June 20, 2025 • 36 mins
This week on the Chanticleer podcast, James and Anthony try to make sense of the conflict between Israel and Iran, explain why the biggest cash takeover in Australian history is a massive test for Jim Chalmers and ask - do our big CEOs ever miss out on a bonus?
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Episode Transcript
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Speaker 1 (00:04):
The Australian Financial Review. Hello, I'm James Thompson, senior chantic
clear columnist at the AFR. Welcome to our weekly news
breakdown of all things business, finance and markets. With me today,
as always is my chantapleer colleague, the hot air he
(00:25):
producers will always be vital to the national interest. It's
Anthony McDonald.
Speaker 2 (00:29):
How are you, Anthony, feeling some fertile topics to discuss today, James, fantastic.
Speaker 1 (00:39):
Well, this week we try and make sense of a
conflict between Israel and Iran. Explain why the biggest cash
takeover in Australian history is a massive test for Jim charmers,
and we ask do our big CEOs ever miss out
on a bonus? Well, Athony, let's start there. This week
the Australian Council of Superinnuation Investors, which is sort of
(01:01):
like a proxy advisory firm for the supersector, put out
its annual review of CEO pay and it's safe to
say the bosses are still doing all right, with the
median pay of CEOs and the ASX one hundred sitting
at four point one five million, which I think is
just above your wage, Anthony. But there's a sliver of
(01:21):
solace for the ordinary Australian. That median CEO pay is
now fifty five times the earnings of an average worker,
which is down from seventy one times in twenty fourteen,
and it's well below what's happening in the USA, where
CEO pay is three hundred and forty eight times the
average Gianni or Gina's wage, Anthony, are there any other
(01:43):
trends in this CEO pay survey that you'd like to
point us to?
Speaker 2 (01:47):
The Golden rules to the big bucks. James and I
made the big big bucks. It's pretty simple, isn't it.
You just have to run an ASX listed business that
is big offshore. You can convince your board to compare
your salary to peers or competitors in the US games
you are laughing. So the top paid CEO is in order.
There are all the companies that have these big US businesses.
We've got Robert Thompson from News Limited. They've obviously got
(02:09):
dar Jones over there, the publishing assets off Sure, Lavisa's
Victor Herrero offshore expansion story, Macquary's Shamara Wick Ramayaka. You know,
a cool thirty million bucks realized pay this financial year.
She's got a big global asset manager, big trading house,
you know, competes with all the banks on Wall Street.
You've got Goodman's Greg Goodman global logistics player, Mick Farrell
(02:29):
from their RESMET he's even based in the US, Mike
Henry from BHP and Yakov from Rio tinto big global miners.
It's pretty simple, James, isn't it. You just got to
have a company that competes globally where you can get
compared to CEOs in the US and you make the
big big bucks. But I think the thing that's worth
looking at this year, James, is the amount of CEOs
(02:50):
is again bonuses. And you pointed this out to me.
Of the one hundred and forty two CEOs eligible for bonuses,
only five got a donut. Only five of one hundred
and forty two got zero. So spare thought for them, James.
Speaker 1 (03:03):
They must have really done something wrong. Now, Anthony, the
first question that comes to my mind is do you
happen to know what columnists are paid in America? Because
that could help us on the second question is what
do you have to do to get no bonus? I mean,
were these really the laggards of the AX.
Speaker 2 (03:23):
Yeah, laggards of the AX, or the ones that they
had particularly troublesome years. I mean one that caught my
eye was then Leasa's tiny Lombardo, poor bloke. I mean
he had activists up his wazu or year as well.
So yeah, I think you basically just have had to
have had a shocker or I mean, all the criteria
for their bonuses are laid out, investors can read them
in the remuneration report. It's generally around total shold or return,
(03:46):
you know, the earnings of the company and those sort
of things. But James, honestly, I mean, CEOs get paid
a lot compared to the ordinary person, don't they. And
I'm not sure you could ever say that one person's
worth fifty five times than another. But I mean, i'll
tell you why. I mean, most of the CEOs would
come across. They do bloody hard. I mean, they are
addicted to their jobs. They don't really get much time away,
(04:08):
and they've all done years and years of dedicated service
to get to where they are. But it's just astounding
how those us sort of facing companies just continue to
get paid so much more than the rest.
Speaker 1 (04:20):
Yeah, is it a surprise then that we don't see
too many CEOs make the jump from Australian running Australian
companies to US companies. I guess it's hard, probably hard
to break into that US market. There's only so many
CEO jobs, even in a big market like that.
Speaker 2 (04:35):
Yeah, exactly. I don't think there's too many running US businesses,
although there are a few. And likewise, James, it's interesting
that you get the US CEOs that will come here
and run businesses as well. We see them pop up
from time to time, so there is a bit of
border jumping that goes on. But one undred percent, if
you were doing really well running in a strained business,
(04:55):
surely you'd be looking at what's going on in the
US and say hello, I'd like some of that.
Speaker 1 (05:00):
Yeah, yeah, absolutely.
Speaker 2 (05:02):
And James, speaking of Payer, I couldn't believe my eyes
when I saw that Meta Platforms, which owns Facebook and
WhatsApp and Instagram, is offering sign on bonuses of one
hundred and fifty million dollars to AI engineers. Seriously, who
should earn that sort of money?
Speaker 1 (05:18):
Come on, Anthony, I mean, we see soccer players and
baseball stars and basketball stars traded for that sort of
coin all the time. I mean, hey, we're always saying that,
you know, we undervalue science compared to sports. So here's
an example where we're not doing that and never runs
up in arms. It's a bit I reckon. There's a
(05:39):
bit of double standards here. Look, look, it's a lot
of money though, but why would you pay someone that
sort of money. The reason you pay that someone that
sort of money, if you Meta Platforms, is because you
think getting their skills on board is going to make
you an extraordinary amount of money in return. You know.
So if Meta Platforms is hiring AI engineers for one
(06:04):
hundred and fifty million dollars, if they're looking to spend
I think it's about one hundred billion dollars on AI
infrastructure just this year alone. I mean, the pie that
they're chasing has to be in the trillions of dollars,
doesn't it.
Speaker 2 (06:18):
It sure does, James. But it worries me as consumers
of all these products, like how much are we going
to be paying for them? If they can afford to
be paying people one hundred and fifty million dollar sign
on bonuses, what are they going to be selling their
AI products for? They will be milking customers.
Speaker 1 (06:30):
I think you're worried, is right. I mean, and I've
said this before, if AI used to deliver these trillion
dollar returns that everybody's betting they will, and everybody includes
everyone who owns who has a super fund account. We're
all up to the wazoo to use your phrase in
AI stock through our super So how do those trillion
dollar returns come through? They come through If the customers
(06:53):
of these AO giants are prepared to pay big money
to use the AI services. What are those services, Anthony?
It's imagine AI agents replacing your entire call center, or
imagine AI agents that could inside a bank process loan
documents and give loan approvals. Even now, why would the
(07:13):
customers of the AI giants be prepared to pay to
use these services because they know they can make more
profit in turn? How do they make more profit in
turn by reducing their biggest cost people, So, I think
you've got to connect these two things. The reason someone
is prepared to pay one hundred and fifty million dollars
sign on bonus for an AI engineer is because somewhere
(07:37):
down the track, they think there's a big saving going
to be had from taking out lots of people inside
of business. I mean, the only I've said this before,
the only way AI delivers returns is through unemployment. It
is an ugly, ugly, ugly truth, but there it is.
We can't sort of ignore it. Am I wrong, Anthony?
Am I getting too doomy again?
Speaker 2 (07:59):
Speed thought? Isn't it to think that one person collects
one hundred and fifty million bucks and their job is
to put how many other people have a job?
Speaker 1 (08:07):
Yeah?
Speaker 2 (08:07):
But I guess that's the way this is all going.
Speaker 1 (08:10):
Yeah, absolutely, Okay, Anthony. Let's move to a look frankly
equally glum first topic, and that's this week's news, which
has been dominated by the latest tragic conflict in the
Middle East between Israel and Iran, which appears to be
turning well, really increasingly nasty, particularly for the civilians who
are caught up in it, Anthony. As we record on
(08:31):
Friday morning, things are sort of on a bit of
a knife edge, with the world still waiting to see
whether Donald Trump will lead America into the conflict. Now, Anthony,
Donald Trump initially sort of distanced himself from these Israeli attacks,
but now he seems to want in on them. He's
saying we could attack anytime in the next two weeks.
