newspapers has the highest

margin of any newspaper in this

country. To my knowledge, it

has the second highest margin

of any newspaper on the planet.

The fact of the matter is that newspapers have been marked down simply because their

future is in serious question.

It is a different story for Seven's television business.

Last February, Seven Media

Group was forecasting earnings

of around $300 million for this

financial year. In the

documents released this week,

that forecast has been raised

by half to $450 million. by half to $450 million. The

big jump in Seven's earnings

has raised questions as to why

that wasn't flagged that wasn't flagged sooner with

a profit upgrade. We are only

nine months since the Westrac

nine months since the Westrac

deal and I calculated at the

time - I had no problem with

that deal, it was the pricing

of the deal that I had a

problem with - I calculated

that delivered about $200

million of additional value to

Mr Stokes relative what he

should have got. We can't

ignore the fact there was a

global financial crisis and

there is a fundamental there is a fundamental change

in the business with the advent

of the multi-channels. Kerry

Stokes' main concern now is to

convince a majority of

investors to vote for the

transaction in April. While it

may be a bitter pill for

long-term WAN investors sitting

on big paper losses, Kerry

Stokes is a proven deal maker

and he may have already

mustered enough support at the

top end of the town to get this

one over the line.

While retailers have been

struggling lately, Woolworths

this week produced a solid 6% increase in increase in half-yearly

earnings. The profit comes at

time when consumers are tightening their belt or

heading online. Woolworths'

major competitor, Coles, is

getting its act together in a

big way. However, the strength

of Woolies's food

of Woolies's food and liquor

division papered over a slump

at the more discretionary Big W

and Dick Smith electronic

stores. I spoke to Michael

Luscombe. You had an easy Luscombe. You had an easy time when Coles lost the plot when Coles lost the plot but

they have found the plot and

has new management, does that

mean your shareholders will

have to make do with lower

profit growth because you have

profit growth because you have

to fight Coles on price? Today

we were clear and said our

long-term targets we set for

ourselves, that's sales in the

upper single digits azised by

bolt-on acquisitions and our

corresponding E-bit growth,

remain unchanged. This is a

long-term gain . This is like

playing the Ashes not just for

games. five games but for many many

games. Over the last five

years in particular, we have

built up a substantial

business. Circumstancea $30

billion to in excess of $50

billion this year. The bigger

you get, the harder the

incremental targets get. We

haven't changed our targets.

challenging While this last half has been

challenging for discretionary

retailers, we are not changing

our aims for the future.

That's not the way of

Woolworths. Coles is coming

after you. They are not going

to let you increase prices the

way you have been used to. The

one thing I will say is we were

the first to drop prices, we

dropped 5,000 prices some time

back. What I do know is that throughout our

throughout our price checks, we

maintain our price leadership

in that position. Anyone

dropping prices has to get to

our place in the first place.

The second thing is that we continually track price

perception across the market

and we have maintained a

leadership in price perception

as well. For what it's worth,

that's not my perception and

the wider perception is Coles

is getting some momentum, particularly in

particularly in price and

particularly after the milk

discount thing. Once again, we

do lots of research focus

groups after various

advertising programs. Our

basket program had the best cut

through of any of the ads in

the market place because it

says across all of your basket you will get a great

you will get a great deal deal.

There is confusion has to whether it is one product or

many products. From our market

research and our price checks,

we know we are out there and we

have maintained price

leadership and we have actually

also maintained our price

perception scores. What's been

interesting has been the close

in gap between the major supermarkets and the

discounters in terms of price

dramatically over perception. That's narrowed

dramatically over the last year

or so. Do you accept it is

now game on? It's been game on

for the last 80 years. Coles is obviously older than

Woolies. We are 87 years old.

