by Peter Ralph
“Hell no! I want you to help me if you can. Surely there’s a way to massage the figures, where we take a little of next year’s profit and put it into this year’s figures? We’ve increased selling prices, we’re reducing costs and we’re increasing efficiency. Next year’s going to be a boom year, but I might just need a little assistance this year.”
“I-I don-don’t know.”
“Kerry, we’re talking ten million out of a total profit of one hundred and thirty five million, in a company with a market capitalization in excess of a billion dollars. It’s nothing and, besides, we still might make the forecast profit. I just want to know if you’ll help me if we don’t.”
“I-I’d like to be able to say yes.”
“I’m sorry I didn’t realize what I was asking was so difficult. I don’t know anything about accounting, but all I’m trying to do is smooth the figures out over two years. I’d never dream of asking you to do anything illegal,” Aspine lied. “I guess you couldn’t conceal it from the auditors?”
“I could do it in half a dozen ways and the auditors would be none the wiser. I’m not worried about the auditors.”
Aspine mused that ego was a powerful motivator, even in the weakest of personalities. His suggestion that Kerry couldn’t outsmart the auditors seemed to have hit a nerve. Aspine put his hand back on Kerry’s shoulder and looked into his eyes. “If I need your help, will you come through for me? I’ll be indebted to you forever.”
“Yes. I-I’ll do it if I have to, bu-but I hope you nev-never ask me to do any-anything like this again.”
“Rest assured, I promise that it will never occur again. There are a few other matters I’d like to discuss with you. I’m bringing in a tax expert with a view to minimizing our tax liabilities. He’s name’s Norman Pell and he’s going to phone you.”
“That could be very beneficial.’’
“And I’m going to put some of the company’s funds out on short-term deposit with Balmoral Finance. They’re paying seven per cent.”
“I haven’t heard of them. Have you checked them out?”
“Don’t worry, they’re solid.”
Aspine asked Kelly to prepare an announcement to The Stock Exchange, confirming previous earnings guidance, and then phoned Selwyn Lappin. Lappin asked if he could hold off for half an hour before transmitting to the ASX, and Aspine agreed. He guessed that Lappin would be organizing some moderate buying for favoured clients of Blayloch & Fitch. Fifteen minutes after the announcement was made, Mercury’s shares climbed 40 cents, recovering half of what they’d lost earlier in the day, courtesy of Fiona Jeczik. Her crusade against Mercury had not been all bad news though − Andrew Malone couldn’t stand the pressure that he was under from friends and peers, and resigned as a director. Aspine wondered whether William Claymore and David Cleary would also resign, which, with the exception of Harry and Stan Pettit, would clear the board of its deadwood.
By the middle of December, Mercury had deposited fifteen million dollars with Balmoral Finance Company Pty Ltd. Balmoral had made loans to a number of companies, to fund the purchase of pre-owned apartments built by Mercury in the Docklands. The prices paid were above market price, and very few of Mercury’s Docklands apartments remained for sale by original buyers. In direct contrast, there were a large number of apartments available from sellers who’d purchased from Vicland, Urban and Apartco. It appeared that Mercury’s Docklands apartments were appreciating in value, or at least holding their own, when the value of its competitors’ apartments was falling. Brad placed double-page advertisements in the Melbourne Age and Herald-Sun stating that Mercury’s Docklands apartments were selling for more than their original buyers had purchased them for, and supported this by listing some of the recent sales against the original prices paid. All showed healthy profits for the sellers. The ads were cleverly worded, and inferred Mercury’s apartments were of a superior quality to its competitors, which were selling for less than the original buyers had paid for them. The message was clear − if you were going to buy an apartment and watch your capital appreciate, it had to be built by Mercury.