(08:51):
What do you think has changed in the sort of
American view of this conflict?
Speaker 2 (08:56):
Yeah, James, big week for the world this week. I mean,
it's not a market story, it's human stories, and it
years of history, intentions boiling over. What changed this week, James,
was the bombing obviously intensified. It's up to seven or
eight days now. The israelis targeting key bits of infrastructure
around Iran's nuclear program and key military officials. Iran seems
to be doing what it can to stay in the
(09:16):
game and say it won't surrender. But what changed. The
US just beefing up its presence, beefing up its forces
in the region, James, Like, It's sent a third US
Navy destroyer into the eastern Mediterranean Sea. In a second
US carrier is heading over to the Arabian Seas. It's
just emerged that President Trump has sort of privately approved
(09:36):
these Israel's attack plans. It's raising the question of is
the US about to join or not? You know, it's
been a will he or won't he sort of story
all week, James. I mean, Trump's playing a long He
literally told reporters in the White House on Wednesday. I
may do it, I may not do it. I mean,
nobody knows what I'm going to do, right, and then
this morning we wake up to this whole. I might
(09:58):
do it in the next two weeks. I've got a
two weeks sort of timeframe thing, and it's pretty astonishing.
I'm not sure we've seen too much like this, have we, James.
Speaker 1 (10:07):
No, that's right. I think what Trump is probably sensing
is that, you know, America and Iran have been at
loggerhead's tension over the Iranian nuclear program for a long time.
And I think Trump. Trump's good at seeing someone's weakness.
You know, he loves this negotiating master negotiator stuff, and
(10:28):
he can see is Iran is sort of down for
the count. Here is this the chance to finally take
that Iranian nuclear question off the table once and for all.
So I think that's where he's going. But yeah, the
whole you know, I could do anything in the next
two weeks. I mean, we know that Donald, you could
do anything at any time. We've seen that in the
(10:50):
last few months. So he's a master showman.
Speaker 2 (10:54):
If nothing else, James, I wanted to bring a reader
question in here, and we've got a marvelous one from
Victori or Reid, who's the sister of our economics correspondent
Mike Read. She'd send in a question, and the hope
of going to the top of the family leaderboard for
the most impressive red child, and the fact she's made
it to the Chanticle podcast. I think she now is James.
Her question also gets right to the heart of the
(11:17):
market's response on this hijuks.
Speaker 3 (11:20):
Oil markets have shot up off the back of the
Iran is Ral conflict jud to Iran's role in global
oil supply. If supply continues to be impeded, how can
we expect global markets to respond? Can other OPEC nations
and the US increase their supply easily? And what are
the flow on effects of oil price increases into other
markets and economies? Thanks?
Speaker 1 (11:40):
Well, the first thing I've got to say is how
good would Christmas that the Reeds be. I don't know
if we'd be able to keep up with the conversation
around the table, but it's a great question, Victoria. I mean, really,
oil is at the heart of the market's response. We've
seen oil's been funny this year. It's gone from about
eighty bucks US a barrel in January down to fifty
(12:02):
five dollars US of barrel in May, which we all
saw at the petrol bowser some comparatively cheap fuel. After this,
it's shot back up to around between seventy five dollars
and eighty dollars a barrel. So these aren't crazy prices.
This isn't a massive spike. But I think the longer
this drags on, the more worried we are that we
(12:24):
could see the next set of actions that pushes oil
up towards US one hundred and twenty bucks a barrel.
What would need to happen, Well, it's not so much
about the oil that Iran produces. That's only about one
percent of world supply. What everybody's worried about is that
Iran might close the Strait of Formuz, which is key
(12:44):
waterway in the Middle East through which about twenty percent
of the world's oils flows. So you know, if we
see attacks on ships in that strait, if we see
a mining of the strait, you know c mines, if
we see general sort of blockades of straight then that
would take out a lot of oil and we could
see oil go up to one hundred and twenty bucks,
(13:05):
So you know, it's a possibility that would have big
flow and effects from markets. There'd be a panic on
Wall Street and probably on the AX. Those panics tend
to fade pretty quickly. Global economy is not as reliant
on oil as it was, say, back in the nineteen
seventies when we had a famous oil shock, So you know,
it's not probably not the end of the world, but
(13:27):
it would be a sort of nasty moment, particularly given
that markets are stretched, they're expensive, they're overcrowded at the moment,
so you know, you want to watch for that. So
what we've got, though, Anthony, is a whole lot of
armchair generals strategists trying to figure out how likely it
is that Iran takes that sort of action. You know,
(13:47):
does Iran get pushed into a corner where they feel
they need to do some real damage to the global
energy complex to get everyone's attention and calm this down.
Not sure, blocking that straight is something they hadn't tried
in fifty years, And imagine the reaction if they do
try and do that. Attacks on US ships in that area,
(14:09):
for example, could be the trigger that really brings the
US in to sort of wipe a run off the map.
So there's so many combinations and permutations here. But the
question is, does Iran do something to disrupt the broader
Middle East energy complex? We haven't seen it yet. I
(14:30):
think if we avoid that then oil and markets will
be okay. If we do see them take that step,
then we could see a sort of short term shock
to markets that would be pretty unpleasant. But Anthony, the
other thing that was happening as all this was unfolding
was the G seven in Canada. Now, Anthony Albanize he
(14:51):
trooped over there. He's not Australia, he's not in the
G seven. We're on the periphery. We're a friend of
the family, so to speak. And it was all set
to have this big meeting with Donald Trump. But then,
of course the Donald decided he had to leave the
G seven early before Albaneze could meet with Trump. Who's
the bigger loser here? Is Elbow upset that he's missed
(15:13):
the Donald? Or is the Donald upset that he's missed Elbow.
Speaker 2 (15:17):
I doubt Trump's thought about it again, James, Yeah, it's
a blow for Anthony. Aberezi absolutely like him. Or lumping.
President Trump is the most powerful leader in the world.
He's the head of the worlds because the economy hugely important.
You know, Australian Anthony Albanese don't have to necessarily like
President Trump, don't have to like his politics, but I
think it's pretty important we get in front of him, James.
(15:38):
And since Trump's Trump was reinaugurated in late January, I
mean he's been met with a procession of leaders who've
been making their way to the White House to congratulate
him and ask for stuff, and that stuff's usually to
go easy on Tariff's Albaneze hasn't made the trip and
was hoping to get the job done with a meeting
on the sidelines of this G seven summit, Like you said,
James in Canada this week, you know they're both there
(15:59):
was looking all good and then Donald walked out like
Don Bradman, the overly nineteen forty eight James when he
needed four runs to average one hundred and he got
a duck. So Donald Trump, he was out of there,
back home to deal with the Middle East. And he's
he's clearly not a work from anywhere guy, Donald Trump, James,
but out top reporter in Canberra, Phil Courry. I thought
(16:19):
he's been in Canada too on the trip, so you
can imagine the disappointment if you're a reporter on that trip.
But I thought he put it nicely, James. He said,
meeting Trump has become the box that Alberanize needs to tick.
And you know, sure, Albanize he got to meet a
couple of other people while he was over there, including
your man Scott Besson, who's the Treasury Secretary. But it's
just not the same, is it. You know, you're you're
(16:41):
running the country, you're representing Australia. It's your job to
get in front of these leaders. And I think he's
just got to get it done.
Speaker 1 (16:49):
There is a sort of pressing issue. That great tariff
pause ends on July eighth.
Speaker 2 (16:54):
That's right, it's just around the corner. It best In
has flagged the deadline will be extended for those nations
currently negotiations. So Albin easy, he's got a little room
to move. But James, like, I'm wondering, what doesn't Alberanisi
just go and knock on the White House door.
Speaker 1 (17:09):
Well maybe he's maybe Elbow's worried he's going to get
a President Zelenski moment, you know he's going to have JD.
Vance yelling at him. Or there was that South African
president who also got the sort of rounds of the
White House kitchen. So maybe Albo is a bit sensitive.
He doesn't want to be yelled at by Trump and Vance.
Speaker 2 (17:28):
Either way, James, I think Albo has just got to
tear the band aid off and get this meeting done.
Speaker 1 (17:32):
Yeah, but just quickly, James.
Speaker 2 (17:34):
While Albo was in Canada, Federal Treasurer Jim Chalmers, he
was in Canberra giving a big set speech on the
government's economic agenda. What did you take from that?
