Why did Sydney Airport take off? … and much more…

Adam: [00:01:25] Hello and welcome to comedian versus economist. We demystify the world of money and help you get a handle on the bigger picture. My name is Adam and I'm joined, as always by my little older brother and real life economist, Thomas. [00:01:37][11.7]

Thomas: [00:01:38] Yeah, g'day Adam. How are you doing? [00:01:39][0.9]

Adam: [00:01:40] Very well, thank you. Look, lots to get through this week. Some of the big stories happening around Australia, around the world. So we're going to take a look at what's been going on. Company called Nuix. I don't know if you've been following that. They had their IPO last year, failed to meet expectations by a fair margin, it's fair to say. And now there's talk of insider trading. So we're going to take a look at that. We're getting closer to an agreed global minimum tax rate, which is exciting. I haven't worked out why it's exciting yet. Thomas, you're going to tell us why it's exciting. And Australia has not done well at all in a recent climate rankings. So it's time for us to lift our game. Perhaps. But first, someone's offered to buy Sydney Airport. So that's good news. The only thing is Sydney Airport wasn't for sale. So what's going on with Sydney Airport? [00:02:28][48.7]

Thomas: [00:02:29] Yeah, no. A bunch of infrastructure investors got together and said said that they wanted to buy it, wanted they wanted to put it to shareholders, to one. You guys come and sell it to us. And they're offering an indicative price of eight twenty five a share. And so the thing is around that market, that's what I think it's worth. The airport was trading at the close of Friday at five point eighty one. Um, yeah. So did a big jump Monday morning. So Monday to day we recorded Monday night. So big jump Monday as people realise that there's someone willing to pay that kind of money for. [00:03:01][32.6]

Adam: [00:03:02] Wow. So this is this would be considered a hostile takeover. No, because they went direct to the shareholders. They didn't they didn't approach the board and say, hey, would you mind selling us the company? Are you interested in selling us the company? Not for. I mean, I love I love a good hostile takeover. I just love the model. But imagine if it happened with your house and someone came to your house like, we want to buy a house for sale, but but we talk to your kids on board. You've got three kids. You have voted. Yeah. Yeah. [00:03:29][27.4]

Thomas: [00:03:30] So, I mean, there's a lot of merger and acquisition activity going on at the moment. I mean, this one this is a kind of a good play, like in hindsight is kind of when you kind of keep yourself the kind of could have seen this coming like this sort of two things going on. There's a there's a reopening play. So Sydney Airport travel's been you know, the numbers have been down because of covid. Obviously, this happened in the week where the government announced it was halving the immigration intake or the number of the flights coming back into Australia. We're going to halve. So the re-entry numbers. So that was obviously bad news for Sydney airports. So it comes in a bit of a time where the Sydney airport is copping blow after blow. And so I think the investors think like they believe in the asset and think like it's going to reopen at some point. Things are going to get back to normal. At some point we can get in now and pick up a bargain. And that's what that's what they're trying to do. The other thing is this is is a reopening play. It's also an infrastructure play. And you look at the big firms involved, Sacu Soopers involved. UniSuper already owns a 15 per cent stake. The offer is sort of based on UniSuper staying involved. So a lot of your super funds, you sort of your long term money, long hold plays, and they love interest or infrastructure because it's slow and steady. And so it's both of those things going on. It's cheap. It's like it was before covid. It was trading at nine dollars a share. So even at twenty five, it's still at a discount. And that's before you sort of factor in all the money that sloshing around in the world at the moment, looking for it, looking for somewhere to end up. And so I think I think these guys are gone now. This looks like a bargain. We're back that it's going to come back at some point. This is a good time to get in. [00:05:08][98.8]

Adam: [00:05:08] Now, it's not rocket science, though. Like, well, that right. [00:05:12][3.2]

Thomas: [00:05:12] Running an airport [00:05:13][0.4]

