Kerry Stokes

“quoted Stokes as saying, in reply to a question about his origins, ‘I am a beginning, not an end.’”

“In 1972 Stokes was travelling overseas to seek investment. Soon the Hong Kong and Shanghai Banking Corporation was involved as a shareholder and provider of mortgage finance, and a group of investors from Bermuda were represented on the board. So began a pattern in Stokes’ business career: shuffling assets between public companies he controlled and his private companies, always with the result that he increased his personal wealth. Those who knew them at the time say that Stokes and Bendat were on a learning curve. ‘It would be, “Oh, can we do this?” They didn’t really have a strong sense of the rules, but they both learned fast.’ The 1972 CPI report shows that the board approved the purchase of Dianella Plaza from a Bendat and Stokes company. ‘The Chairman, Mr Bendat, and the Managing Director, Mr Stokes of CPI, are also directors of the vendor company, and because of the situation, both abstained from voting in the Board’s decision to acquire this project.’”

“Stokes continued to look beyond shopping centres. Planning and building regulations were multiplying faster than the population. The fun had gone out of it, and while there was still money to be made, the golden days were over. Having founded CPI as a public company, in 1977 Stokes and Bendat decided to privatise – but through a strange mechanism. Instead of the pair buying directly, their associated private companies, Retford Pty Ltd and Villaro Pty Ltd, employed a mining company, North West Mining NL, to make a takeover bid. The money for the takeover was raised through a loan organised by North West from the merchant banker Hill Samuel, which later became the Macquarie Bank. The loan was to be repaid by declaring a dividend funded from revaluing the shopping centres after the takeover deal was complete. The complicated deal was put together by Geoffrey Cohen, for years Stokes’ corporate lawyer, and director of many of his companies. Also acting for the pair at this time was David Gonski, then with the law firm Freehills. A key feature of the Stokes–Bendat success, as it had been with that of the Stokes and Merifield partnership, was their ability to hire the best advisers and work closely with them. Why was the deal done through the proxy company? Stokes later told journalists there was ‘nothing untoward about it’. The reason had been legal problems to do with tax and capital distribution. ‘It would not have been possible without the interpositioning of another public company.’8 It was less than a complete explanation. Retford and Villaro were trust companies, and the beneficiaries of the trusts were members of the Stokes and Bendat families. The directors were Cohen and a chartered accountant. Stokes and Bendat did not technically control the companies but had the power to appoint and remove their trustees. In fact, they were clearly their companies, used both for this transaction and for their interest in South Western Telecasters. When it came to CPI, Stokes and Bendat were selling their shares to their own associated companies and asking other shareholders to follow. It was effectively a related-party transaction but without the level of transparency that would have been necessary if the deal had been done directly, rather than through North West. The offer document declared that the shares would ultimately be transferred to Retford and Villaro, and it also disclosed that Stokes and Bendat had ‘an association’ with those companies but was less than completely transparent about the nature of the association.”

“Despite this advice, the chairman of the superannuation trust, Jack Hammond, pushed ahead and cut a generous deal. The trust bought all six shopping centres for a cash price of $19.35 million. (In the 1977 CPI annual report, the entire portfolio of the company’s property had been valued at just $15.6 million.) Even more generously, the contract stipulated that if the properties were onsold by the trust at a profit, CPI would be entitled to half of the proceeds; and if the properties were not sold within ten years, it would receive half of any increase in the valuation. Yet there were no arrangements for sharing capital losses. It was also agreed that a Stokes–Bendat company, West Australian Property Management, would continue to manage the properties and CPI would be entitled to receive half of any increase in net rents over a base guaranteed amount. Stokes and Bendat would have the power to suggest proposals for sale or improvements. The generosity didn’t end there. Rents were to be paid to the trust by West Australian Property Management on a quarterly basis, but the interest earned on the rents during the quarter was to be partly kept by the management company. There were also concerns about whether the excess rent share kept by the Stokes–Bendat interests was counted as capital – part of the purchase price – or not. This had implications for capital gains tax.”

“They were down and I was up. I saw an opportunity as a businessman, if I had the right people and let them run it.’17 It was clear, though, that the Bunbury group”

“Perth FM radio was a source of effortless cashflow for the Bendats and the Stokes, but their involvement was as investors, observers and learners rather than managers. Treasure ran the station, and as directors Stokes and Bendat attended board meetings, listened and learned. ‘Brian Treasure taught me everything I know,’ Bendat has said.”