Speaker 1 (17:43):
It was a love letter to the AFR. How many
times to reckon the word productivity was mentioned? How many
twenty eight? What a beautiful thoodol no I could feel.
Michael Stutchbury, our former editor in chief, great productivity campaigner,
he would have been drooling over this one. Now have
a read of the paper on Saturday. I'm sure he'll
(18:05):
take some issue with Charmer's approach. But look, we're gearing
up for this productivity round table which will be held
around the apparently around the cabinet table. Anthony twenty five
seats around the cabinet table. So I'm not sure you
and I will be invited, but I think we'd have
a bit to contribute. Look, i mean, the headline here
was about tax reform. Charmers has said, bring it on,
(18:26):
I'm ready to discuss it. He even gave a little
message to the media, gave a message to you, Anthony,
he said, don't play the rule in this tax change
and rule out that tax change. But then Charmers strangely
went and said, I'm not going to touch the gsts.
Speaker 2 (18:42):
Only one person can play.
Speaker 1 (18:43):
That game exactly what a reverse ferret. So look, I mean,
we'll see where all this goes. But you know, hey,
Cutos to Charmers, they've got a mandate. We've said what
are you going to do with this mandate? Can you
do some big picture stuff? And Chalmers is you know,
provided a speech that said, yeah, let's talk about it.
Let's let's think about some big picture stuff. So look,
(19:06):
I think if that discussions entered into in the right way,
maybe even in a bipartisan way, you know, let's see that.
Let's see the Libs and the Nationals throw up a
few good ideas and be prepared to have them kicked around.
As well. I don't know. Look, I'm trying to be
optimistic about this, Anthony. Let's have the discussion and let's
let's have it in a try and have it in
a normal, sensible way.
Speaker 2 (19:27):
I reckon, Yeah, I agree, James. I mean there's always
cynicism around, you know, around tables and discussions and reviews
and talk of things like tax reform, and none of
it matters at all until you get to the end
of it and decide whether you're going to do something
or not. But what else is the government supposed to do? Right,
You've got to kick off these things somehow, and I
think they're making the right noises, so you know, credit
to them, and let's hope that something useful comes out
of it. Yeah, well said, Let's get to our second topic, James.
(19:54):
And this week we got the m and A deal
of the year, a blocks bust, that thirty billion dollar
cash bit Frustralia's second biggest oil and gas company, Santos
Now James, having been shopped to every oil major and
sovereign wealth fund for years, the Emiratis took the bait,
turning up with bids at eight dollars and eight dollars
sixty share in March, before returning with a best and
final offer of eight dollars eighty nine a share at
(20:17):
the end of last week. James, the timing is stunning.
I mean, we've just been talking about this Middle East
conflict that could have a potentially huge impact on the
oil price. Santos's board has acted pretty decisively and said, yep,
good bid. If you can stand it up, we'll recommend
it to shareholders. So the bidder, which is calling itself
the XRG Consortium, but really most of the money looks
(20:39):
like it's the national oil company from the UAE, and
then there's private equifirm Carlo as well. It's getting an
exclusive look at Santos's books and if it can stand
the offer up, Santos is basically it's for the taking. Now, James,
were you surprised that Santosis board could act with so
much certainty given all the uncertainty in energy mark It's yeah, good.
Speaker 1 (21:01):
Question, Anthony. I mean I think so as you said,
they've been shopping this business around for the best part
of you know, two or three years. They finally find
a bitter with enormously deep pockets willing to pay all
cash willing to just take the whole business in one chunk, nothing,
no funky sort of you know structuring to this deal.
(21:23):
I mean, surely you've got to say, yep, yes, please,
we want to put this to shareholders. This is a
deal that we think stands up. I think that's totally understandable.
How does the Middle East conflict play into that? I
think if you're on the Santos board, you'd be saying, look,
there's plenty of conflict in the Middle East already hasn't
really affected the oil price, and so they'll be you know, thinking, look,
(21:46):
whatever happens here is probably a short term issue, and
you know, we've got to run our business for the
long term. So I get that, but it's a really
difficult one for Santos. You know, they've tried so many things.
They've tried, looked at a merge with Woodside, the other
big oil and gas player in this country, sort of
fell over very quickly. They've had activists suggesting breakup plans
(22:08):
come to nothing. So when you've got one bitter, as
I say, with huge resources, ready to buy the whole
thing from you in cash, I think that's pretty hard
not to put that offer to shareholders even though there
is uncertain in the world. There's always uncertain in the world.
But Anthony, we've got a really good question from a reader,
Cheryl cart right in Victoria, and I'd like you to
(22:30):
like you to have a crack at answering it. She says,
why can't Santos unlock its own value? Why is it
better to have Australian resources in foreign hands, particularly the
hands of a foreign government. I think that's a really
important point Cheryl makes here. Santos basically becomes a foreign
government owned oil company if this still goes through.
Speaker 2 (22:48):
Right, Yeah, absolutely, In terms of the first part of
the question, James, I mean, yeah, Santos could in theory
unlock its own value. It's one of those companies whether
some of the parts is worth more than the whole
on paper. And Santos has been talking for years about
doing stuff to unlock that value. James, asset sales, infrastructure sales,
farm downs, joint ventures, everything. It's had more reviews than
the Phantom of the Opera would have had over the years.
(23:10):
It honestly is always just flooded with bankers trying different things.
You know, whether it's heart's been in actually doing something
or not. I mean, that's sort of another question. And why, James,
why haven't they been able to do anything? What turns
out that all those various assets that it's got, they've
worth more on paper when you look at them by themselves,
but they're actually not that valuable to other parties on
(23:33):
their own. You know, they might be a bit small
on their own, they might be subject to preemptive rights,
or only attractive to a small player who doesn't have
the cash flows to develop them, you know. And oil
and gas, James, it's all about scale, the big companies
getting bigger. Santos is a big fish here. It's relatively
bite size compared to the other places globally. And it's portfolio,
it's it's quite separated, right, you know, Like it's got
(23:55):
a big stake in an LNG plant in p and G.
It's got g LNG, which is l and G up
in Gladston, it's got other assets in Australia, the center
of Australia and WA. Like they're quite sort of separate now,
each of those things on their own. You know, sure,
sure they're big enough, but they're not that big, they're
not that not that meaningful. So that portfolio being all
(24:16):
over the place. It's those assets are too small for
a big bit of like XIG just to pick off
one or two. You know, wants it wants the whole thing.
So so I'd say Eryl, like Santos has been trying
and the method it's ended up with basically is just
trying to get a bid for the whole thing. I mean,
that's what they think is the cleanest. That's the value
realization strategy here. It's the one they've got from the Emiratis,
(24:39):
and the Santos board locked it in last weekend. I mean,
as for the second part of the question, why is
it better to have Australian resources in foreign hands, particularly
of a foreign government? I mean, Cheryl, I mean, she
has hit the nail on the head with this one.
This is the question for the takeover. I think everything's
going to live or die on this. James Hu you
(25:00):
picked it up straight away in your first Take column
on Monday morning when this came out the Foreign Investment
Review Board. It's going to come down to ERB, It's
going to come down to the treasurer. Countries globally, they're
turning inwards. Governments are getting protectionists. This is an energy company.
We still haven't worked out what our energy system looks
like for the long term, where you know, how we're
going to transition from the fossil fhels to the renewables.
(25:23):
What's the likelihood do you think the government says go
for it?
Speaker 1 (25:26):
Ye're not great, probably, but I think there's one caveat
to that. And just to explain the process, So the
Foreign Investment Review Board, it gets first crack at reviewing
a deal like this, and then it passes a bunch
of advice onto the Treasurer Jim Charmers, who has the
final sort of veto, right, I guess you'd call it
so often the Treasurer would just say thanks, ferb, you've
(25:50):
done a great job.
Speaker 3 (25:51):
Tick.
Speaker 1 (25:52):
But I think this one, it really is going to
come down to It's going to be a decision Charmers
has to make. So the sort of immediate response is no,
we don't want these critical Australian assets in foreign hands,
not only for national economic reasons and national security reasons,
but for political reasons. Jim Chalmers won't expect too many
(26:13):
high fives for a decision like that. The one caveat
I've got, Anthony, is that we do need to get
more gas out of the ground. Yeah, like it or not,
it's the transition fuel that is the practical answer at
the moment. So we're going to need more gas, and
there is a question as to whether who's better to
pay for the development of that new gas. Is it
(26:36):
Santos as a standalone listed company that has all those
challenges attracting capital, or is it Abu Dhabi Inc. With
deep pockets and lots of oil money that it's more
than happy to spend. So maybe there's a compromise where
for chalmershe does a deal where he gives approval conditional
(26:56):
on the new owners investing a certain amout out in
unlocking new gas supply. That might be a way he
can have his cake and eat it too. He can say, hey, look,
you know, I know how important energy and affordability and
energy security is. I've just guaranteed that this mob is
going to spend thirty billion dollars on gas. I'm picking
(27:19):
a number at random, thirty billion dollars on gas investment
over the next thirty years. That might be one way
through it, but it's going to be a hugely tough decision. Anthony.
