The Sydney Morning Herald from Sydney, New South Wales, Australia • Page 29

CBA sparks tax review 31 WestfiekTs US push 31 Shares stage late rally 34 LLP SUmiHEH At the mercy of outside forces Campbell. tsdkes target Not so very long ago a report from the ABS such as we saw yesterday that private sector wages increased by 2 per cent in the September quarter and average weekly earnings were up by 4.4 per cent in annual terms would have produced speculation that the Reserve Bank would have to consider an increase in official short-term interest rates. After all, as Citibank's chief economist Stephen Koukoulas said after the release of the figures: "The level of wages growth must be regarded as being too high for this stage of the economic and employment cycle." However, the financial markets virtually ignored the local news, focusing instead on external developments. The Australian business cycle and economic outlook is now being aaW 1 LINE I ft I By CAROLYN CUMMINS Arnotts shareholders yesterday ended 132 years of Australian ownership, voting overwhelmingly to accept US-based Campbell Soup's $420 million takeover offer. The strong opposition of early 1993 to Campbell's attempt to win control disappeared as shareholders representing 99.9 per cent of the remaining 30 per cent of Arnotts voted to accept Campbell will pay $10 a share plus Arnotts's 14c-a-share final dividend, leaving many, including a vast number of Arnott family members, with sizable profits.

About 300 shareholders turned up for the three-hour meeting. The time was taken by two polls one for Campbell to buy out the 30 per cent it did not already own, and the other for Campbell to cancel the shares. Campbell chose to buy out minority shareholders through a scheme of arrangement, rather than a formal bid. It is expected Arnotts shares will be delisted early next month after court approval of the scheme. Many at yesterday's meeting had bought Arnotts shares when it listed on the sharemarket in 1975.

Arnotts was founded in 1865 by William Arnott, with the listed company formed from the merger of several Australian biscuit makers in 1964. Arnotts chairman Mr Duncan McDonald said yesterday it was emotional, but he was confident that Arnotts, under the care of Campbell, was in capable hands. "The independent directors took the proposal to Campbells because they had been concerned non-Campbells shareholders were being discriminated against with the flat Arnotts share price. The board saw the market for Arnotts shares as shallow and illiquid and not appropriately reflecting the value and performance of the company," Mr McDonald said. The US group took 53 per cent of Arnotts in February 1993 with a bid.

But a 1985 agreement restricting Campbell to a 14.9 per cent voting position with no board control was upheld amid the takeover battle. Since the bid's failure, the shares have languished between $8.30 and $9. Campbell gradually lifted its interest to 70 per cent, buying under the takeover "creep" provision that allows the purchase driven by external forces. As this column noted yesterday, arising from this is that what economic managers in Australia and the other advanced economies fear most is deflation more than inflation. As a result, economic analysts around the world are revising downwards their forecasts of economic growth.

Merrill Lynch's chief economist, James Winder, who is visiting Australia, has revised his estimate for world growth in 1997 down from 3.75 per cent to 3 per cent. Because events are moving with such speed and unpredictability in Asia and other emerging markets (Brazil is the latest to get the wobbles) any orecast or 1 998 is rather like holding a finger to the wind. While growth will certainly be lower than expected, a very short time ago we would not have got too spooked by the prospect of deflation. Deflation falling prices shares one characteristic with inflation. A little bit can be quite a positive development for an economy but a lot can be very painful.

Deflation when you have a nasty dose of the problem can be very difficult to treat. This is best illustrated by the continuing stagnation of the Japanese economy, where asset deflation in the form of collapsing property and equity prices has defied seven years of fiscal kick-starts and what is now a near-zero official short term interest rate. What has happened in Japan in the 1990s is remarkably similar, though thankfully on a much less damaging scale, to what happened in the US in the 1930s. The deflation followed the bursting of an asset price bubble which crippled the banking sector. It is when asset prices, rather than consumer prices, begin to fall that the domino effect of deflation comes into effect.

If people believe that prices for non-essentials are destined to fall then they postpone buying today what will be cheaper tomorrow or next week, month or year. Property and equities are amongst the first items affected. As these are often the collateral of bank advances, asset deflation quickly feeds into the financial system. Banks call for clients to top up their collateral and those that are leveraged to the limit go bust. Bank credit is restricted and in extreme circumstances the banks themselves collapse.

