A perfect purchase
Townsville THE sale – more pointedly, the purchase – of the Arrium steel group is one of those rare all- round goodnews stories.
It’s obviously good news for the 5500 people who will continue to have jobs – indeed, now actually more secure jobs than they might have thought they had back even before the company’s finances went to custard.
It’s also good news for all the businesses and their workers which do business with Arrium and its various operations, whether as suppliers or customers, and not just in Whyalla but around the country.
It’s good news – indeed the best news – for Whyalla, which would have been turned into a ghost town otherwise ( albeit, perhaps only the first of many in Jay Weather- ill and Tom Koutsantonis’s back- to- a 19th century- future state).
It is therefore good news for the state and also – directly and undeservedly, because the purchase was no thanks to them – those two very same pollies. But it is also good news for the country overall that this business has a future in a global context.
That’s the key point and why I stressed that it was the purchase side of the deal that is the foundation of the good news.
A sale in isolation wouldn’t have guaranteed a future: the generic buyer could be acquiring it for the corporate equivalent of scrap.
This buyer is buying to keep the business, well, in business – and shock catastrophes aside, keep it in business at least well into the medium term. That’s say at least seven to 10 years.
You don’t outlay $ 1.5 billion- plus, maybe even $ 2 billion- plus, as this buyer is doing, and outlay it in the way it has – buying the lot – unless you intend to run the business.
This buyer intends to do exactly that and, critically, this buyer knows exactly what it is doing.
The key thing to understand is that the buyer is not just spending $ 1 billion- plus – the price has not yet been disclosed ( it will be) – to buy Arrium, it will also need to pump in another $ 500 million or so, and then counting, to recapitalise the business. That’s the real commitment to at least that medium- term future.
So if it’s paying the banks $ 1 billion, it’s committing to at least $ 1.5 billion. If it’s paying them $ 1.5 billion, it’s committing to $ 2 billion- plus.
The only people it is not good news for are the former Arrium shareholders. They will get zip, although the losses they will make on their shares will at least be formalised and finalised for tax claim purposes.
Furthermore, they didn’t lose their money yesterday. It went, instantly and completely, 15 months ago when Arrium went belly- up; so in a bizarre sense, now that they can claim their tax loss it’s sort of a “good news” story even for them.
Those who think “banks are bas- tards” will see it as “good news”, because the banks will lose some money. They are owed $ 2.8 billion. They won’t be getting anywhere near 100c in the dollar back.
However, it’s actually even a “good news” story for them compared with what they were looking at when it all blew up. They could very well have faced losing closer to all of that 100c in the dollar.
Crucially, the deal is a done deal. It is subject to only two conditions.
The first is creditor approval: they won’t just approve it, they’ll snatch it. The second is FIRB, foreign takeovers. Again, the Treasurer will stamp “yes” on the positive recommendation from FIRB the moment it hits his desk; maybe even while it’s in midair heading for his desk.