Adam: [00:05:14] that's pretty close, apart from flying rockets is as close as knowing that knowing that an airport is going to bounce back. Like if you were like, well, I guess I guess we're done with air travel. That's the end of airports. It's not like I would hardly call yourself a visionary. If you're thinking that someday soon the airports are going to reopen and we're going to start flying all around the place again. Yeah. So, like, why isn't that already baked into the price? Like, what is the price down so much? Because they've obviously missed out on a lot of business, they've missed out on holiday travel and whatever, and that's to be expected. Mhm. But it's not like you, they've got this inside scoop like. Oh I reckon, I reckon, you know, I reckon there's a chance that air travel is going to pick up again because it hardly seems like like something that's flown under the radar. Pardon the pun. [00:06:02][48.8]

Thomas: [00:06:03] Yeah. I guess it's, I guess it's that it's a rocky road from here to recovery and particularly with, you know, covid dragging on the border closures, dragging on. So like, it's a business that must be trading at a loss right now. I don't know. I've read that is trading at a loss. The longer that goes on, the harder it gets. It starts to dig itself into a hole and it sort of. Debts and debt repayments, and so that starts to impact the medium term profitability because it has this sort of it has to get over these covid bump and the covid bump is looking bigger than we thought it was going to be, [00:06:36][33.0]

Adam: [00:06:36] because there's a lot because there's been a lot of this kind of mergers and acquisitions going on [00:06:40][3.9]

Thomas: [00:06:41] to boom some boom right now, merger acquisitions. Yeah. So I think Goldman Sachs, head of M&A merger and acquisitions, is called M&A. Marissa Freeland, I think is the name. It's an extraordinary year of activity and our senior people in the business can't remember anything like it. Yes, a record 148 billion worth of deals were announced in Australia, New Zealand in the first half of twenty twenty one. That's about two point six times the five year average of 58 million. Wow. Yes. And then seventy five percent of deals are worth more than one billion. That compares with 54 per cent, normally with more than a billion. And yeah. And 18 billion worth of hostile deals compared to one billion over the previous five years, five year average, [00:07:23][41.9]

Adam: [00:07:23] 18 billion worth of hostile takeovers as opposed to one billion. Five year average. [00:07:28][4.7]

Thomas: [00:07:28] Five year average. Yep, yep, yep. Yes, 18 times the normal number. [00:07:32][4.0]

Adam: [00:07:32] Wow. Is that so is that because of all the all the money in the system or is that [00:07:36][3.9]

Thomas: [00:07:37] that's that's my take on it. That's just I mean, yeah, everyone's got money so everyone's got money. Capital. Capital, Supercheap. Mm. [00:07:43][6.9]

Adam: [00:07:45] Yes. Most companies [00:07:45][0.8]

Thomas: [00:07:46] go yeah. Go buy some infrastructure. [00:07:47][1.0]

Adam: [00:07:48] Get me is what they talk about is this when they talk about globalisation. Is this, is this happening. Is this what it is. No. Like just big companies getting bigger by buying other kind of big companies to make super big companies. [00:07:58][9.9]

Thomas: [00:07:59] I don't think then this isn't exactly known. This is not not a case of that. So it is sometimes a takeover or something like that. But this is a bunch of so there was a consortium of infrastructure investors looking to get together to collectively buy a stake in the business and hold a stake in the business as part of a portfolio of infrastructure plays that they have. Right? Yeah. So that's a slightly different sort of story. [00:08:21][22.1]

Adam: [00:08:22] So what's the what's the what's the shareholder play here for me. Like the why invest in law firms that are facilitating mergers and acquisitions is that [00:08:29][7.4]

Thomas: [00:08:30] you can't go wrong there, [00:08:31][0.8]

Adam: [00:08:33] especially if there's like 18 times no more hostile takeovers. There's got to be lawyers in there surely. Yeah. [00:08:39][5.6]

Thomas: [00:08:40] Yeah, I don't know. I mean, it's interesting. I think infrastructure look of after this sort of story, I started looking at what infrastructure ETFs are around, like like Sydney Airport, the only airport that's publicly listed in Australia. Right. Like I was thinking like I say like I thinking this is a nice play in the sense of it's both a travel reopening play and a infrastructure play. And both of those are set to lift from here, particularly if you can get them cheap [00:09:03][23.6]

Adam: [00:09:04] set for takeoff. You might say, well, hey, [00:09:06][1.9]

Thomas: [00:09:08] this is where my thinking went today. Where else could where else might that might that go? I'm not and I'm not sure exactly. And an ETF like this, some global ETF, global infrastructure ETFs around. But I don't know specifically about Australia. [00:09:20][11.9]