Because, as we saw in the 1930s, bank closures breed public panic which can threaten systemic collapse, the Continued next page Joss-tling for No 1 daughter of the firm's founder, $13.5 million. $220m windfall for the founder's family i 1 Mr William Arnott, will collect Mrs Oppen was one of the most vocal opponents when Campbells made an unwelcome 1992 takeover. Under the SAO banners Stay Australian Owned, and Shareholders' Action Organisation, Mrs Oppen led the fight against an Australian icon falling to the Americans. However, Mrs Oppen was later offered and accepted a directorship at Arnotts. Mingling with shareholders yesterday, she was assuring investors that the Campbells bids was "very good for the MAX WALSH ELIZABETH KNIGHT Successor fever Telstra final price will be revealed tomorrow spot in bankin! Mrs Tina Clarke, a relative, said Mrs Oppen and the other independent directors "deserve a vote of thanks, particularly Mrs Oppen, who pursued her dudes on the Arnotts board with integrity and The largest Arnott family shareholder, Mr Robert Arnott, who hold 3.58 million shares under the private company Kar-enmoor, stands to gain $36.3 million.

Mr Jeremy Arnott said it was a sad event for all of the family. "But it was something that if Mr Murdoch "I intend to stay alive for a while." sion industry in Australia. "There has got to be some restructuring of the industry some simplification given its huge losses. "Everybody has been losing bundles. It's crazy." However, Mr Murdoch declined comment on what form the restructuring would take.

Mr Murdoch said News Corp had wanted the merger between Foxtel, jointly owned by News Don Argus and his team at the National Australia Bank have been for so long viewed as the industry's A-Team that commentators are nervous when they speak of Robert Joss from Westpac stealing the throne. But this view is gaining momentum at a rapid rate and was cemented in the minds of many over the past few weeks when both reported their full-year results to September 1997. Mrs Alice Oppen, great grand of 3 per cent every six months. Arnotts managing director Mr Chris Roberts said the two companies would remain independent, with Arnotts's distinctive red trucks still delivering just biscuits. "There is no intention to change production, management or distribution at Arnotts.

We will be independent to Campbells although we will benefit from the muscle of the US group's balance sheet, technology and Asian contacts," Mr Roberts said. "The Campbells takeover of five years ago failed and this is a re-run. At the time there was a lot of emotion, but harder heads have prevailed." Smaller Australian institutions, though, deliberately bid above $3.30 a share, hoping to snare a greater allocation. For the US institutions the changes to the indicative range seem to have caused major problems. They will pay a maximum of $1.35 a share for the second instalment.9 Most professional investors in the US will bid only within the range set by the Government, even though it is only indicative of the final price.

Float organisers have admitted that a large percentage of those US institutions who applied for shares in Telstra simply bid at $3.30 a share, or at the previous top end of the AM (02) 9353 9004. 200kms per day free in country vru. lookmc pr day free In By GLENDA KORPORAAL in London The issue of succession at News Corporation would finally be resolved after his death, the executive chairman, Mr Rupert Murdoch, said yesterday. Speaking after UK pay TV operator BSkyB's annual meeting in London, Mr Murdoch added: "I intend to stay alive for a while." Asked when the issue of his succession would finally be resolved, he said: "A month or two after I die." Mr Murdoch confirmed that his eldest son Lachlan, chief executive of News Corp's Australian operations, was the one selected by the three Murdoch children from his second marriage as his successor to run News Corp. "The children selected him.

It was their vote," he said. Mr Murdoch's daughter Elisabeth is a senior executive at BSkyB and his son James is running music and new media interests for News Corp. Mr Murdoch also called for a restructuring of the pay televi- There is clear evidence from statements made by both chief executives that their strategies are quite different. This may not be new but, in the past, the market in general has supported 1 By MATTHEW KIDMAN Investment Editor The Federal Government will announce the final price and allocation of shares for the Telstra float tomorrow, following the close today of institutional bidding. The Government previously had stated that the details would be released on Sunday but has revised its schedule following a strong response from institutional investors.

On Wednesday, the Government changed the upper end of the institutional indicative price range from $3.30 to $3.40. This has forced many fund managers to make late changes to their bids. The final price is now expected to be between $3.30 and $3.40 a share. The large Australian institutional investors whose bids were crucial to the final pricing have bid between $3.20 and $3.30 a share, hoping to keep a lid on the final price. Photograph by PETER RAE we could have prevented it, we would have done," Mr Arnott said.