The other thing. I mean, as you said, this is
the third, the third set of takeover talks on Santos
in three in that you and I have covered in
the past decade. I mean, what is it about this
(27:43):
thing that it keeps attracting bids and what if this
one falls over? Is there a bit of last chance
saloon about this?
Speaker 3 (27:50):
Oh?
Speaker 2 (27:50):
There definitely is. But he's so unique, James, for top
fifty companies have two bids in a decode let alone
three rupt you now, I mean, there's something quite magical
about santa And like, there's a few things going on,
a big a few global forces and a few sens
or specific things. I mean, the first one is the
cost of doing business in oil and gas James. It's
through the roof. You've got a rising environmental regulations, your
(28:11):
planning approvals, construction costs, it's just way more expensive to
get a project up and running now than it used
to be. That's making developers and producers like Santos's lives harder.
How do you combat that, Well, one of the ways
is to chase scale. So the bigger you are, you
should be able to do things more efficiently. So we've
got a situation where the bigger just hoovering up assets
and trying to get that scale to protect their margins.
(28:33):
And then the smaller are sort of disappearing. At the
same time, James, you've also got less capital around it.
It's that green sort of discount over these companies is
really hurting. So some capital has fled the sector or
it's much more choosy. Right, So companies they now need
to be able to fund their own developments rather than
tapping equity markets to do them do it for them,
(28:53):
or getting banks or a new investor whatever. So you
have to be big in order to be able to
become the next big thing to beause you need to
be able to big to have the cash flows now
to fund the developments that will be your next project.
So the small end of the sector, it's just capital
starved and it's all about it's all about being big now, James.
If you want to get big and you're an acquirer,
(29:13):
there's not that many opportunities of scale around in good jurisdictions,
and Australia is still one of them. There's just not
that many assets up for the taking. And here you've
got Santos, You've got a board that is repeatedly engaged
with bidders, so it's clearly up up for a deal
with decent assets, large enough for someone like an XIG
to take the whole lot and to make a difference.
(29:35):
So there's few targets. Santos is one of them. And
then overlaying all this, James is a life on the ASEX.
It's not been that easy for Santos. Like I said,
Santos has tried a few things to create value. Most
recently it committed to return more cash to investors and
be disciplined about production growth. I mean, that's something that
I've heard fund managers talking about for fifteen years. On Santos,
(29:58):
it finally commits to do it. The shep ross go up,
not really, I mean this thing just bounces around with
the oil price steal. So I think I think there's
a few factors there. But Santos's board, i think it
was about eight years ago, got a bid from private
equity and at the time, yeah, you know, the bid
was good, was good enough price. But at the time
they had this new CEO, Kevin Gallagher, that had just
come in and the board kind of said, well, yeah,
(30:20):
why should we take this private equity mob's money. Let's
just back this Kevin Gallagher bloke to do his turnaround
plan and make money for shelters for us, and sure
enough they so they turned down the bid and they
went with Gallagher. You know, fast forward to today, James
and Gallagher is probably closer to the finish than the
end total, and they don't really have that next that
(30:41):
next executive up with the turnaround plan that could make
them maybe want to reject something like this on evaluation grounds.
So it's pretty eavenly poised. What's your gut feeling, James,
what's the probability of success do you think in terms
of this deal getting over the line?
Speaker 1 (30:56):
A great question. Fifty to fifty for me, I really
don't know, but I reckon fifty to fifty, and I
reckon there's we'll still be talking about this in six months.
What's your what are your numbers?
Speaker 2 (31:10):
My gut pheel James says that he's easier to block
this thing than it is to accept it. I mean
every few years, for the past fifteen years, we've had
a big deal like this go to the treasurer and
get knocked back. We had Asex Limited, we had Grand Court,
we had APA Group, we had Osgrid. They're rejected for
various reasons, could be security, national interest, but it's basically
(31:31):
a combination of those two things. This thing, James, that
it's energy policy, energy security. We know that Australia's not
been good at that. Like you say, perhaps there's a
way forward for the Adnock, the UAE company to offer
something to the government and the government to take it.
And there are a few things that could offer. Like
you say, it could commit to invest capital needed to
(31:52):
unlock the be Toloo Basin, which could be Australia's biggest
ever gas reserve. Santos is a big player there. It
could do that. It could commit to not take so
much money domestic gas to feed into GLNG, which is
their nextplorider offshore. So there are things that it could offer.
But without offering those things, James, I just reckon. My
gut's telling me that this one will struggle.
Speaker 1 (32:15):
Yeah, all right, lots to play out. We'll come back
after the break and discuss a deal that is happening
and it's one of the most exciting of the year.
On the ASEX back in a second, welcome back. If
(32:39):
you want to know more about what we're talking about
today and a whole lot more. AFR subscribers can sign
up to the Chanticlear newsletter at join dot afi dot
com forward slash Chanticleer. Every Saturday morning, the newsletter pulls
together the best hnticle columns from the week and delivers
them straight to your inbox. Very exciting day on Tuesday, Anthony,
and not just because you're hosting the afr's first insurance forum.
(33:02):
It would be good, yeah, sector at the moment, but
on Tuesday we have the first big IPO in a while. Really,
Virgin Australia is going to retake to the public boards
by listing on the AX now, Anthony issue price two
dollars ninety been very well supported this thing. Is it
(33:23):
going to fly or stay grounded? Will the shares finish
the day higher or will they be lower on their
first day?
Speaker 2 (33:30):
Five percent high? As my guest James, look, this is
a coming home party for Virgin Australia. The AX is
where it belongs. It's where it would have been if
it hadn't gone broke. That's where it used to be.
So yeah, I think I think most investors are looking
forward to seeing it back. It doesn't mean everyone's going
to buy it. In fact, a lot more people won't
buy it than will. But I think we get an
okay reception. What about you?
Speaker 1 (33:50):
Yeah, I think it's going to get a good reception
that the only I think five percent up is a
good guess. It could get trumped though, if the Donald
goes into Iran oil price go through the roof. Airline
stocks are very sensitive to very sensitive to oil prices.
Maybe that's the only thing that holds it back on
day one. But the reception for this has been good
(34:12):
and it is great to see a big new business
joining the AX or rejoining the AX. And then on Wednesday, Anthony,
we'll get monthly inflation numbers. Inflation is looking pretty good
around the world, so hopefully the good story continues.
Speaker 2 (34:27):
Right, yeah, absolutely, well.
Speaker 1 (34:29):
We loved answering your questions during the episode today. If
you've got a question you want to ask us, email
us at Chanticleer at afar dot com and you can
also send us a question in audio form. Just record
a voice memo on your phone, include your name and
where you're from, and email it to us. And of
course the widget on the on the Chanticleer articles at
afar dot com is always there as well. And I
(34:51):
must say, Anthony, you don't need to be a family
member of one of our journalists to get your question
on you.
Speaker 2 (34:57):
Absolutely.
Speaker 1 (34:58):
All right, Well, it's been an the big week. We'll
see where Virgin goes next week. We'll see where where
the Iran Israel conflict goes next week, and we'll see
how markets do. It's a nervous time out there, I reckon, Anthony.
Speaker 2 (35:13):
Yeah, I agree with you, James. Like you said, valuations
are still high. Everyone's sort of holding on, just hoping
that nothing too too bad from the market's perspective sort
of spills over. Yeah.
Speaker 1 (35:22):
Absolutely, it's going to be another big week. We'll see
you next week. Thanks for listening. If you like the
podcast and you want to hear more, consider sharing or
giving the podcast a review, as it helps other listeners
find us, and don't forget to follow wherever you get
your podcasts. At The Financial Review, we investigate the big
stories about markets, business and power. For more, go to
(35:45):
afar dot com and you could subscribe to The Financial Review.