“Apart from the brief period when CPI had been a public company, Stokes had always liked to hold his wealth in private companies, and he continued to prefer it in the years ahead. Naturally private and suspicious, he put as little information on the public record as he could get away with. Rather than ‘pyramiding’, like so many entrepreneurs of the 1980s, in which complex public company structures kept control in a few hands with little cash laid out up front, Stokes at this time used public companies only when he needed to raise big capital, or when he had little choice. He liked control, he liked prudence, and he liked privacy – none of which has prevented him, in more recent times, from dealing ruthlessly with the public companies he has controlled.”

“At the same time, he was investing in Pacific Film Laboratories, which was giving Kodak a run for market dominance by employing what was then the latest computer-assisted processing technology, as well as giving away free film to those who took photos there for processing. In 1982, he made a takeover offer for the company. This, too, became owned by ACE, and after the takeover Stokes changed the board so it had largely common membership with Australian Capital Television. Stokes took to referring to the different interests ACE held as ‘partners’, with the relationship between them and ACE ‘not that of control but rather cooperation’. He clearly saw all kinds of potential for collaboration across media and photography. Pacific Film, however, did not last as a Stokes investment. In 1985, he sold out to Kodak, ahead of the dominance of the domestic digital camera, the minilabs for processing on each street corner, and all the changes that transformed photography forever. ‘I lost a fortune,’ he told The Bulletin in 1991.9”

“‘I’ve never really thought about money,’ he told the journalist, who noted the leather furniture, the blue carpet and the original art on the walls. ‘You do what you do and if everything goes right you make money. Money should not be your primary objective. It should be a by-product of something you do better than anyone else.’ It was a claim Stokes made many more times in the years to come, no matter how often his actions belied his words. Stokes made it clear that he had bigger plans – that this was the start of a media empire. ‘I have made no secret of the fact that if legislation is changed we are interested in expanding our activities in the media. That doesn’t mean we’ll take on just any old radio or TV station. They will have to meet our criteria.’ The criteria, said Stokes, were that they should ‘entertain and also be the catalyst for change’. What change he wanted to see was not clear.”

“In late October 1987, as fortunes were crashing all around him, Stokes was reported to be one of the few millionaires buying art at Christie’s first post–financial crash art sale. He paid $8000 for a rare letter relating to Australia’s discovery and $6000 for an early map of the country, as well as record prices at auction for works by William Dargie, Leonard French and Albert Namatjira. A week later at Sotheby’s he bought another Leonard French work, and one by Arthur Boyd. Stokes had arrived on the other side of the crash with his fortune, and his reputation, intact, cashed up and ready to benefit by picking over the wreckage of others’ empires. In January 1988, he bought a St Georges Terrace building from the West Australian State Superannuation Fund for $20 million. On 20 October he moved offshore, buying a $212 million office block in Dallas, Texas, and announcing plans to build another, each the size of the premium properties in Sydney. The next year he bought the Perth Entertainment Centre and 40 per cent of the Perth Wildcats basketball team.”

“Given the odour surrounding the name of Alan Bond, it isn’t surprising that when Bond took over Bell Group, and with it the Caterpillar dealership, the parent company in the United States announced that it would withdraw the franchise. Moving with characteristic ruthlessness, Caterpillar gave Bond only three months’ notice to come to an agreement with the newly anointed dealer: a US company, Morgan Equipment. The federal government was far from pleased. The treasurer, Paul Keating, issued a statement saying that the replacement of an Australian-owned with a foreign-owned company was ‘inconsistent with foreign investment guidelines’.20 Meanwhile, the Bell Group managing director, David Aspinall, described Caterpillar’s actions as ‘tantamount to rape’, and Bond announced his intention to challenge the validity of the termination notice in the Victorian Supreme Court.21 Stokes was at the time the majority owner and a director of a public company called Austrim, which was associated with the Nylex Group – manufacturers of clothes, fabrics, hoses and that Australian iconic brand, the Esky. While Morgan Equipment and Bond scrapped over the price for the dealership, Stokes and his fellow director and svengali Ken Parker manoeuvred for position. When the dust settled over the fight between Morgan Equipment and Bond, Austrim emerged owning 30 per cent of the franchise, with Morgan owning the other 70 per cent. Then, in the final weeks of the greedy decade it was announced that Austrim would sell its 30 per cent share in the dealership to Stokes’ ACE. Three weeks later, on 16 January 1990, the news was released that Stokes had bought the lot. He had paid Morgan Equipment’s owner Harold Morgan $50 million for the whole company, including the Caterpillar dealership. The Caterpillar head office clearly smiled on the deal: there was no suggestion of their revisiting the ownership of the franchise. Stokes smoothly slipped in.”

“Stokes had managed to ingratiate himself with Caterpillar management in Illinois, convincing them that he was the kind of ethical, principled businessman their company required. The relationship has only deepened over the years, making WesTrac, the Stokes company that owns the Caterpillar franchises, the most reliable contributor to his wealth.”

