The Aussie Big’uns

You might have noticed I’m a bit of a fan of lists and rankings. I have done work with Fortune magazine’s Global 500 (i.e. the largest firms in the world). Forbes magazine goes even deeper, ranking the 2000 largest.

The latest list is out, and it gives us a chance to look how Australia’s homegrown big boys stack up. Rather than focusing on year-on-year changes (which are strongly determined by exchange rate changes), I thought I’d compare the Aussie performance relative to 2003 (the first year Forbes produced such lists).

Back then Australia had 37 listings. This year it was 46 (including the UK-Aussie pairings of BHP Billiton and Rio Tinto). You could also make a strong case for two more – Lihir Gold and Oil Search – both of whom are effectively managed out of Australia while being officially headquartered in Papua New Guinea. An argument about ‘roots’ might also extend to News Corp which shifted to a US HQ a few years back.

If we take the 46 number, then we’re looking at a 24% increase in representation since 2003 . At the same time, traditional powerhouses such as the US (down 29% to 551 firms), Japan (down 13% to 288 ) and the UK (down 23% to 102) have stumbled.

The big movers? Can you spell BRIC?

Brazil: 13 → 31 (up 138%)
Russia: 6 → 28 (up 367%)
India: 20 → 47 (up 135%
China: 13 → 91 (up 857%!!) If we included Hong Kong the numbers would be 43 → 133 (209%)

So, turning back to Australia, what should we make of this state of affairs? We have the tenth most list members while being the 14th largest economy in the world by unadjusted GDP. On this simple count front we are outperforming bigger economies like Italy (41), Spain (33), Russia (28) and Mexico (18). The only nation to ‘pass us’ relative to GDP ranking is South Korea (61). A couple of northern neighbours are outperforming their GDP status also: Taiwan (45) and Hong Kong (42).

In terms of the top end, there are 12 Aussie firms in the top 500 and five between 501-1000. Back in 2003, the count was 7 and 12. We are slightly ‘underweight’ in these upper echelons.

Who are the biggest Aussie players then?

The big four banks (Commonwealth, nab, Westpac, ANZ) split the prize with our two aforementioned mining giants (BHP Billiton & Rio), and are followed by Telstra, the diversified Wesfamers and retail fave Woolworths.

The biggest winners over the six years:

BHP Billiton (up from #133 to #52)
Rio Tinto (232 → 69)
Commonwealth Bank (141 → 59)
Woolworths (666 → 284)
Wesfarmers (866 → 266)
QBE (834 → 378)
Brambles (1155 → 684)
Insurance Australia Group (1568 → 979)
Woodside Petroleum (1933 → 762)
Origin Energy (nowhere → 732)

Biggest Losers:

Amcor (731 → 1342)
Foster’s (853 → 1389)
CSR (1113 → nowhere)

Most of the big winners have pretty extensive international operations, and I dare say almost all have increased the extent of their internationalisation over the 6 year period (anyone want to check?). Two of the losers have made some pricey and questionable commitments to the US market (much of Amcor and Fosters’ falls happened over the past 12 months).

There is a whole lot more that could be discussed out of these rankings. It really is a rich data source. For now, it does offer some support for an argument that Australian multinationals aren’t doing too badly, but could perhaps learn a lot from their emerging market counterparts.

Advertisement

Please enjoy the firesale

Further to the question about the implications of the Global Economic Crisis on firm boundaries, it would seem that we may be seeing an increase in concentration. As more firms become distressed, the bigger (or more financially sound) players are starting to circle, hoping to pick up some juicy morsels in a fire sale (how’s that for some crude mixing of metaphors?).

A quick perusal of today’s Aussie business headlines throws up some predatory characters:

– Cashed-up Woolies on the prowl (Retailer Woolworths on the lookout)

– Mitchell returns to acquisition mode (Media planning etc giant Mitchell Communications also)

– Hart set on more package deals (NZ billionaire Graeme Hart sniffing around Rio Tinto’s packaging business (and others))

And a more international one:

– ANZ prepares bid for Asian wing of Royal Bank of Scotland

This will not be the end of such manoeuvres. There is clearly a reshaping of competitive environments afoot.

Chasing synergies in a downturn

One of the arguments for mergers and acquisitions (M&A) is the synergies that come from sharing value chain activities (economies of scope). Coupled with better parenting, this should see M&As produce cost savings and efficiencies. It can all fall apart, however, if you paid too much for the acquisition, or the costs of funding the purchase leap considerably.

This Economist piece highlights the dramas facing six of the world’s largest materials and mining firms (Xstrata, ArcelorMittal, Tata Steel, Rio Tinto, Lafarge and Cemex) as they try to bed down some very significant M&As from past year or so.

As the article notes, with debt refinancing a whole lot harder to get, and share prices tumbling, these firms are finding life a hell of lot more difficult than they were. It certainly demonstrates the dangers of buying at (or near) the top of the boom, and reminds us again that firms too regularly overestimate the ease of realising such synergies. One hopes that these experienced multinationals have also accurately assessed the complexities of chasing such syenergies across borders.