The daily Habit of successful People at afar dot com
slash subscribe Chanticle was hosted by me James Thompson and
Anthony McDonald, and it was produced by Alex Gau assistance
from Mandy corn. A theme is by Alex Gou. Head
of Premium content is Fiona Baffinia The Australian Financial Review
The Australian Financial Review. Hello, I'm James Thompson, senior chantic
clear columnist at the AFR. Welcome to our weekly news
breakdown of all things business, finance and markets. With me today,
as always is my chantapleer colleague, the hot air he
(00:25):
producers will always be vital to the national interest. It's
Anthony McDonald.
Speaker 2 (00:29):
How are you, Anthony, feeling some fertile topics to discuss today, James, fantastic.
Speaker 1 (00:39):
Well, this week we try and make sense of a
conflict between Israel and Iran. Explain why the biggest cash
takeover in Australian history is a massive test for Jim charmers,
and we ask do our big CEOs ever miss out
on a bonus? Well, Athony, let's start there. This week
the Australian Council of Superinnuation Investors, which is sort of
(01:01):
like a proxy advisory firm for the supersector, put out
its annual review of CEO pay and it's safe to
say the bosses are still doing all right, with the
median pay of CEOs and the ASX one hundred sitting
at four point one five million, which I think is
just above your wage, Anthony. But there's a sliver of
(01:21):
solace for the ordinary Australian. That median CEO pay is
now fifty five times the earnings of an average worker,
which is down from seventy one times in twenty fourteen,
and it's well below what's happening in the USA, where
CEO pay is three hundred and forty eight times the
average Gianni or Gina's wage, Anthony, are there any other
(01:43):
trends in this CEO pay survey that you'd like to
point us to?
Speaker 2 (01:47):
The Golden rules to the big bucks. James and I
made the big big bucks. It's pretty simple, isn't it.
You just have to run an ASX listed business that
is big offshore. You can convince your board to compare
your salary to peers or competitors in the US games
you are laughing. So the top paid CEO is in order.
There are all the companies that have these big US businesses.
We've got Robert Thompson from News Limited. They've obviously got
(02:09):
dar Jones over there, the publishing assets off Sure, Lavisa's
Victor Herrero offshore expansion story, Macquary's Shamara Wick Ramayaka. You know,
a cool thirty million bucks realized pay this financial year.
She's got a big global asset manager, big trading house,
you know, competes with all the banks on Wall Street.
You've got Goodman's Greg Goodman global logistics player, Mick Farrell
(02:29):
from their RESMET he's even based in the US, Mike
Henry from BHP and Yakov from Rio tinto big global miners.
It's pretty simple, James, isn't it. You just got to
have a company that competes globally where you can get
compared to CEOs in the US and you make the
big big bucks. But I think the thing that's worth
looking at this year, James, is the amount of CEOs
(02:50):
is again bonuses. And you pointed this out to me.
Of the one hundred and forty two CEOs eligible for bonuses,
only five got a donut. Only five of one hundred
and forty two got zero. So spare thought for them, James.
Speaker 1 (03:03):
They must have really done something wrong. Now, Anthony, the
first question that comes to my mind is do you
happen to know what columnists are paid in America? Because
that could help us on the second question is what
do you have to do to get no bonus? I mean,
were these really the laggards of the AX.
Speaker 2 (03:23):
Yeah, laggards of the AX, or the ones that they
had particularly troublesome years. I mean one that caught my
eye was then Leasa's tiny Lombardo, poor bloke. I mean
he had activists up his wazu or year as well.
So yeah, I think you basically just have had to
have had a shocker or I mean, all the criteria
for their bonuses are laid out, investors can read them
in the remuneration report. It's generally around total shold or return,
(03:46):
you know, the earnings of the company and those sort
of things. But James, honestly, I mean, CEOs get paid
a lot compared to the ordinary person, don't they. And
I'm not sure you could ever say that one person's
worth fifty five times than another. But I mean, i'll
tell you why. I mean, most of the CEOs would
come across. They do bloody hard. I mean, they are
addicted to their jobs. They don't really get much time away,
(04:08):
and they've all done years and years of dedicated service
to get to where they are. But it's just astounding
how those us sort of facing companies just continue to
get paid so much more than the rest.
Speaker 1 (04:20):
Yeah, is it a surprise then that we don't see
too many CEOs make the jump from Australian running Australian
companies to US companies. I guess it's hard, probably hard
to break into that US market. There's only so many
CEO jobs, even in a big market like that.
Speaker 2 (04:35):
Yeah, exactly. I don't think there's too many running US businesses,
although there are a few. And likewise, James, it's interesting
that you get the US CEOs that will come here
and run businesses as well. We see them pop up
from time to time, so there is a bit of
border jumping that goes on. But one undred percent, if
you were doing really well running in a strained business,
(04:55):
surely you'd be looking at what's going on in the
US and say hello, I'd like some of that.
Speaker 1 (05:00):
Yeah, yeah, absolutely.
Speaker 2 (05:02):
And James, speaking of Payer, I couldn't believe my eyes
when I saw that Meta Platforms, which owns Facebook and
WhatsApp and Instagram, is offering sign on bonuses of one
hundred and fifty million dollars to AI engineers. Seriously, who
should earn that sort of money?
Speaker 1 (05:18):
Come on, Anthony, I mean, we see soccer players and
baseball stars and basketball stars traded for that sort of
coin all the time. I mean, hey, we're always saying that,
you know, we undervalue science compared to sports. So here's
an example where we're not doing that and never runs
up in arms. It's a bit I reckon. There's a
(05:39):
bit of double standards here. Look, look, it's a lot
of money though, but why would you pay someone that
sort of money. The reason you pay that someone that
sort of money, if you Meta Platforms, is because you
think getting their skills on board is going to make
you an extraordinary amount of money in return. You know.
So if Meta Platforms is hiring AI engineers for one
(06:04):
hundred and fifty million dollars, if they're looking to spend
I think it's about one hundred billion dollars on AI
infrastructure just this year alone. I mean, the pie that
they're chasing has to be in the trillions of dollars,
doesn't it.
Speaker 2 (06:18):
It sure does, James. But it worries me as consumers
of all these products, like how much are we going
to be paying for them? If they can afford to
be paying people one hundred and fifty million dollar sign
on bonuses, what are they going to be selling their
AI products for? They will be milking customers.
Speaker 1 (06:30):
I think you're worried, is right. I mean, and I've
said this before, if AI used to deliver these trillion
dollar returns that everybody's betting they will, and everybody includes
everyone who owns who has a super fund account. We're
all up to the wazoo to use your phrase in
AI stock through our super So how do those trillion
dollar returns come through? They come through If the customers
(06:53):
of these AO giants are prepared to pay big money
to use the AI services. What are those services, Anthony?
It's imagine AI agents replacing your entire call center, or
imagine AI agents that could inside a bank process loan
documents and give loan approvals. Even now, why would the
(07:13):
customers of the AI giants be prepared to pay to
use these services because they know they can make more
profit in turn? How do they make more profit in
turn by reducing their biggest cost people, So, I think
you've got to connect these two things. The reason someone
is prepared to pay one hundred and fifty million dollars
sign on bonus for an AI engineer is because somewhere
(07:37):
down the track, they think there's a big saving going
to be had from taking out lots of people inside
of business. I mean, the only I've said this before,
the only way AI delivers returns is through unemployment. It
is an ugly, ugly, ugly truth, but there it is.
We can't sort of ignore it. Am I wrong, Anthony?
Am I getting too doomy again?
Speaker 2 (07:59):
Speed thought? Isn't it to think that one person collects
one hundred and fifty million bucks and their job is
to put how many other people have a job?
Speaker 1 (08:07):
Yeah?
Speaker 2 (08:07):
But I guess that's the way this is all going.
Speaker 1 (08:10):
Yeah, absolutely, Okay, Anthony. Let's move to a look frankly
equally glum first topic, and that's this week's news, which
has been dominated by the latest tragic conflict in the
Middle East between Israel and Iran, which appears to be
turning well, really increasingly nasty, particularly for the civilians who
are caught up in it, Anthony. As we record on
(08:31):
Friday morning, things are sort of on a bit of
a knife edge, with the world still waiting to see
whether Donald Trump will lead America into the conflict. Now, Anthony,
Donald Trump initially sort of distanced himself from these Israeli attacks,
but now he seems to want in on them. He's
saying we could attack anytime in the next two weeks.
(08:51):
What do you think has changed in the sort of
American view of this conflict?