“He had not, for the most part, built businesses from the ground up. He was not a creator of new enterprises. Rather, he had done deals, cultivated relationships, capitalised on booms and aggregated money-earning assets. His great talent was that he could see ways of structuring a deal or a business enterprise that looked obvious in hindsight, yet which nobody had hit on before. He sensed a boom well before others. He had weaknesses, both in capacity and in emotions. Particularly, there was a lack where most of us have a sense of identity and place. He was a hoarder, a gatherer around himself of objects. He liked acquisition. Yet he also had an ability to reconfigure, and to move on when self- or business interest required. He was unlike Murdoch and Packer in that, when it came to business, he was mostly unsentimental. He saved sentiment for the art collection. Which is not to say he was unemotional. There was a chip on his shoulder, an abiding sense, despite his wealth and power, of being hard done by, and a determination to take it up to the establishment. But with all that he was good fun – laconic and outwardly even tempered. His employees liked him, and most were steadfastly loyal and well looked after. He was a dealer, rather than a manager, but he made up for any lack by the quality of the people he hired as his closest assistants, and the manner in which he kept them close.”

“In the years that followed he shuffled the deck of his assets in a series of big, complex, related-party transactions. The effect, in every case, was that the debt ended up further away from Stokes’ private interests, while his control over the assets was tightened. In all this the independent directors of his public companies – including Dulcie Boling, who had once been Murdoch’s nominee, and Peter Ritchie, the former head of McDonald’s Australia – raised no public objection.”

“‘Shock and awe’ is how one commentator described the announcement made by the Seven Network in February 2010.16 In theory the board of the company had, ever since the Kohlberg Kravis Roberts deal, been searching the world for good investments. Instead, much of the money had been used to buy back shares in the company itself, which had increased Stokes’ control. More had been spent on Consolidated Media Holdings and West Australian Newspapers. Now, the company announced, it had decided that the best way to spend its cash was to buy WesTrac from Stokes’ private company, ACE. Under the deal the Seven Network would pay $1 billion in shares for WesTrac, and take on the company’s $1 billion in debt, using $600 million of the remaining cash in the company to pay it down. The new merged company, Seven Group Holdings, would own the Seven Media Group with Kohlberg Kravis Roberts. It would be a conglomerate, bearing the Seven name but with little to do with the original business. Stokes would own 68 per cent of it. Once again, the equity moved closer to Stokes, and the debt – accrued by WesTrac during its fast expansion in New South Wales and China – further away. One investment adviser service described the situation pithily. ‘So after three years of searching high and low, the directors [of the Seven Network] have come to the conclusion that the very best investment opportunity is the acquisition of WesTrac.’ Under the heading ‘Sarcastic Remark Warning’, the service’s newsletter said, ‘The new combined media investment and heavy earthmoving company will be renamed Seven Group Holdings Limited, presumably a reference to the seven seas sailed by independent directors in their search for investment opportunities before stumbling onto the perfect one in their boss’s backyard.’”

“consent. The value of WesTrac rested on its keeping the Caterpillar dealerships,”

“In 2011 it was announced that West Australian Newspapers, once a cashed-up, debt-averse and conservatively managed local newspaper company, would bid to take over the whole of the Seven Media Group, in a $4.1 billion merger, creating a new entity called Seven West Media. Stokes controlled both companies, and the deal was yet another immensely complicated related-party transaction. Market analysts agreed that this deal made more sense than the previous merger of earthmoving equipment and media assets. It would bring newspaper and television assets together. The immediate spur was almost certainly that Stokes’ private equity partner, Kohlberg Kravis Roberts, wanted to sell off its investment, having done no better than break even. The deal allowed Stokes to consolidate all his media investments in one vehicle, while allowing Kohlberg Kravis Roberts to leave its Seven Media Group investment without Stokes having to use his own money to buy them out; the money was coming from the West Australian Newspapers balance sheet. The deal meant that $2 billion of debt went into the listed West Australian Newspapers, now reborn as Seven West Media. Kohlberg Kravis Roberts would receive $920 million for its stake, and would be left owning just 13 per cent of Seven West Media, a stake it sold in 2013. The deal gave the Stokes-controlled Seven Group Holdings Ltd increased control of West Australian Newspapers – from 24 per cent up to 33.6 per cent. Once again, debt shifted down the corporate structure, further from Stokes’ private interests, while he increased his equity and control. Financial journalist Alan Kohler described it as ‘deal-making 101 of the Kerry Stokes business school – gaining control of a company without the inconvenience of paying a direct takeover premium’. It was, said Kohler, ‘just about the high-water mark of complicated related-party transactions in Australian corporate history’.24”