09/04/2008 - 22:00

Stokes’ cards close to his chest

09/04/2008 - 22:00


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Kerry Stokes knows how to fire-up imaginations; right now, he’s got the whole of Western Australia and a fair bit of the rest of the country speculating on what he’s really up to with his high-profile push to spill the board of WA Newspapers Holdings Ltd.

Stokes’ cards close to his chest

Kerry Stokes knows how to fire-up imaginations.

Right now, he’s got the whole of Western Australia and a fair bit of the rest of the country speculating on what he’s really up to with his high-profile push to spill the board of WA Newspapers Holdings Ltd.

From his stated, preferred stance of the reluctant investor who simply has to get involved to help his $400 million-plus investment, the rumours escalate in their scale and audacity, right up to a grand vision to take over newspaper and digital media giant Fairfax Ltd.

In between is the belief of the WAN board that Mr Stokes wants cheap control of the company, possibly to benefit his bigger stake in Seven Network Ltd; and then there’s the fantasy that he will team with Andrew Forrest to launch a second daily newspaper in Perth

Conspiracy theorists even reckon Mr Stokes is close to Rupert Murdoch’s News Corp Ltd empire. News Corp has never gained a big market position in WA, despite owning The Sunday Times and a majority stake in Community Newspapers, having bought the latter from Mr Stokes.

Whatever his plans may be, Mr Stokes is not letting on; and that’s unlikely to change, given his track record of keeping his plans close to his chest.

All of which leaves the market to digest the narrower issue – that of his demand for two seats on the board.

This is something that, at its most basic, generates sympathy for both sides of the argument.

Mr Stokes argues that, through Seven, he is the biggest shareholder of WAN and should be represented around the table.

He believes he has something to add, including broad media experience, and is clearly angered by being left on the outer. Seven sources suggest that occurred before the decision to seek a board seat.

The Stokes camp has taken advantage of several pieces of bad news in their attack on WAN’s performance. Some of that news is very short term, while other elements have a longer track record.

At a WA Business News Success and Leadership breakfast last week, Mr Stokes made it clear he believed WAN’s circulation performance, in a growth market, was poor because it had lost touch with its key demographic.

“No matter what industry you are in, the customer determines what it is you will do,” he said.

“I think the most important thing about The West Australian newspaper is it has lost focus on what its customer is; and its customer is the reader and the readers have stopped buying the newspaper.”

Those on the WAN side of the fence call Seven opportunistic, and don’t believe Mr Stokes’ intentions are as pure as he claims.

The WAN board, led by Peter Mansell, has pointed to Mr Stokes’ step-by-step success in taking control of Seven, claiming that if that happened again it would be tantamount to a take over without paying a premium.

WAN also says its medium- and long-term performance is strong on any measure against peers and the market in general.

Former WAN CEO, Denis Thompson, is one who was intimately involved with the business during his long rein at the publisher, which ended about six years ago and included a long association with Mr Stokes .

“I have sympathy with both sides of the argument,” Mr Thompson said.

In many ways, WAN has changed since Mr Thompson was in charge. In those days the board was often viewed as too conservative, holding  management back from spectacular deals of the time.

That has changed to some degree. The purchase of a half-share of cinema group Hoyts under Mr Thompson’s successor, Ian Law, signalled WAN was prepared to be more aggressive.

Unfortunately, that deal proved a bad one and the subsequent write-downs, coupled with other issues at the publisher, have provided ammunition for Mr Stokes as he pounced.

One of Mr Thompson’s deals to get the nod from his board was the proposed purchase of Mr Stokes’ majority stake in Community Newspapers, which would have given WAN 100 per cent.

At the last minute, Mr Stokes sold instead to News Corp. In another connection to the current story, WAN’s adviser at the time was Michael Ashforth, who remains on the payroll as a director of Gresham, advising the current WAN board in their fight against Seven.

Despite that story, which is well known around Perth media circles, Mr Thompson says he bears no ill will regarding Mr Stokes.

“I had a good relationship with Kerry,” he said. “I don’t support the view that Kerry is bad to deal with.”

Mr Thompson, who remains a shareholder and revealed he did consider standing for the board when prompted by institutional investor inquires about his intentions, also expressed concern about current operations.

The architect of the current distribution agreement, which has now become the subject of legal action between newsagents and WAN, Mr Thompson said he was undecided on the board vote but would be doing things differently from today’s management.

“I would not be sacrificing distribution for the sake of cost cutting,” he said.

This line echoes a point made by Mr Stokes, who claimed WAN’s profitability was benefiting from selling less papers.

WAN has denied circulation trends at The West are any different from major metropolitan dailies around the world.

But there is evidence from its distributors that delays associated with the implementation of new printing presses have affected home deliveries – a lucrative and important part of the market.

Home delivery customers are more likely to be rusted-on, a reliable and consistent source of income; customers who doesn’t require strong headlines to prompt a purchase, as impulse buyers do.

Australian Newsagents Federation WA branch manager Neville Roediger said delays in delivery had cost some agents significant numbers of  customers during the past year or so.

“The customer reaction to that is if you can’t get the papers on the lawn, they will cancel them,” Mr Roediger said.

That problem comes at time when distributors are already bitter about their remuneration, believing that they are bearing more than their fair share of rising costs.

They claim their income has been eroded for years to the point where many distributors’ livelihoods are threatened and the value of their business has diminished.

Last week, WAN ended up in court over the way it has handled the distribution of its revamped weekend publications.

Representing a distributor, Hotchkin Hanly partner Michael Hotchkin said the two parts of the Saturday newspaper were now prepared separately, with home delivery agents expected to pick up the two elements at different times and then deliver twice as much without any additional payment.

“They doubled up the cost and they have not agreed to pay anything,” Mr Hotchkin said, who argues that the way the Saturday paper has been split up is outside the terms of the contract struck with distributors in the late 1990s.

Mr Hotchkin also hopes to widen the case by joining a block of distributors to the claim.

In the first instance, the legal argument is about the interpretation of the agreement between WAN, which is being represented by Ben Luscombe of Mallesons Stephen Jaques, and distributors regarding who gets to determine the price paid for delivery.

Should the distributor lose this initial claim, there will then be an argument about what price is reasonable. Mr Hotchkin argues that WAN’s actions with regard to pricing are unconscionable.

“It’s an abuse of market power by a virtual monopoly,” he said, making reference to a line of attack that is usually reserved for trade practices battles with competitors, rather than between customer and supplier.


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