Speaker 2 (08:56):
Yeah, James, big week for the world this week. I mean,
it's not a market story, it's human stories, and it
years of history, intentions boiling over. What changed this week, James,
was the bombing obviously intensified. It's up to seven or
eight days now. The israelis targeting key bits of infrastructure
around Iran's nuclear program and key military officials. Iran seems
to be doing what it can to stay in the
(09:16):
game and say it won't surrender. But what changed. The
US just beefing up its presence, beefing up its forces
in the region, James, Like, It's sent a third US
Navy destroyer into the eastern Mediterranean Sea. In a second
US carrier is heading over to the Arabian Seas. It's
just emerged that President Trump has sort of privately approved
(09:36):
these Israel's attack plans. It's raising the question of is
the US about to join or not? You know, it's
been a will he or won't he sort of story
all week, James. I mean, Trump's playing a long He
literally told reporters in the White House on Wednesday. I
may do it, I may not do it. I mean,
nobody knows what I'm going to do, right, and then
this morning we wake up to this whole. I might
(09:58):
do it in the next two weeks. I've got a
two weeks sort of timeframe thing, and it's pretty astonishing.
I'm not sure we've seen too much like this, have we, James.
Speaker 1 (10:07):
No, that's right. I think what Trump is probably sensing
is that, you know, America and Iran have been at
loggerhead's tension over the Iranian nuclear program for a long time.
And I think Trump. Trump's good at seeing someone's weakness.
You know, he loves this negotiating master negotiator stuff, and
(10:28):
he can see is Iran is sort of down for
the count. Here is this the chance to finally take
that Iranian nuclear question off the table once and for all.
So I think that's where he's going. But yeah, the
whole you know, I could do anything in the next
two weeks. I mean, we know that Donald, you could
do anything at any time. We've seen that in the
(10:50):
last few months. So he's a master showman.
Speaker 2 (10:54):
If nothing else, James, I wanted to bring a reader
question in here, and we've got a marvelous one from
Victori or Reid, who's the sister of our economics correspondent
Mike Read. She'd send in a question, and the hope
of going to the top of the family leaderboard for
the most impressive red child, and the fact she's made
it to the Chanticle podcast. I think she now is James.
Her question also gets right to the heart of the
(11:17):
market's response on this hijuks.
Speaker 3 (11:20):
Oil markets have shot up off the back of the
Iran is Ral conflict jud to Iran's role in global
oil supply. If supply continues to be impeded, how can
we expect global markets to respond? Can other OPEC nations
and the US increase their supply easily? And what are
the flow on effects of oil price increases into other
markets and economies? Thanks?
Speaker 1 (11:40):
Well, the first thing I've got to say is how
good would Christmas that the Reeds be. I don't know
if we'd be able to keep up with the conversation
around the table, but it's a great question, Victoria. I mean, really,
oil is at the heart of the market's response. We've
seen oil's been funny this year. It's gone from about
eighty bucks US a barrel in January down to fifty
(12:02):
five dollars US of barrel in May, which we all
saw at the petrol bowser some comparatively cheap fuel. After this,
it's shot back up to around between seventy five dollars
and eighty dollars a barrel. So these aren't crazy prices.
This isn't a massive spike. But I think the longer
this drags on, the more worried we are that we
(12:24):
could see the next set of actions that pushes oil
up towards US one hundred and twenty bucks a barrel.
What would need to happen, Well, it's not so much
about the oil that Iran produces. That's only about one
percent of world supply. What everybody's worried about is that
Iran might close the Strait of Formuz, which is key
(12:44):
waterway in the Middle East through which about twenty percent
of the world's oils flows. So you know, if we
see attacks on ships in that strait, if we see
a mining of the strait, you know c mines, if
we see general sort of blockades of straight then that
would take out a lot of oil and we could
see oil go up to one hundred and twenty bucks,
(13:05):
So you know, it's a possibility that would have big
flow and effects from markets. There'd be a panic on
Wall Street and probably on the AX. Those panics tend
to fade pretty quickly. Global economy is not as reliant
on oil as it was, say, back in the nineteen
seventies when we had a famous oil shock, So you know,
it's not probably not the end of the world, but
(13:27):
it would be a sort of nasty moment, particularly given
that markets are stretched, they're expensive, they're overcrowded at the moment,
so you know, you want to watch for that. So
what we've got, though, Anthony, is a whole lot of
armchair generals strategists trying to figure out how likely it
is that Iran takes that sort of action. You know,
(13:47):
does Iran get pushed into a corner where they feel
they need to do some real damage to the global
energy complex to get everyone's attention and calm this down.
Not sure, blocking that straight is something they hadn't tried
in fifty years, And imagine the reaction if they do
try and do that. Attacks on US ships in that area,
(14:09):
for example, could be the trigger that really brings the
US in to sort of wipe a run off the map.
So there's so many combinations and permutations here. But the
question is, does Iran do something to disrupt the broader
Middle East energy complex? We haven't seen it yet. I
(14:30):
think if we avoid that then oil and markets will
be okay. If we do see them take that step,
then we could see a sort of short term shock
to markets that would be pretty unpleasant. But Anthony, the
other thing that was happening as all this was unfolding
was the G seven in Canada. Now, Anthony Albanize he
(14:51):
trooped over there. He's not Australia, he's not in the
G seven. We're on the periphery. We're a friend of
the family, so to speak. And it was all set
to have this big meeting with Donald Trump. But then,
of course the Donald decided he had to leave the
G seven early before Albaneze could meet with Trump. Who's
the bigger loser here? Is Elbow upset that he's missed
(15:13):
the Donald? Or is the Donald upset that he's missed Elbow.
Speaker 2 (15:17):
I doubt Trump's thought about it again, James, Yeah, it's
a blow for Anthony. Aberezi absolutely like him. Or lumping.
President Trump is the most powerful leader in the world.
He's the head of the worlds because the economy hugely important.
You know, Australian Anthony Albanese don't have to necessarily like
President Trump, don't have to like his politics, but I
think it's pretty important we get in front of him, James.
(15:38):
And since Trump's Trump was reinaugurated in late January, I
mean he's been met with a procession of leaders who've
been making their way to the White House to congratulate
him and ask for stuff, and that stuff's usually to
go easy on Tariff's Albaneze hasn't made the trip and
was hoping to get the job done with a meeting
on the sidelines of this G seven summit, Like you said,
James in Canada this week, you know they're both there
(15:59):
was looking all good and then Donald walked out like
Don Bradman, the overly nineteen forty eight James when he
needed four runs to average one hundred and he got
a duck. So Donald Trump, he was out of there,
back home to deal with the Middle East. And he's
he's clearly not a work from anywhere guy, Donald Trump, James,
but out top reporter in Canberra, Phil Courry. I thought
(16:19):
he's been in Canada too on the trip, so you
can imagine the disappointment if you're a reporter on that trip.
But I thought he put it nicely, James. He said,
meeting Trump has become the box that Alberanize needs to tick.
And you know, sure, Albanize he got to meet a
couple of other people while he was over there, including
your man Scott Besson, who's the Treasury Secretary. But it's
just not the same, is it. You know, you're you're
(16:41):
running the country, you're representing Australia. It's your job to
get in front of these leaders. And I think he's
just got to get it done.
Speaker 1 (16:49):
There is a sort of pressing issue. That great tariff
pause ends on July eighth.
Speaker 2 (16:54):
That's right, it's just around the corner. It best In
has flagged the deadline will be extended for those nations
currently negotiations. So Albin easy, he's got a little room
to move. But James, like, I'm wondering, what doesn't Alberanisi
just go and knock on the White House door.
Speaker 1 (17:09):
Well maybe he's maybe Elbow's worried he's going to get
a President Zelenski moment, you know he's going to have JD.
Vance yelling at him. Or there was that South African
president who also got the sort of rounds of the
White House kitchen. So maybe Albo is a bit sensitive.
He doesn't want to be yelled at by Trump and Vance.
Speaker 2 (17:28):
Either way, James, I think Albo has just got to
tear the band aid off and get this meeting done.
Speaker 1 (17:32):
Yeah, but just quickly, James.
Speaker 2 (17:34):
While Albo was in Canada, Federal Treasurer Jim Chalmers, he
was in Canberra giving a big set speech on the
government's economic agenda. What did you take from that?
Speaker 1 (17:43):
It was a love letter to the AFR. How many
times to reckon the word productivity was mentioned? How many
twenty eight? What a beautiful thoodol no I could feel.