Adam: [00:09:21] Well, I did have a quick look around it at hostile takeovers and what you can do if you don't want your company to be taken over. And they've given some names to some of the hostile takeover defences, which is fine as the Pakman defence, which is the type company purchasing shares of the acquiring company and then attempting a takeover of their own. So, OK, so this is one company's aiding you. You're kind of aiding the other company to say that, which is, again, in your own company. There's the golden parachute defence, which is where you just create an employment contract that guarantees expensive benefits be paid to keep management if they are removed from the company following a takeover. So basically, if you come in and take us over, then you're going to have to pay all the execs a heap of money. And so that it makes it prohibitively expensive. You know, it's no surprise that that could possibly get voted up at the next board meeting, like this company wants to take us over. What if we just put on the table that we get paid heap's if they do this? I'm not sure that you guys are addressed. It looks like this Covid. And then there's the crown jewels defence, which are funny. Now it conjures up images of euro twenty, twenty two years ago. So I could afford to stay in the euro, which is selling the most valuable parts of the company in the event of a hostile takeover attempt just to make it look, just sell off your IP intellectual property and then go, well, we got nothing. The runways in this case, they're just left with the Duty-Free shops. Yeah, exactly. Congratulations. You've taken over a mall. Speaking of companies, we cover any news this week was New X, who was the talk of the town about a year ago when they did their IPO, how their IPO did much fanfare, the share price went up. Everyone was cheering. Then it's come out this year that their forecasts were slightly off. Thomas, almost 50 percent of what's going on at New. [00:11:24][123.0]

Thomas: [00:11:25] Yeah, this this this was front page in the financial press for most of last week, kind of a big story. It's got a lot of juicy elements going to it. One of the key reasons it sort of led with these allegations of insider trading against New York's CFO, the chief financial officer. And the allegation is that he saw that they were going to hopelessly miss the their profit forecasts and so got his brother to sell off what he previously sold a bunch of his new shares to his brother and then got his brother to sell them off, made 17 million or something like that. Quite a lot of money. [00:12:04][39.1]

Adam: [00:12:05] Right. So Newark's is a new is like a big data platform. It's like I think they're involved in any anywhere where there's where there's big data. So they kind of take all that. They make it they take that messy or unstructured data. They manage it all together, make it searchable indexable. So they're really a big data player, which I can't help but think is how also they came unstuck. Like because it was like when they started selling those shares and doing those things, it was flagged with ASIC by by the ASIC market surveillance. I just love it. If ASIC was a customer of nukes using their big data platform to identify, so identifies and dodgier some dodgy trades going on. Uh, all of these were so right. So insider trading. That's that's never going to I mean, that's. No, that's not decided isn't it. [00:12:58][53.4]

Thomas: [00:12:59] Yeah, that's still a bit. That's the allegation. So. So that sort of came to light. But as part of that, it sort of emerged that that ASIC is also looking into whether the sort of this financial statements leading into the IPO were misleading or deliberately or deliberately misleading. And that's that's a bit of a bombshell in that. And it's a bombshell because it starts to blow back on a few of the big names. So the people involved were like Macquarie and Morgan Stanley. PricewaterhouseCoopers was the auditors that signed off on it all. Macquarie owns seventy six percent of Newark's before the float and then sold off, sold off at all after the IPO when the share price boomed and they RAGBRAI five hundred and eighty six point seven million. And yeah, a small change for those guys. But yeah, so there's a few more people with egg on their faces, like it's not just contained to bricks anymore. And then it's starting to blow back on some of the big investment banks as well. Mm hmm. And ASIC announced that they're looking into it and that sort of come to light. So there's sort of two separate things going on. One is, is this insider trading and sort of the idea that people knew well ahead of time that they were going to miss their forecasts, that it would nothing like just weren't realistic. There's a quote saying that from from the CFO saying that we need like an email to his staff saying we need to get better at forecasting. We have to come up with forecasts that are realistic. They would just keep just [00:14:21][82.8]

Adam: [00:14:22] keep missing realistic in whose reality they like the reality of what we promised the IPO of the shareholders. Yeah, it [00:14:29][7.4]

