as pointed out on another thread here on pprune. read it ,copy it and send it to ur friends in canberra.
http://www.aph.gov.au/house/members/mi-alpha.asp
Editorial: Dangers lurking in the cult of the deal
December 16, 2006
Private equity buyouts challenge the nature of capitalism
YOU need not subscribe to the barricades school of economic populism to be concerned about the rash of private equity deals sweeping through Australia and the global economy, of which the proposed $11 billion takeover of Qantas is just the latest example. There is every reason to worry that in using sophisticated and opaque accounting techniques to snatch up companies such as Qantas while minimising their tax contribution to the community, private equity firms are enriching a handful of clever financial engineers and sowing the seeds of the next recession, while in the process tearing down once-great Australian brands. The consortium of raiders assembled to buy Qantas at $5.60 a share is still getting something of a bargain, thanks to investors' historic wariness of airlines. Under the terms of the deal, Macquarie Bank will own 15 per cent of the carrier while offshore investors will take 40 per cent. And although it will probably be refloated in five to 10 years, if the deal is approved Qantas shares will for now cease to trade publicly. In a hopeful sign of the buyers' good intentions, CEO Geoff Dixon has pledged to stay on for at least three years.
Yet a closer look reveals reasons to be less sanguine. Traditionally, when a buyer purchases a company, they assume the operational and tax risks associated with the venture. But the way deals such as the Qantas purchase are structured shifts these burdens onto banks and their customers, as well as the federal government - that is, ordinary taxpayers and citizens. Meanwhile the handful of bankers and accountants responsible for engineering the deal will cream off huge guaranteed success fees, progress fees and then more fees once again when they return the company to the sharemarket. Combined with the fees gouged out of ordinary Australians by Macquarie Bank for the use of basic infrastructure, including Sydney airport, it is easy to see why the public's suspicion is aroused. Central bankers, too, are concerned about the very real threat created by private equity firms gearing themselves so heavily to buy so much debt. The fear is that if central banks raise interest rates to rein in the massive amounts of cash sloshing around the global markets they will cause such structures to collapse, with banks and individual investors left holding the bag. Australians who remember the financial crash of the late 1980s, as well as the tech bubble burst at the turn of the century, are right to feel a flicker of nervousness. These dangers have made for strange bedfellows: ACTU secretary Greg Combet has called Qantas's buyers "parasites", while NAB chief John Stewart warns that the wave of private equity deals could "all end in tears". Even if it does not, given Macquarie Bank's record of hiking prices while cutting service at its other assets such as Sydney airport, there is every reason to be concerned that Qantas service will suffer. And given that Macquarie Bank already controls Sydney airport, its stake in Qantas will create a conflict of interest when it comes to opening up more gates to competing carriers. Already Qantas's value is artificially increased by government policies that protect it from would-be competitors such as Singapore Airlines, which would love to compete on valuable trans-Pacific routes. In an attempt to allay such fears, Mr Dixon assured viewers of Thursday night's 7:30 Report that the travelling public would not see any difference in Qantas service. And to his great credit, he also pledged on Thursday to place his personal windfall from the sale, which could amount to $60 million, into a charitable trust.
While The Australian is a strong supporter of the principle of private ownership and minimal government interference in the markets, we also believe markets do not exist in a moral or financial vacuum. Rather, they exist to see the economy's benefits flow to the maximum number of people in the most efficient way. The great moral defence of capitalism is that it is the most efficient way of producing wealth that benefits the greatest number of people. But the present enthusiasm for private equity takeovers of public companies seems to have flipped this idea on its back. The great industrialists of last century who built Qantas, to say nothing of men like Henry Ford, all made their fortunes by taking risks in the marketplace to build companies that provided new goods and services. Today's private equity mavens deliberately avoid both risk and market scrutiny. All of this sets a tough challenge for the regulators. Peter Costello has not tipped his hand, saying only that although the deal meets foreign ownership requirements he will still apply a national interest test to the sale. This deal means it may be time to have a broader conversation about the role such transactions play in our economy.
merry christmas