Michael Stutchbury, our former editor in chief, great productivity campaigner,
he would have been drooling over this one. Now have
a read of the paper on Saturday. I'm sure he'll
(18:05):
take some issue with Charmer's approach. But look, we're gearing
up for this productivity round table which will be held
around the apparently around the cabinet table. Anthony twenty five
seats around the cabinet table. So I'm not sure you
and I will be invited, but I think we'd have
a bit to contribute. Look, i mean, the headline here
was about tax reform. Charmers has said, bring it on,
(18:26):
I'm ready to discuss it. He even gave a little
message to the media, gave a message to you, Anthony,
he said, don't play the rule in this tax change
and rule out that tax change. But then Charmers strangely
went and said, I'm not going to touch the gsts.
Speaker 2 (18:42):
Only one person can play.
Speaker 1 (18:43):
That game exactly what a reverse ferret. So look, I mean,
we'll see where all this goes. But you know, hey,
Cutos to Charmers, they've got a mandate. We've said what
are you going to do with this mandate? Can you
do some big picture stuff? And Chalmers is you know,
provided a speech that said, yeah, let's talk about it.
Let's let's think about some big picture stuff. So look,
(19:06):
I think if that discussions entered into in the right way,
maybe even in a bipartisan way, you know, let's see that.
Let's see the Libs and the Nationals throw up a
few good ideas and be prepared to have them kicked around.
As well. I don't know. Look, I'm trying to be
optimistic about this, Anthony. Let's have the discussion and let's
let's have it in a try and have it in
a normal, sensible way.
Speaker 2 (19:27):
I reckon, Yeah, I agree, James. I mean there's always
cynicism around, you know, around tables and discussions and reviews
and talk of things like tax reform, and none of
it matters at all until you get to the end
of it and decide whether you're going to do something
or not. But what else is the government supposed to do? Right,
You've got to kick off these things somehow, and I
think they're making the right noises, so you know, credit
to them, and let's hope that something useful comes out
of it. Yeah, well said, Let's get to our second topic, James.
(19:54):
And this week we got the m and A deal
of the year, a blocks bust, that thirty billion dollar
cash bit Frustralia's second biggest oil and gas company, Santos
Now James, having been shopped to every oil major and
sovereign wealth fund for years, the Emiratis took the bait,
turning up with bids at eight dollars and eight dollars
sixty share in March, before returning with a best and
final offer of eight dollars eighty nine a share at
(20:17):
the end of last week. James, the timing is stunning.
I mean, we've just been talking about this Middle East
conflict that could have a potentially huge impact on the
oil price. Santos's board has acted pretty decisively and said, yep,
good bid. If you can stand it up, we'll recommend
it to shareholders. So the bidder, which is calling itself
the XRG Consortium, but really most of the money looks
(20:39):
like it's the national oil company from the UAE, and
then there's private equifirm Carlo as well. It's getting an
exclusive look at Santos's books and if it can stand
the offer up, Santos is basically it's for the taking. Now, James,
were you surprised that Santosis board could act with so
much certainty given all the uncertainty in energy mark It's yeah, good.
Speaker 1 (21:01):
Question, Anthony. I mean I think so as you said,
they've been shopping this business around for the best part
of you know, two or three years. They finally find
a bitter with enormously deep pockets willing to pay all
cash willing to just take the whole business in one chunk, nothing,
no funky sort of you know structuring to this deal.
(21:23):
I mean, surely you've got to say, yep, yes, please,
we want to put this to shareholders. This is a
deal that we think stands up. I think that's totally understandable.
How does the Middle East conflict play into that? I
think if you're on the Santos board, you'd be saying, look,
there's plenty of conflict in the Middle East already hasn't
really affected the oil price, and so they'll be you know, thinking, look,
(21:46):
whatever happens here is probably a short term issue, and
you know, we've got to run our business for the
long term. So I get that, but it's a really
difficult one for Santos. You know, they've tried so many things.
They've tried, looked at a merge with Woodside, the other
big oil and gas player in this country, sort of
fell over very quickly. They've had activists suggesting breakup plans
(22:08):
come to nothing. So when you've got one bitter, as
I say, with huge resources, ready to buy the whole
thing from you in cash, I think that's pretty hard
not to put that offer to shareholders even though there
is uncertain in the world. There's always uncertain in the world.
But Anthony, we've got a really good question from a reader,
Cheryl cart right in Victoria, and I'd like you to
(22:30):
like you to have a crack at answering it. She says,
why can't Santos unlock its own value? Why is it
better to have Australian resources in foreign hands, particularly the
hands of a foreign government. I think that's a really
important point Cheryl makes here. Santos basically becomes a foreign
government owned oil company if this still goes through.
Speaker 2 (22:48):
Right, Yeah, absolutely, In terms of the first part of
the question, James, I mean, yeah, Santos could in theory
unlock its own value. It's one of those companies whether
some of the parts is worth more than the whole
on paper. And Santos has been talking for years about
doing stuff to unlock that value. James, asset sales, infrastructure sales,
farm downs, joint ventures, everything. It's had more reviews than
the Phantom of the Opera would have had over the years.
(23:10):
It honestly is always just flooded with bankers trying different things.
You know, whether it's heart's been in actually doing something
or not. I mean, that's sort of another question. And why, James,
why haven't they been able to do anything? What turns
out that all those various assets that it's got, they've
worth more on paper when you look at them by themselves,
but they're actually not that valuable to other parties on
(23:33):
their own. You know, they might be a bit small
on their own, they might be subject to preemptive rights,
or only attractive to a small player who doesn't have
the cash flows to develop them, you know. And oil
and gas, James, it's all about scale, the big companies
getting bigger. Santos is a big fish here. It's relatively
bite size compared to the other places globally. And it's portfolio,
it's it's quite separated, right, you know, Like it's got
(23:55):
a big stake in an LNG plant in p and G.
It's got g LNG, which is l and G up
in Gladston, it's got other assets in Australia, the center
of Australia and WA. Like they're quite sort of separate now,
each of those things on their own. You know, sure,
sure they're big enough, but they're not that big, they're
not that not that meaningful. So that portfolio being all
(24:16):
over the place. It's those assets are too small for
a big bit of like XIG just to pick off
one or two. You know, wants it wants the whole thing.
So so I'd say Eryl, like Santos has been trying
and the method it's ended up with basically is just
trying to get a bid for the whole thing. I mean,
that's what they think is the cleanest. That's the value
realization strategy here. It's the one they've got from the Emiratis,
(24:39):
and the Santos board locked it in last weekend. I mean,
as for the second part of the question, why is
it better to have Australian resources in foreign hands, particularly
of a foreign government? I mean, Cheryl, I mean, she
has hit the nail on the head with this one.
This is the question for the takeover. I think everything's
going to live or die on this. James Hu you
(25:00):
picked it up straight away in your first Take column
on Monday morning when this came out the Foreign Investment
Review Board. It's going to come down to ERB, It's
going to come down to the treasurer. Countries globally, they're
turning inwards. Governments are getting protectionists. This is an energy company.
We still haven't worked out what our energy system looks
like for the long term, where you know, how we're
going to transition from the fossil fhels to the renewables.
(25:23):
What's the likelihood do you think the government says go
for it?
Speaker 1 (25:26):
Ye're not great, probably, but I think there's one caveat
to that. And just to explain the process, So the
Foreign Investment Review Board, it gets first crack at reviewing
a deal like this, and then it passes a bunch
of advice onto the Treasurer Jim Charmers, who has the
final sort of veto, right, I guess you'd call it
so often the Treasurer would just say thanks, ferb, you've
(25:50):
done a great job.
Speaker 3 (25:51):
Tick.
Speaker 1 (25:52):
But I think this one, it really is going to
come down to It's going to be a decision Charmers
has to make. So the sort of immediate response is no,
we don't want these critical Australian assets in foreign hands,
not only for national economic reasons and national security reasons,
but for political reasons. Jim Chalmers won't expect too many
(26:13):
high fives for a decision like that. The one caveat
I've got, Anthony, is that we do need to get
more gas out of the ground. Yeah, like it or not,
it's the transition fuel that is the practical answer at
the moment. So we're going to need more gas, and
there is a question as to whether who's better to
pay for the development of that new gas. Is it
(26:36):
Santos as a standalone listed company that has all those
challenges attracting capital, or is it Abu Dhabi Inc. With
deep pockets and lots of oil money that it's more
than happy to spend. So maybe there's a compromise where
for chalmershe does a deal where he gives approval conditional
(26:56):
on the new owners investing a certain amout out in
unlocking new gas supply. That might be a way he
can have his cake and eat it too. He can say, hey, look,
you know, I know how important energy and affordability and
energy security is. I've just guaranteed that this mob is
going to spend thirty billion dollars on gas. I'm picking
(27:19):
a number at random, thirty billion dollars on gas investment
over the next thirty years. That might be one way
through it, but it's going to be a hugely tough decision. Anthony.