Thomas: [00:14:29] was pretty, pretty brutal. I think IPO at around six Dollars. It got up to around twelve in a few weeks after and and now it's down to about two or something. So there's a lot of people being burnt pretty hard by it. [00:14:40][11.3]

Adam: [00:14:41] Yeah. Well is it I wonder, though, because they've still got a lot of customers and I read this article today saying that they're still adding customers. They're growing at like 12 percent. So they just missed some upfront costs, like they're now offering their kind of software as a service solution. So they're missing out on the up front. But it's like a longer tail and they're growing like, is it possible with all this negativity around it that it's actually a good time to buy? Oh, you'd have to have you [00:15:04][23.8]

Thomas: [00:15:05] have to have pretty solid balls to do that, I reckon, because [00:15:09][4.4]

Adam: [00:15:10] they've lost about 100. Thomas, I'm going on a hunch. You've got a hunch, unrepairable. All you need is an investor. [00:15:17][7.1]

Thomas: [00:15:18] Well, I mean, yeah. I mean, they've lost their CEO and their CFO over there. So there's big changes at the helm. [00:15:23][5.2]

Adam: [00:15:23] They were no good anyway that did the clearing out cleared techies back involved. Yeah, yeah, yeah. [00:15:31][8.1]

Thomas: [00:15:32] Maybe. I don't know. I mean, I don't know enough about, about their business and and all that I guess is and it still leaves. The question is like how much can you trust their data if they've had all these problems with forecasting revenue and growth or knowing what their data is like and then see within the platform for top of level who aren't very good at data, like that's no good. [00:15:52][20.6]

Adam: [00:15:53] If you're really good at data, though, you can make the data say whatever you want it to say. So I don't know. I'm not saying by I'm not saying it's a bias. It's on my watch list. [00:16:00][7.8]

Thomas: [00:16:02] I mean, in the sense of like markets tend to overreact typically. And they've they've had a ton of bad press in the last couple of weeks that, you know, it's quite possible if there's a decent business under there and if you trusted that, then good chance and come back. Yeah. To Dollars an initial IPO at six and yeah, it's definitely in. Bargain bargain basement territory. [00:16:25][22.9]

Adam: [00:16:27] I went over to their website, they got to the front page of their website, says New Find Truth in the digital world. It's kind of ironic given what's happening right now. [00:16:35][8.7]

Adam: [00:17:46] Thomas. I don't want to say I called it, but I think I did. It was one of us anyway. I can't remember which one, but one of us predicted the coming global tax rate. So it's it's here just about the OECD has kind of got together and said, yeah, we reckon it's a good idea. They've come up with a no global tax rate, flat rate, 15 percent across the world except for some countries. [00:18:12][25.4]

Thomas: [00:18:15] Yeah. I mean, yeah, we shouldn't we shouldn't underwrite undersold this achievement. It's a big achievement to get that many countries on board around a single idea. The most pretty much all of the OECD, apart from three countries signed up for this this idea of a minimum tax floor for four business and 15 OECD. [00:18:34][18.9]

Adam: [00:18:35] Before we get into it, the OECD, the Organisation for Economic Co-operation and Development. I had no idea I'd heard of the OECD a lot when we were looking at it before. And I'm like, it's come from some some mob called the Organisation for Economic Co-operation and Development. Yeah. As the OECD a right. That makes a lot of sense. Yeah. It's like [00:18:53][18.3]

Thomas: [00:18:53] the totalisator agency board the tab [00:18:55][2.1]

Adam: [00:18:56] for the time. Yeah. Yeah. [00:18:58][2.6]

Thomas: [00:18:59] Acronyms with community economists. Yeah. So they've come up this Ireland, Ireland, Estonia and Hungary refused to sign up. Was that. [00:19:08][8.6]

Adam: [00:19:09] Yeah. There's nine countries that are nine isn't Ireland, Estonia, Hungary, Peru, Barbados, St Vincent. Which is that even a country and the Grenadines, Sri Lanka, Nigeria and Kenya. So this doesn't that undermine the entire thing? If you've got you're working towards a global tax flow, a global tax. Right. And you go isn't isn't the goal. Everyone has to pay the same amount of tax. There's no more tax havens where you can hide out and pay less tax. [00:19:38][29.6]

