CPI

"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."

"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.’"

"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."

"The Perth Stock Exchange raked over the various entities behind North West Mining’s offer. Stokes and Bendat were linked to a 47 per cent slice of CPI shares through two other family companies, the Stokes family’s Vetlabs Pty Ltd and the Bendats’ Paulla Investments Pty Ltd (named after Bendat’s fortunate adult children Paul and Laura). As with Retford and Villaro, the issued capital of these two family companies was held in trust by Stokes and Bendat’s tax advisers, their solicitor Geoffrey Cohen and an accountant called Harrington. The stock exchange was uneasy about the ‘Russian doll’ layers of ownership and control of the various companies involved in the takeover, and whether minor shareholders had a clear understanding of what was happening. The exchange chairman noted in a public statement that Stokes and Bendat would obviously have influence over the trustees but concluded that the two businessmen did not technically control the trusts themselves. ‘Shareholders would no doubt be able to view the acceptance of the offer . . . in this light,’ the statement concluded. Turning to the valuation of the shares at $1, the exchange conceded the transaction did not need compulsory valuation by a qualified valuer or at least two directors — but stated it was disappointing that the CPI board had not sought an independent opinion of the offer. ‘Despite the controversy,’ Bill Rayner would note later, ‘shareholders voted with their hip pockets.’ On 29 June 1977, the company announced a 98.6 per cent acceptance of the North West Mining offer. Game, set and match to Stokes and Bendat."

"THE BARE BONES of the coup were later exposed in the takeover documents required to be lodged with the Perth Stock Exchange. The two family companies that Stokes and Bendat controlled, Retford and Villaro, had borrowed $2.8 million from Hill Samuel and lent it to North West Mining. In return, North West Mining agreed to transfer 1,430,309 CPI shares each to Retford and Villaro. According to the lodged documents, the market value of properties owned by CPI on 28 February 1977 was about $21.5 million. The statement said this was more than $4.5 million above the value recorded on the company’s books. The new valuation boosted CPI’s net assets from $1.49 per share the previous 30 June, eight months earlier, to about $3 per share. At a glance, the North West Mining offer of $1 a share had seemed generous because it was more than the most recent market price of 70 cents. But it was well below the asset backing of $3 a share — which was why the Hong Kong bankers had resisted selling their holding at $1. But for unsophisticated shareholders, rattled by three years of bad news, it was a chance to get out at what seemed like a profit. After all, the company’s recent track record had been patchy: with sales from as low as 20 cents and up to 63 cents on the eve of the offer. For reasons carefully explained at annual general meetings, it had not paid a dividend for three years. Failed and struggling shopping centre developments in the middle of a recession had shaken shareholders’ confidence and here was a way out."

"Jack Bendat & Associates built and refurbished Consolidated Properties’ property assets until Bendat and Stokes set up a building division under another name. In 1973, CPI took over Modernair, which handled the huge air-conditioning contracts needed for the shopping centres. They expanded it to handle all the other elements used in commercial-scale air-conditioning: sheet metal, heavy steel and copper piping, fibreglass ducts and so on."

"On his way up, Gonski would become a corporate confidant of Kerry Packer, Rupert Murdoch and Frank Lowy, among others. But only one of his tycoon patrons ever personally picked him up from the airport, and that was Kerry Stokes. It was the late 1970s, soon after they’d met, and Gonski had been asked to Perth to work on a project he has forgotten but which was almost certainly the controversial CPI buy-back. What he has never forgotten is the sight of Stokes waiting for him in a blue Rolls-Royce convertible, as casually and quietly as if Gonski were family. ‘That never happens,’ says Gonski of the gesture. Tycoons will spend money on good help, but rarely their own time. Yet Stokes goes out of his way to include relative strangers, to make them feel wanted and ‘on the team’. Some can’t help thinking he means it."

"The decision was good news for Stokes and Bendat. The transaction got the green light and the shopping centre barons became small media players with large ambitions. They were elected to the South Western Telecasters board soon afterwards. Each denied wanting to control the company, saying it was just another investment opportunity. Stokes was quoted as saying he was surprised that outsiders like him and Bendat could spy so much potential and yet ‘so few local people’ seemed to be buying shares in the broadcaster. They wheeled out their families’ respective investment companies Vetlabs and Paulla Investments, which had been used to take CPI private not long before. Between them the two companies bought a block of 500,000 South Western Telecasters shares, which was more than 20 per cent of the broadcaster. By then other companies associated with them had already crept into the share register. By late 1978 Stokes and Bendat controlled 37 per cent of South Western Telecasters. Enough to make their presence felt in the media world."

"IN THE NEW year of 1978, Stokes and Bendat decided to sell the Bunbury Shopping Centre, by then owned by a subsidiary of CPI. It had been Bendat’s first building venture in his adopted country but he wasn’t sentimental. The centre faced increased competition. It was nothing the pair couldn’t handle but they had other plans. They wanted $1.5 million to sink into ‘new ventures’, a local newspaper reported that summer. In fact, what they wanted was in plain sight of the shopping centre."