"The family was there at the beginning and is still there at the end. I wish the institution of Arnotts well in the future." Other shareholders in the audience were philosophical. "I bought the shares 20 years ago and got a new car and lots of holidays out of the shares, it's time to move," said one shareholder as she left the Hilton ballroom. CAROLYN CUMMINS at News Corp and Telstra, and Australis blocked by the Australian Competition and Consumer Commission to go through. The ACCC's decision to oppose the merger has left Australis without financial support from Foxtel and warning that receivership is close.

"We weren't going to give them a blank cheque for 12 months," he said. "We were prepared to give them a short-term cheque if you could get a result in a month or six weeks." But he said Telstra also had some difficulties with the proposed merger. "Telstra had some problems because they didn't want to get drawn into a fight over telephony with ACCC chairman Allan Fels." Mr Murdoch said BSkyB's deals with Optus's major shareholder, Cable and Wireless, in Britain had no implications for any possible deals with the company in Australia. Mr Murdoch also caused a stir in Britain by confirming that Continued page 32 Ve harder. 972224.

South Australian Permit No. T694. AV270 7 The extended Arnott family yesterday voted to take a $220 million windfall when they agreed to accept Campbell Soup's offer. One of the main beneficiaries will be independent director Mrs Alice Oppen, who will collect $13.5 million for her 133 million shares. Mrs Oppen is the great-grand-daughter of the firm's founder, Mr William Arnott.

The extended family yesterday agreed to sell the estimated 15 per cent to 20 per cent of Arnotts they owned. range. The change to the indicative range has forced many to change the price of their bids, with some expected to pull out altogether. Retail shareholders have subscribed for shares at $1.95 a share for the first instalment. They will pay a maximum of $1.35 a share ($3.30 in total) for the second instalment There are 4.2 billion shares to be allocated to investors.

Already 650 million or 15 per cent of these have been allocated to the private clients of stockbrokers and another 3 per cent to Telstra employees. At least 45 per cent of the shares will be allocated to retail investors through the public offer. The remaining 37 per cent will be split between local and foreign investors. Individuals who applied for shares in the public offer will receive on average 1,100 shares. Telstra will list on the share-market on Monday.

---fester innunnco i remote areas Excess km at 25 per km WTH Pty Limited. ACN 000 165 855. mi nivalin- WCIm innjtf rTi imm fm calm. the-Argus strategy and has been happy to discount Westpac as not being in the NAB's league. But as one analyst remarked yesterday in recent times NAB has become the Westpac of banking and Wesptac has become the NAB.

NAB is all about growing assets and growing market share, the latest of which has been the US-based HomeSide and the jury is still out on whether this was a good investment. It may prove to be another Michigan National which boosted profit for NAB in the year by 40 per cent but there are mixed views on the new move. There are a lot of risks attached to the acquisition of this US mortgage originator but, in the longer term, there also may be big upside. In fact, the NAB shopping list over the past few years has indeed been large so large that one industry commentator likened Argus to a Pacman as he gobbled an ever increasing number of assets. The offshore regional banks in the UK and US are certainly less risky plays but they are handy to boost NAB's earnings against cyclical downturns in Australia.

But it is just at this point in the Australian banking cycle that the market seems less interested in medium to long term investments and more keen on how the large local banks are weathering the margin squeeze and sluggish growth in lending activity. And this seems to be where Joss is setting the agenda. He managed to notch up a very impressive 1 8.8 per cent growth in earnings per share in the year to September 1997 compared with NAB whose EPS rose from 144.8c to 151.6c. While NAB increased net interest income by 4 per cent, Westpac made the comment in its results that in a falling interest rate environment, and being at the bottom of the credit loss cycle, it was putting its emphasis on risk-adjusted cturns rather than on seeking to maintain interest income through organic asset growth. In other words, Joss's strategy is not about growing market share it is about achieving a better quality of earnings.

He is not about to reduce margins to get market share and has stated this in the past. Clearly, Westpac believes that a cheaper and safer way to increase market share is to buy it rather than discount to get it. While Westpac's net interest margin fell from 3.72 per Continued next page of King plus 8 sets Cobra clubs to be won. ---jl ivL if; Avis invites you to have a good, long test drive of the new Commodore. For just $69 a day you can rent the new Commodore Sedan.

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