Thomas: [00:19:39] Yeah. Yeah. [00:19:39][0.4]

Adam: [00:19:40] If any one if any less than every country in the world sign up, then doesn't the whole thing kind of fall apart? [00:19:46][6.5]

Thomas: [00:19:47] To an extent. To an extent. But you can I think I think you can sort of patch it up a bit in different ways. And I think there's also this idea of of taxing residents and tax taxing point of sale. Right. And so I think there's a sort of a push to move more towards taxing at the point of sale, regardless of where where the company is domiciled. Okay, that makes sense. So it's like, you know, so Facebook has a lot of business here in Australia. We we tax them on that revenue even though they're not an Australian company. Yes, I respect you. And I think that's that's part of the push. Yeah. And but no, it's definitely does present some problems. I mean, particularly with Ireland and Estonia, like they're part of the EU. And for the EU to ratify this, it needs unanimous support from the EU member states. Right. For it to be to become EU policy. Yeah. Okay. So I don't I don't know what that how that plays out diplomatically. I mean, Germany and France would probably put pressure on Ireland. [00:20:41][53.8]

Adam: [00:20:41] Well, Ireland or already Ireland there at twelve point five per cent. And they came out and they're like, we can't go to fifteen. That's ludicrous. But I mean, they'd be worried, right? They've got to have got all these big tech companies still there. Yeah. They'd be worried that they'd all pack up and leave or because they go, well, we've got no reason to stay. We can just go. Well, that's [00:21:00][18.6]

Thomas: [00:21:00] right. At fifteen percent then it's like, well where do you want to be if you're not, if you're not you're not sort of basing yourself somewhere for tax purposes. And then what are the deciding factors is probably access to talent, access to cheap capital and supporting infrastructure becomes a very different consideration. [00:21:15][15.1]

Adam: [00:21:16] I'm also pretty like I'm not exactly leaping with joy that companies now have to pay 15 percent tax like fifteen isn't much compared to the average. The average taxpayer would would be stoked if they only had to pay fifteen percent tax because companies have gone from paying not much, if any, to. We're talking now about maybe they might have to pay fifteen percent. Where can I get me some. I guess the question you've got to become a global multinational. [00:21:42][25.6]

Thomas: [00:21:42] Adam Adam [00:21:44][1.4]

Adam: [00:21:44] Enterprises right. Here I come. [00:21:47][2.9]

Thomas: [00:21:48] Yeah. I mean 55 percent isn't a particularly ambitious target when you consider where corporate tax rates have been in the developed world over the past century and they've been on the long downward trend. And even at 15 per cent, that's well below where most where they are and most nations. So, you know, even the US, it's like in the twenty somewhere now, Australia in the thirties. So we're setting a floor that's already below where most nations are at. So there is this chance that, yeah, I think some people might worry about that. It actually then you see that liberalises out but a lot of countries and actually lower their tax rates and the tax, the tax intake. [00:22:29][40.8]

Adam: [00:22:30] Potentially, yeah, right. So if we're paying like the company tax rate in Australia, 30 percent, if all of a sudden companies go the global tax rate, 15 percent. So we're not paying 30 anymore. [00:22:40][9.6]

Thomas: [00:22:41] And I think that's why it's it's received such it's been able to get so many nations on board [00:22:47][6.1]

Adam: [00:22:48] because it's like a tax dodge. It's a sign up for that. [00:22:54][6.0]

Thomas: [00:22:55] Yeah. Yeah. And I still I still think it's a net positive. There's also hurdles to jump through. The EU has got to sort of find a way to manage it. The US has to sort of get the the Democrats have been pushing for it. They've got to get the Republicans on board to some degree to get it through Congress. Yeah. So there's still there's still there's still challenges ahead. But a strong, strong, strong first step and a shift and a more importantly, I think it marks a bit of a turning in the tide. [00:23:21][25.5]

Adam: [00:23:21] Does it is it going to affect the markets much like is it going to is going to have an effect there where people go? Are profits going to be down? Because now we've got to pay more tax? [00:23:29][7.6]

Thomas: [00:23:30] I think I think you're not not in the near term. And there's so much sort of devil in the detail. So how how it gets [00:23:36][6.2]