Aspine sold his shares in Philco Coal for $3.40, realising a profit of twenty-four thousand, and two weeks later XStrata made a takeover bid for Philco at $3.80 per share. Blayloch & Fitch’s information had been very good, and they also advised him to buy shares to the value of seventy thousand dollars in Carbotrim. He had bought stock worth thirty-five thousand, and sold it for a profit of fifteen thousand, after Carbotrim announced the grant of a patent for a weight-reducing drug. He was then advised to put one hundred thousand into Ingotgold, but he had only invested fifty thousand and was already ten thousand in front. Blayloch & Fitch certainly looked after their clients, or at least their influential clients.
- 20 -
KERRY BARTLETT WORKED tirelessly during January to complete Mercury’s Accounts for the full year, which showed an operating profit of one hundred and twenty-four million dollars, an increase over the prior year of thirty-eight per cent. He was sweating heavily when he related the result to Aspine.
“How much do we need to adjust the profit by, to achieve our forecast?” Aspine asked, knowing exactly what the figure was.
“Eleven million,” Kerry gasped.
“Is there any problem?”
“I-I-I...nev-never knew the adj-adjustment would be so lar-large, and I’m not sure whether we should do it.”
“Kerry, I made an announcement to The Stock Exchange in October because you told me there’d be no problem. If I go to the market and report a thirty-eight per cent increase, I’ll lose credibility, the company will lose credibility and you’ll lose credibility because the market will know that you were the one who came up with the figure.”
“Wou-would you sa-sack me?”
“You’re far too valuable for that. I wouldn’t know what to do without you. I’d be disappointed if you went back on your word and let me down, but I don’t hold grudges,” Aspine lied. “What difference does it make whether it’s five million or eleven million? We’re only borrowing from next year’s profits. It’s not like it’s going to happen again.”
“I-I don-don’t know.”
“If you can’t do it, you can’t, but it’s going to leave me high and dry. I thought you said it could be done without the auditors finding it, but I must have misheard you.”
“I can. They’d never find it, but that’s not the point; it’s the immorality of it.”
“Immorality! Why didn’t you raise it in October? Look, if you can’t outsmart the auditors, that’s fine with me, but don’t bring up morals as an excuse.”
“I-I can. It’d b-be easy. It’s just...”
Aspine interrupted. “It’s up to you if you want to go back on your word, but don’t make out that you’re smarter than the auditors.”
Kerry’s head was nearly on his chest and he squirmed in his chair. “Ar-are yo-you sure you-you’re only go-going to ask me this once?”
“I promise,” Aspine responded, his face filled with sincerity.
“I-I I’ll do it the-then, just this once tho-though.”
Aspine smiled. He’d known that Kerry would cave in and knew he would again, if need be. “You’d better make the adjustment twelve million. We don’t want to make it exactly fifty per cent or it might look fishy. We don’t want that, do we?”
The board met in the company’s palatial new offices for the first time, to consider the year’s results and to determine a dividend. Harry surveyed the antique furniture, the paintings, the artefacts, the thick carpet and the audio-visual equipment. “What a disgusting waste of shareholders’ money,” he muttered, to no-one in particular.
“It’s the type of office that public companies with an image to project have, Harry. The management and staff are far more effective than they were working out of the cramped dog boxes you had them in.”
“Hmmph, no-one ever complained to me about the offices. This edifice is more about your ego than efficie
ncy or effectiveness.”
Aspine was about to respond, when Sir Edwin intervened. “Great result, Douglas, you delivered what you said you would.”
The other board members, with the exception of Harry, begrudgingly offered their congratulations. Harry shook his head and muttered, “Something’s not right.”
“The only thing that’s not right, Harry, is the lousy result you brought in last year. You made it easy for me,” Aspine smirked, “you must have been in cloud cuckoo land.”
Harry’s face turned scarlet. “You talk about projecting an image. You’ve lowered the image of a great and ethical company. You’ve got nothing to be proud of when you fleece senior citizens to make profits.”
“That’s bullshit. We refunded the Cartwrights money and rescinded the contract, long before that Jeczik woman got involved. It was a beat-up.”
“This board might be asleep, but Fiona Jeczik’s not. She’s awake to what you really are and what you’re doing, and she’s going to bring you down.”
