Newspaper article The Christian Science Monitor

Adsteam Group Swims in Red Ink AUSTRALIA

Newspaper article The Christian Science Monitor

Adsteam Group Swims in Red Ink AUSTRALIA

Article excerpt

ONLY a year ago the Adsteam Group was the darling of the stock market. Under its umbrella were companies that dominated Australian retailing and food distribution.

Today, the company is close to "going down the gurgler." Eighty banks are meeting this week to try to restructure Adsteam's $6.9 billion (Australian; US$8.8 billion) in debt. They are hoping to work out an arrangement that will give Adsteam a moratorium to make payments on its A$800 million annual interest bill.

At the same time, new management at the top of Adsteam is trying to repackage its assets to get more money when they are sold. Among the prize assets are the second largest retailer in the country, David Jones, the nation's largest food retailer, Woolworths, and Petersville Sleigh Ltd. which produces such food brands as Birds Eye and Peters.

Both the bankers and management are working on a company that is leaking red ink at an unprecedented rate. Last week, Adsteam reported a combined loss of A$3.7 billion for its six month operating results. The loss, mainly from writing down the value of assets, was the largest in Australian history.

After the company reported its results, it also announced that Adsteam's creator, John Spalvins, would no longer be part of management. Mr. Spalvins, an immigrant, created the giant starting with the assets of the Adelaide Steamship Company, which operated tugboats. This week, a business magazines described Spalvins as "not quite clever enough."

But, he was pretty clever. Spalvins put together a network of companies tied together by cross ownerships that were as difficult to see as a spider's web. Since Adsteam companies typically were minority shareholders in each other, outside investors never could get a complete picture of operations or earnings.

"One of the lessons of this is that you need to know the actual net worth of a business," says Bob Conlon, a professor of economics at the University of New South Wales.

For regulatory and tax reasons, Spalvins made it difficult if not impossible to figure out what Adsteam was worth. "It was all very sophisticated, but the market was not sophisticated enough to understand," says Jack Frisch, who teaches microeconomics at the University of New South Wales. …

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