Adam: [00:23:37] if I just go yes, by 15, I'll assume you mean zero. Yes, we'll certainly pay 15. Well, we're going yeah. [00:23:47][10.0]

Thomas: [00:23:48] You build a better mousetrap. They build a better mouse, I think. Is that how taxation works? So I think markets are waiting to see see how this how this land's really and how serious it is. But I haven't seen anyone really fretting about it impacting on on the on profits too hard and share prices just yet. Like I mean, maybe there are people but I haven't I haven't seen it. That doesn't seem to be such a big drama at this stage. [00:24:11][23.5]

Adam: [00:24:12] All right. Well, finally, I want to talk about climate and Australia's climate ranking. Australia has been ranked dead last last place, Dollars for climate action in the Sustainable Development Report, which assesses the progress of countries towards achieving the sustainable development goals. Dead last. Mm, disappointing. I pay that Switzerland and the Nordic countries last week, guess where they are or what. The forest is just killing it. Yeah. Overachievers. So why are we last. Well yeah I [00:24:43][31.3]

Thomas: [00:24:43] really thought we'd get ahead of Chad this year. A bit disappointed that we did just because I think the big things is that we don't have a commitment to net zero emissions by 2050 or 2060. I think that's the big one of the big factors in the ranking of climate action. Right. And we don't have a commitment to get there. We don't have a plan to get there. We don't really seem to have an intention to get there. So I think all those things let us down on the day. [00:25:12][29.4]

Adam: [00:25:14] It was tough for the judges to find points. To be honest, I had no intention, no plan. No, we're really not really thinking about what do we do? We talk about our Covid Covid response. It was first class. Yeah. Gold standard as well. So few roadblocks for you right there. But yeah, I work it through it, but it's just not on the radar. [00:25:40][25.3]

Thomas: [00:25:40] I mean it does reflect I think it does reflect one. We're pretty lame when it comes to climate and too we seem to be very lame when it [00:25:48][8.2]

Adam: [00:25:48] comes to climate. People dishing out reports like these all the time, sticking the boot into the Australian. Well, whose report is it, though? We should if you've told me anything on the show, we shouldn't just believe these reports that pop up because they could be sanctioned by or paid for by industry groups or whoever else who's who's who put the report together. [00:26:07][18.5]

Thomas: [00:26:08] I think it was the UN, wasn't it? [00:26:09][1.3]

Adam: [00:26:10] That's bad. That's a hotbed of lefty left. Yeah, right. [00:26:17][6.8]

Thomas: [00:26:18] Yeah. You don't you don't know. I mean, the UN is a political organisation who knows what's going on behind the scenes. But I still think globally the world feels like the world's moving on frontiers of the climate debate. You know, I feel like Australia sort of reticence to do anything about climate is we're increasingly isolated in that. And it's a bit embarrassing. But I think and I think it has practical consequences because other countries will have to fight carbon leakage. And this idea that you can't import from a country that doesn't have a carbon tax, for example, because it puts your domestic industries at a disadvantage. And so you have to tax them. And so exporters will pay a carbon tax somewhere. They'll either pay it to Australia's and Australian becomes Australian revenue or they'll pay it to Germany when they when they export to Germany, right. Yes. That's how it has to sort of work. And yeah. So I think I don't know. I think I think so [00:27:13][54.9]

Adam: [00:27:13] you're saying we're going to be dragged kicking and screaming to pay for climate action? [00:27:18][4.5]

Thomas: [00:27:19] I think so. And and businesses kind of I think leading leading the way. And I think it's the government that's going to come last into this sort of story. [00:27:25][6.9]

Adam: [00:27:27] Regrettably, we did rank we did rank amongst the top. Three countries for exported greenhouse gas emissions per capita, so that's a good result, podium finish top three is just fine. Qatar and Norway, so big oil exporters. Yeah, again, really the [00:27:45][18.0]

Thomas: [00:27:45] result we're looking for [00:27:46][0.8]

Adam: [00:27:47] Chinese relationships really hurting now is that we used to we used to be exporting steel and wool wine. Now we've had to resort to exporting greenhouse gas emissions and suffering. I reckon that might just about there was this week on comedian versus economist. Once again, thank you so much for tuning in. We really appreciate it. We will be back with more next week. We look forward to talking to you then. [00:27:47][0.0]

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