They are a little bit older

than that. It has been game

on ever since we both opened a

store in the same town. More

so now than in recent years

perhaps. I have been around

retailing for 30 years and things are always

things are always either a

little bit quiet or they get little bit noisy. At the little bit quiet or they get a little

moment we have a bit of noise

happening. I enjoy the noise

because it makes life a lot

more interesting. There was

quite an interesting statement

from the chairman James Strong

on Friday, basically confirming

the succession plan for the CEO

is under way. Are you up for

the challenge for the next few

years? I have always been up

for the battle. What the

chairman did was there has been

quite a bit of interest amongst

some print journalists, comment

upon comment on comment, and he

just wanted to set the record

straight. Can you tell us

... The process is really clear

that, at the appropriate time, whenever

whenever they may be, the chairperson of that company

does it through the appropriate

channels. Are you prepared to

clearly state publicly what

your intentions are? I have

said all I want to say. I

realgy - really enjoy the

speculation on my career. I'm

not sure if people want me to

go or stay. It has been

interesting and fun to watch.

I haven't hung up the boots

yet. It was interesting in the

profit statement that online

sales are up 75%, obviously from a low base. Your big

strategy over the next fever

years is to build - five years

Lowes Home Improvement stores. is build 150 big stores with

Do you feel like you are going

in the wrong direction? If

everything is moving online,

you are building stores. I

think you will find we will

have a multi-channel offer in

have a multi-channel offer in

that area as well. I think

quite often people get a bit confused about the way the

world's moving. It is actually

not moving purely online. It

is moving multi-channel. If

you have got a good strong

brand having a physical

presence but also an in-home

offering and having an online

offering and mixing and

matching those. That's where

we are heading with our

we are heading with our

businesses. In home

improvement we have that same

offer. We have talked about

Coles coming at you with

discounting and online

shopping. What do you think

are the challenges facing

Woolworths over the next few

years? Make sure we play our

own game and don't get carried

away with overreacting too

much. We have built a very

solid base, we have got a very

strong business, a

strong business, a very strong

team, we have a marvellous and

growing customer base, we have

extensions into online,

extensioning through

acquisitions a Cellarmasters is

a good example of how we have

moved into another channel

today, and it is about understanding, particularly

through our frequent shopper

programs, what it is that

customers really want. I notice

you don't mention Aldi and

discounters. They are Costco, the real big

discounters. They are bit of a challenge, aren't they?

Clearly to date we have seen

the demise of what were the two

big discounters in our market,

in Bi-Lo and before that

Franklins. Both of those

owned that territory in the

past. There has been a little

bit of a swap in the share in

there. What we have seen

around the world, other than in

Germany, let's take the UK as a

good example, combined, all the

discount ers there were circa 9

to 10% of the market but we

have seen one of them pack up

and sell out to Asda in

particular. I think there

will always be an will always be an opportunity

for people that want a

shortened and abbreviated

range, that are not interested

in buying brand products and are

are interested in packing their

own bags and standing in long

queues and maybe getting a little bit extra out of the

tape at the end. But there are

many that just say 'I like the

excitement of having brands and

having choice and I like the

fact that someone packs my bag

for me and I can get a bag' et cetera et cetera. There will

be a place for both of us. Can

you tell us the purpose of the acquisition of Cellarmasters

acquisition of Cellarmasters

that you announced on Friday

which obviously is, among other

things, a bottler of wine.

There is a huge glut of wine in

Australia at the moment, surely

you don't need to buy a bottle,

you can get wine anywhere. And

we can. What they do have is

a strong and growing business

in direct-to-home through their

virus wine club - various wine clubs.

clubs. They sell brands not

available on the regional

marketplace. It was

interesting talking to a young

journalist earlier today, he is

a member of Cellarmasters and

he waxed lyrical about the

brands. If you get a bigger

share of the journalististic market, you will be made?

Including you? Thanks for

joining us. Pleasure. That's it for the program. You

it for the program. You can

read a transcript or watch a

video and a vodcast of all

today's stories and interviews

Thanks on our web site later on.

Hello again, welcome to Offsiders

drags on with the AFL and the