“You wish, Harry. You wish. It’s a pity you’re no longer a cheque signatory, because I’ve got a cheque for a million dollars that needs signing,” Aspine laughed. “I don’t know what your gripe is; I’ve doubled the value of your shares.”
“Let’s move on,” Sir Edwin interrupted. “Last year’s final dividend was 10 cents. I think we should declare 15 cents this year.”
There was a murmur of approval before Aspine said. “I don’t think we should pay a divided. We should conserve our cash.”
Harry started to laugh. “You don’t want to declare a dividend because you don’t own any shares and you think it’ll reduce the value of your options. Conserve cash? You’ve sold everything that wasn’t bolted down and the company’s rolling in cash. You’re a slimy piece of work.”
Aspine smiled, but his eyes were cold and hate-filled, as he stared at Harry. An uneasy silence hung over the room, before Sir Edwin said, “I think the company can stand 15 cents, and the institutions will be expecting it.”
“Are we going to provide earnings guidance when we announce the results?” Stan Pettit asked.
“I’m glad you asked, Stan. I think I can increase operating profit by thirty per cent this year, but to achieve it I’ll need some new incentives. I’ve already discussed these with Sir Edwin.”
“You-you’ve got a three-year contract,” Harry said, almost choking. “What are you talking about?”
Aspine smiled. “You got paid two million to bring in a profit of ninety million. I’m going to make Mercury one hundred and seventy-seven million this year, so I guess I should be on four million.”
“You’ve got a contract and those options you were granted are now worth three million,” Harry shouted.
“The options are worth three million for one reason. Me! Your shares have doubled in value from twelve million to twenty-four million for one reason. Me! Mercury’s going to make a record profit this year for one reason. Me!”
Harry snorted. “We’ll hold you to the contract and if you breach it, we’ll sue you.”
“I don’t think the institutions would like to go down that road. After all I’ve just doubled the value of their investments.”
“What did you agree to, Ed?” Harry snarled, emphasizing the ‘Ed’.
“I haven’t agreed to anything, but we did discuss an amended contract for Douglas’s second year. Two million in salary, one-and-half million bonus if a thirty per cent profit increase is achieved, with three million options to acquire shares at an exercise price of $4.00. Fifty per cent of the options entitlement and bonus payable after six months, providing the pro-rata profit target is achieved.”
“That’s ridiculous. You’re proposing to pay him three and half million, and to top it up with three million options without any hurdles. The shares are already trading at $4.00, so if you’re going to issue options, they should be exercisable at $5.00, and the quantity should be reduced to two million. And what’s this lunacy about paying half-yearly?”
“I agree with Harry,” Stan Pettit said. “I can live with the salary and bonus, but the options and timing of entitlements are far too generous.”
“I-I think I agree with Harry too,” William Claymore mumbled.
“I’ve got half a dozen jobs that I can take that’ll pay me more. If you haven’t realized it, I’m hot property, and there are a lot of companies that’d like to have a CEO who could increase their profits by thirty per cent. You try and screw me and I’ll walk.”
“Good riddance,” said Harry.
“Hold on. Hold on,” said Sir Edwin. “What if we increase the exercise price of the options to $4.25? How would you feel about that, Douglas?”
“Bloody unfair,” Aspine scowled.
“No, that’s still far too easy,” Harry snapped.
“It seems fair to me,” David Cleary whispered. “Surely we can reach agreement.”
“Can we, Douglas?” Sir Edwin asked.
“I suppose so, but I’m not happy.” He caught Sir Edwin’s eye and gave him a subtle wink, as this was the scenario they’d agreed to before the meeting. By his calculations, he would earn seven million dollars in his second year, and while not showing it, he was elated. “I have two other matters I want to raise. I want authority to issue a further three million options to my executives, on the same terms as those issued to me, should I deem it appropriate.”