The other thing. I mean, as you said, this is
the third, the third set of takeover talks on Santos
in three in that you and I have covered in
the past decade. I mean, what is it about this
(27:43):
thing that it keeps attracting bids and what if this
one falls over? Is there a bit of last chance
saloon about this?
Speaker 3 (27:50):
Oh?
Speaker 2 (27:50):
There definitely is. But he's so unique, James, for top
fifty companies have two bids in a decode let alone
three rupt you now, I mean, there's something quite magical
about santa And like, there's a few things going on,
a big a few global forces and a few sens
or specific things. I mean, the first one is the
cost of doing business in oil and gas James. It's
through the roof. You've got a rising environmental regulations, your
(28:11):
planning approvals, construction costs, it's just way more expensive to
get a project up and running now than it used
to be. That's making developers and producers like Santos's lives harder.
How do you combat that, Well, one of the ways
is to chase scale. So the bigger you are, you
should be able to do things more efficiently. So we've
got a situation where the bigger just hoovering up assets
and trying to get that scale to protect their margins.
(28:33):
And then the smaller are sort of disappearing. At the
same time, James, you've also got less capital around it.
It's that green sort of discount over these companies is
really hurting. So some capital has fled the sector or
it's much more choosy. Right, So companies they now need
to be able to fund their own developments rather than
tapping equity markets to do them do it for them,
(28:53):
or getting banks or a new investor whatever. So you
have to be big in order to be able to
become the next big thing to beause you need to
be able to big to have the cash flows now
to fund the developments that will be your next project.
So the small end of the sector, it's just capital
starved and it's all about it's all about being big now, James.
If you want to get big and you're an acquirer,
(29:13):
there's not that many opportunities of scale around in good jurisdictions,
and Australia is still one of them. There's just not
that many assets up for the taking. And here you've
got Santos, You've got a board that is repeatedly engaged
with bidders, so it's clearly up up for a deal
with decent assets, large enough for someone like an XIG
to take the whole lot and to make a difference.
(29:35):
So there's few targets. Santos is one of them. And
then overlaying all this, James is a life on the ASEX.
It's not been that easy for Santos. Like I said,
Santos has tried a few things to create value. Most
recently it committed to return more cash to investors and
be disciplined about production growth. I mean, that's something that
I've heard fund managers talking about for fifteen years. On Santos,
(29:58):
it finally commits to do it. The shep ross go up,
not really, I mean this thing just bounces around with
the oil price steal. So I think I think there's
a few factors there. But Santos's board, i think it
was about eight years ago, got a bid from private
equity and at the time, yeah, you know, the bid
was good, was good enough price. But at the time
they had this new CEO, Kevin Gallagher, that had just
come in and the board kind of said, well, yeah,
(30:20):
why should we take this private equity mob's money. Let's
just back this Kevin Gallagher bloke to do his turnaround
plan and make money for shelters for us, and sure
enough they so they turned down the bid and they
went with Gallagher. You know, fast forward to today, James
and Gallagher is probably closer to the finish than the
end total, and they don't really have that next that
(30:41):
next executive up with the turnaround plan that could make
them maybe want to reject something like this on evaluation grounds.
So it's pretty eavenly poised. What's your gut feeling, James,
what's the probability of success do you think in terms
of this deal getting over the line?
Speaker 1 (30:56):
A great question. Fifty to fifty for me, I really
don't know, but I reckon fifty to fifty, and I
reckon there's we'll still be talking about this in six months.
What's your what are your numbers?
Speaker 2 (31:10):
My gut pheel James says that he's easier to block
this thing than it is to accept it. I mean
every few years, for the past fifteen years, we've had
a big deal like this go to the treasurer and
get knocked back. We had Asex Limited, we had Grand Court,
we had APA Group, we had Osgrid. They're rejected for
various reasons, could be security, national interest, but it's basically
(31:31):
a combination of those two things. This thing, James, that
it's energy policy, energy security. We know that Australia's not
been good at that. Like you say, perhaps there's a
way forward for the Adnock, the UAE company to offer
something to the government and the government to take it.
And there are a few things that could offer. Like
you say, it could commit to invest capital needed to
(31:52):
unlock the be Toloo Basin, which could be Australia's biggest
ever gas reserve. Santos is a big player there. It
could do that. It could commit to not take so
much money domestic gas to feed into GLNG, which is
their nextplorider offshore. So there are things that it could offer.
But without offering those things, James, I just reckon. My
gut's telling me that this one will struggle.
Speaker 1 (32:15):
Yeah, all right, lots to play out. We'll come back
after the break and discuss a deal that is happening
and it's one of the most exciting of the year.
On the ASEX back in a second, welcome back. If
(32:39):
you want to know more about what we're talking about
today and a whole lot more. AFR subscribers can sign
up to the Chanticlear newsletter at join dot afi dot
com forward slash Chanticleer. Every Saturday morning, the newsletter pulls
together the best hnticle columns from the week and delivers
them straight to your inbox. Very exciting day on Tuesday, Anthony,
and not just because you're hosting the afr's first insurance forum.
(33:02):
It would be good, yeah, sector at the moment, but
on Tuesday we have the first big IPO in a while. Really,
Virgin Australia is going to retake to the public boards
by listing on the AX now, Anthony issue price two
dollars ninety been very well supported this thing. Is it
(33:23):
going to fly or stay grounded? Will the shares finish
the day higher or will they be lower on their
first day?
Speaker 2 (33:30):
Five percent high? As my guest James, look, this is
a coming home party for Virgin Australia. The AX is
where it belongs. It's where it would have been if
it hadn't gone broke. That's where it used to be.
So yeah, I think I think most investors are looking
forward to seeing it back. It doesn't mean everyone's going
to buy it. In fact, a lot more people won't
buy it than will. But I think we get an
okay reception. What about you?
Speaker 1 (33:50):
Yeah, I think it's going to get a good reception
that the only I think five percent up is a
good guess. It could get trumped though, if the Donald
goes into Iran oil price go through the roof. Airline
stocks are very sensitive to very sensitive to oil prices.
Maybe that's the only thing that holds it back on
day one. But the reception for this has been good
(34:12):
and it is great to see a big new business
joining the AX or rejoining the AX. And then on Wednesday, Anthony,
we'll get monthly inflation numbers. Inflation is looking pretty good
around the world, so hopefully the good story continues.
Speaker 2 (34:27):
Right, yeah, absolutely, well.
Speaker 1 (34:29):
We loved answering your questions during the episode today. If
you've got a question you want to ask us, email
us at Chanticleer at afar dot com and you can
also send us a question in audio form. Just record
a voice memo on your phone, include your name and
where you're from, and email it to us. And of
course the widget on the on the Chanticleer articles at
afar dot com is always there as well. And I
(34:51):
must say, Anthony, you don't need to be a family
member of one of our journalists to get your question
on you.
Speaker 2 (34:57):
Absolutely.
Speaker 1 (34:58):
All right, Well, it's been an the big week. We'll
see where Virgin goes next week. We'll see where where
the Iran Israel conflict goes next week, and we'll see
how markets do. It's a nervous time out there, I reckon, Anthony.
Speaker 2 (35:13):
Yeah, I agree with you, James. Like you said, valuations
are still high. Everyone's sort of holding on, just hoping
that nothing too too bad from the market's perspective sort
of spills over. Yeah.
Speaker 1 (35:22):
Absolutely, it's going to be another big week. We'll see
you next week. Thanks for listening. If you like the
podcast and you want to hear more, consider sharing or
giving the podcast a review, as it helps other listeners
find us, and don't forget to follow wherever you get
your podcasts. At The Financial Review, we investigate the big
stories about markets, business and power. For more, go to
(35:45):
afar dot com and you could subscribe to The Financial Review.
The daily Habit of successful People at afar dot com
slash subscribe Chanticle was hosted by me James Thompson and
Anthony McDonald, and it was produced by Alex Gau assistance
from Mandy corn. A theme is by Alex Gou. Head
of Premium content is Fiona Baffinia The Australian Financial Review
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