Lachlan Murdoch tells of meetings with Packers on One.Tel
By Karen Michelmore
SYDNEY, Aug 9 AAP - Lachlan Murdoch knew One.Tel had chewed up $171 million cash injust six months towards the end of 2000.
But a month later, the News Ltd chairman and son of media tycoon Rupert Murdoch stillhad faith in the junior telco's business plan.
Appearing this week in the witness box at a liquidator's inquiry into the demise ofOne.Tel, Mr Murdoch said that four months before One.Tel's collapse in May 2001 he couldnot imagine the company was close to running out of money.
His media mogul mate James Packer had told him less than three months earlier thathe was installing Publishing & Broadcast Ltd (PBL) executives into One.Tel to make surethe company was running to its business plan.
Mr Murdoch told the inquiry this week he expected PBL would report back if there wasa "significant deterioration to the business plan".
But Mr Packer had not told him he had been getting daily reports about the company'scash position almost five months earlier.
"I believe I read it in a newspaper ... post my being a director of the company," MrMurdoch told the inquiry.
Nor was he told, by Mr Packer or anyone else, that One.Tel's cash position had fallento as low as $38 million in March 2001, he said.
Relations between Australia's two richest media families, the Packers and the Murdochs,appeared to have begun to strain eight months before the collapse of One.Tel.
In October 2000, Mr Packer, PBL executive chairman, found himself apologising to theMurdochs for One.Tel's falling share price.
At that time the phone company's share price was being dragged down partly by controversyover $A15 million in bonuses paid to the junior telco's joint bosses Jodee Rich and BradKeeling.
The investment that Mr Packer had wooed his friend Mr Murdoch with over dinner at hishome just 22 months earlier was now worth less than the $575 million that News Ltd hadfunnelled into it.
Mr Packer pulled Rupert Murdoch and his son aside before a One.Tel presentation atNews Corp's Australian headquarters on October 9, 2000, and said sorry.
"I remember him apologising about the share price deterioration which was due at leastin part to the bonuses (paid to Mr Keeling and Mr Rich)," Mr Murdoch explained this week.
Just two years earlier, one hot January night, the pair had cooked up the idea fora joint investment in the new telecommunications company.
The idea was to cash in on the current telco boom; the plan was to "build a reallygreat business".
Neither could have possibly imagined that a touch over two years later they would beapologising to shareholders for losing almost $1 billion in the venture.
The inquiry has heard evidence indicating Lachlan Murdoch appeared to be very trustingof his business colleagues over the next two years.
When News Corp first joined the One.Tel investment, Mr Murdoch said he did not readall the documents himself, relying on his "extensive legal counsel".
He did not inquire further into Mr Rich's past business dealings despite being toldby Mr Packer, an old school chum of Mr Rich, that one of his companies, Imagineering,had gone bust in the past.
Mr Murdoch said Mr Packer had indicated the business developed problems because ithad grown too fast.
"Im not sure he ever connected that (the bankruptcy) to Mr Rich's stewardship of thecompany," Mr Murdoch said.
He did not doubt the competency of One.Tel management even though the corporate watchdogthe Australian Securities and Investments Commission had raised concerns about the company'sdisclosure around September 2000.
In fact, he doubted his own memory rather than the One.Tel board after changes weremade to performance measures that triggered the multi-million dollar bonuses for MessrsRich and Keeling.
After negotiating for two hours, and ultimately winning a push to have a trigger forone bonus raised to $A3.0 billion market capitalisation in February 1999, Mr Murdoch saidhe assumed his memory was incorrect when told in October that year the trigger was now$A2.4 million.
Mr Murdoch explained from the witness box in courtroom 20A of Sydney's Federal Courtbuilding this week that he still had faith in the company's business plan at the end ofJanuary 2001, even though One.Tel had burnt $171 million in the previous six months.
As One.Tel had between $85 million and $100 million in cash, Mr Murdoch said he "didnot appreciate that with that amount of cash in the bank the company was close to runningout of money".
He had listened to the reassurances of Mr Rich that the company was raking in $130million in revenue per month and the cash flow could swing by as much as $20 million ina month.
Mr Murdoch said he thought the first few months of 2001 would prove to be "a turningpoint" for the company.
In one way he was right. One.Tel folded in May that year, with debts of more than $600 million.
AAP km/sh/mo
KEYWORD: ONETEL (BACKGROUNDER)
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