As expected, Harry opposed the proposition but, with a little pushing by Sir Edwin the other board members murmured their assent. Harry’s power was almost completely eroded.
“What else, Douglas?” Sir Edwin asked.
“I’d like to invite Russell Ridgeway, the CEO of ANQ to fill the vacancy on the board left by Andrew Malone.”
“That would be a coup. Do you know him?”
“He serves on one of the charitable boards that I’m on,” Aspine responded, creating the impression that he assisted many charities.
“He’s been very impressive in turning ANQ into an insurance power-house,” Stan Pettit added. “I’d certainly support his appointment.”
“What do you think, Harry?” Sir Edwin asked.
“If he’s as smart as what the newspapers make out, he’ll decline. He’ll know that you get fleas when you sleep with dogs,” he said, addressing his last comment to Aspine.
“There’s only one dog on this board, Harry,” Aspine responded.
Aspine was pleased with the outcome of the meeting and, while Kelly was preparing the announcement for release to the market, he phoned Selwyn Lappin.
“What news do you have, Douglas?”
“We’re announcing to the market this morning.”
“Was the operating profit in accord with your earlier announcements?”
“Yes.”
“What about guidance for this year?”
“That’s included in the announcement.”
“What increase are you projecting?”
“You know I can’t tell you that.”
The line went quiet and all Aspine could hear was the breathing of Selwyn Lappin. “I understand. Now listen, I’m going to say three figures and I want you to say no to two of them. You won’t be breaking any laws. Ten?”
“No.”
“Fifty?”
“No.”
“Twenty-five? I didn’t hear you, Douglas. Hold off making the announcement for an hour.”
“Kelly, get me Russell Ridgeway,” Aspine shouted.
“Hello, Douglas. What can I do for you?”
“Russell, a casual vacancy has come up on our board and I wondered whether you might be interested in filling it?”
There was a long silence.
“Russell, are you still there?”
“Yes. Look, I appreciate your offer, but it’s something I just can’t take on at present,” Ridgeway said, sounding strangely subdued.
“Is there something wrong?”
“Not really, but that last exposé they did on you on Channel Sixteen was p
retty damning, and you’ve made some people at the top end of town a little nervous.”
“I take it you’re one of them?”
“No, but the insurance industry is very sensitive. I can’t afford to be associated with anything that might be scandalous or improper.”
Aspine cursed. Harry had been right, and Ridgeway was running scared. “I understand your decision, Russell,” he lied. “I’d appreciate it if you didn’t mention this conversation to anyone else.”
“That’s fine, it never happened,” Ridgeway laughed, but he sounded relieved.
“So when are we getting together for that game of golf?”
“Golf?”
“Yes. Don’t you remember? We were going to have lunch at Royal Melbourne, and follow it up with eighteen on the east course.”
“I’m sorry. It must have slipped my mind. I’ll get my PA to organize something, and get back to you.”
“Do that, Russell.”
As Aspine put the phone down, he cursed Fiona Jeczik. He was obviously on the outer with Russell Ridgeway, and it was all her doing. Bitch!
Mercury’s shares rose 15 cents in the hour preceding the release of the full-year results, on steady but controlled buying. The market greeted the announcement of a fifty-one per cent increase in operating profit enthusiastically, and pushed Mercury’s share price up another 25 cents to an all-time high of $4.40. Aspine’s options were worth just over three million dollars and, when added to his salary and bonus he’d earned over five million for the year. Sir Edwin was happy, the institutions were happy, the stockbrokers and merchant bankers were happy. Only old Harry remained bitter and skeptical.
The morning newspapers were glowing in their commentary on Mercury’s results, and were unrestrained in their admiration for its CEO. Aspine read every word and basked in the afterglow. Marcus Easton, from The Australian, who’d already labeled him a turnaround expert, was lavish with his praise, and called for the appointment of more proactive CEOs to manage the affairs of the many staid and under-performing public companies. Aspine read the article for the third time before shouting, “Kelly, get me Marcus Easton from The Australian.”
