05/03/2008 - 22:00

New twist in the Palandri tale

05/03/2008 - 22:00

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There are times when I appreciate having been around a bit longer than your average Western Australian business journalist, and the Palandri story that erupted last week is one of those occasions

There are times when I appreciate having been around a bit longer than your average Western Australian business journalist, and the Palandri story that erupted last week is one of those occasions.

I was among the first journalists to cover the emergence of Palandri in the late 1990s, because I had the managed investment schemes as a regular beat.

For those who missed it, Palandri is a large WA winemaker that emerged from the tax-effective investment sector a decade ago, and was put into administration last week due to action from creditors.

Apart from being a comparatively large fund-raising exercise for the fast-maturing sector at the time, I recall the Palandri proposal stood out for two reasons.

Firstly, it was a pioneering attempt to use the predecessor to managed investment schemes to launch a truly integrated business, rather than just an agricultural scheme.

Secondly, this increased sophistication heralded, to me at least, that MIS could be emerging as way of raising capital in competition with traditional formats such as a stock market float.

As it turned out, this second observation was way off. Even though, in some years, the MIS sector pulled hundreds of millions of dollars, if not more, the tax-effective investment was only ever a marginal option for the bulk of funds available.

And, for good measure, the tax office made sure it stayed that way by launching a scare campaign and dragging a number of the field’s early investors through the courts.

Against that backdrop, Palandri is almost unique, though players such as Frankland winery Ferngrove and Margaret River’s Watershed, as well as one or two olive producers, have emerged either directly or indirectly as branded producers from an MIS history.

Another reason Palandri stood out 10 years ago was the vision of founder Darrel Jarvis, even then relatively well known from his work with the Holmes a Court empire.

Mr Jarvis courted controversy in many ways, and one of them was to suggest he could build a world-class wine brand from scratch and outplay the local WA players that had taken 20 years or more to establish themselves.

He earned the ire of the local wineries, partly by suggesting they were little more than a collection of tired cottage operations, but also by leveraging his business on the reputation of the Margaret River appellation they had built.

To many existing winemakers, Palandri was an upstart, Johnny-come-lately, using tax dollars to buy itself into the hard-earned name of the region. To cap that off, Palandri built a huge and visually prominent winery to dominate the landscape on the drive to the Margaret River township, inside which it processed grapes that were more than likely grown outside the area.

All of this would have been fine; if it had worked.

But underneath all the big statements, many journalists had trouble understanding the structure of Palandri and exactly who was benefiting from the myriad cross-ownerships, financing structures and inter-company agreements across the group.

Several times I sought clarification, only for the whiteboard to be wheeled out yet again for what appeared to me to be another exercise in obfuscation. At the time, I thought I must be stupid, but even the administrators last week described Palandri as complex.

One year, I recall spending a few days trawling through various prospectuses to glean a better understanding of the business and where the money was going.

When I presented my findings to Palandri exectives and started asking further questions, their reaction was to ask me who’d done the investigation – as if a journalist might not pry into a business that, by that time, had probably raised more than $100 million, with a high proportion of that from Western Australians.

Another problem for me was that Palandri kept changing. It was financial engineering and corporate wizardry at its best.

Perhaps to its promoters, this change was natural evolution, but to me it made it difficult to pin the company down on whether it had achieved what it said it was going to.

I was particularly interested in one restructure, in 2001, whereby two previously separate parts of the group merged.

The part of the group that had profited most from its early explosion of fund raising, activity which was then waning under tax office attacks, merged with the investor-controlled part which included the brands, the land and the winery their money had bought. It did not seem like a good deal for investors to me.

From my point of view, it’s not all been negative. Palandri has also had patches where its motivation seemed clear.

For instance, it promised to list on London’s Alternative Investments Market, and did so in 2004.

At the time, it led me to believe that perhaps my cynicism was misplaced and that any company that can survive six years culminating in a successful float must have more clues than I thought.

I have paid less attention to the company since then but the news has rarely been good, and last week’s administration has all the hallmarks of the end of the original Palandri dream – whatever that really was.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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