Big asks, tough tasks all part of the service from chair Paula Dwyer

As a chairman, Paula Dwyer has pulled off two of the more complex corporate transactions in the last decade in Australia.

Tabcorp chairman Paula Dwyer pictured in Barwon Heads. Aaron Francis/The Australian

As a chairman, Paula Dwyer has pulled off two of the more complex corporate transactions in the last decade in Australia: the merger of Tabcorp and Tatts, and the sale of Healthscope to Brookfield.

In a rare interview, Dwyer speaks frankly about them both and, as she steps down as chair of Tabcorp, the speculation that she just might put her hat in the ring for the chair of ANZ.

“You’ve got to put her at the very highest level of Australian directors and with not more than a handful of female director peers in my opinion,” says Dr Ziggy Switkowski, NBN Co chair who was on both the Tabcorp and Healthscope boards and has seen Dwyer operate up close. “She’s a good chairman, confident enough to surround herself with capable directors, strong willed, held in both high regard and with some affection.”

Paula Dwyer was speaking from lockdown in Victoria shortly after Tabcorp released its sobering full-year results: a $870m net loss, in part reflecting the hit from COVID-19 on wagering and gaming but also the ongoing costs from the major restructuring that she has driven.

The shutdowns have been lousy timing but Dwyer is confident that she leaves a diversified portfolio well positioned to bounce back.

“Tabcorp was such a large and deeply complex organisation. We have had a lot of issues and we have met them head on and I’m really pleased about that.

“The business now in really good shape. The balance sheet is in great shape with the capital raising. The lotteries business is firing and we certainly transformed that into a digital business.

“The integration of the Tabcorp business is largely complete, and that has been really focused on the wagering. Our gaming services business has been challenged and that’s been compounded by the impacts of COVID, but we need to deal with that over the course of the coming months.”

As Dwyer steps down from Tabcorp, it is her deep experience in chairing large, complex businesses and her eight years on the board of ANZ that has put her in contention for the bank chairmanship when David Gonski departs.

While not a Gonski girl, would she be up for the role?

Dwyer pauses. “Well, I know I have done a lot in my career already. I’m still relatively young and I would like to continue to contribute to corporate Australia.

“I want to do other things. I’ve got a lot of runway left and I’m energised by the prospect of doing something new.”

For now, Tabcorp demands attention. In recent months, Dwyer has faced pressure to unlock value in the business by splitting off the high growth lotteries, with some investors vocal in their frustration over the share price and merger costs which have blown out from $140m to about $200m.

“We are well on track to deliver $95m of cost synergies per annum from (financial year) 2021. You never want costs to exceed initial estimates, but we’ve invested in transforming the wagering business simultaneously with conducting the integration. And I think that the benefits will now come through in future years.”

As for releasing value from lotteries, Dwyer is measured.

“The lotteries business is a powerhouse and it was a fantastic transaction for Tabcorp shareholders that we acquired that business. In terms of the strategic value of it, you can’t sell part of a lotteries businesses as a tactical move. This is a significant business and there is still a lot of runway under Tabcorp ownership.

“I do think that strategically boards need to consider alternatives always for unlocking and maximising value. But the benefits of having the portfolio at this point in time have permitted us to invest in the wagering business to put that on a sustainable footing.”

“Two words come to mind,” says former Tabcorp CEO Elmer Funke Kupper of Dwyer. “Diligent and determined. And determined over a long period.”

The ultimately successful battle to merge Tabcorp with Tatts was a defining event for Paula Dwyer.

The pursuit of Tatts had been running for many years, frustrated by regulatory intervention. When the ACCC had given a strong signal it would not support a merger, Dwyer decided to take the matter to the Competition Tribunal instead. It was highly unconventional. Ziggy Switkowski recalls Dwyer’s strategy as “very well thought-through and executed. And then negotiating with Tatts and getting agreement on terms satisfactory to both sets of shareholders — case study material.”

“We should not underestimate how chairs play a role in keeping your eye on the prize,” says Funke Kupper.

“Her determination to transform the business was an important component of that. She listens to advice. She works well with management. I think she should look back with great satisfaction and pride.”

Controversial move

“It was a controversial move, but I think it was the right move,” says Dwyer. “The transaction was always going to be complex. It was given a low probability of success but we as an organisation believed it was the best alternative for Tabcorp, and so it was really worth leaving nothing on the table to get it through. We stayed the course with the merger. We were the smaller company and we held firm in terms of our desire to own that company. And for Tabcorp shareholders, it was a great transaction.”

Crucially, the merger delivered a true national base to take on the growing competition from unlicensed dealers in sports betting.

“Over the course of the last two years, we’ve invested heavily to ensure we have a national platform and I think that people should reserve judgment and see how that functions over the next six months and into the future.”

Dwyer has also worked hard at social responsibility, from responsible gambling to working with the racing industry on animal welfare.

“That is now in our DNA,” she says. And for those who see “gambling responsibly” as an oxymoron, Dwyer is at pains to demonstrate what leadership means.

“We have invested heavily in risk and compliance and our shareholders have not seen value for that. As governments choose partners, as sporting codes choose partners, they are facing the challenges of responsibly engaging with gambling companies. We are proud to be trusted because of the investments that we’ve made and I think over time there will be enormous value for shareholders in that.”

Second big transaction

Dwyer’s second big transaction was just as tough to land. She became chair of Healthscope, at a time when both the role and the funding of private healthcare was being challenged. Healthscope itself had suffered from years of underinvestment but had an undervalued property portfolio. In April 2018, she found herself fending off a takeover from a uniquely tricky aggressor: a private equity house that teamed up with the most powerful industry super fund in the country, which was also one of her major shareholders.

“It was a perfect storm and then private equity BGH and Aussie Super combined forces to have a go at us. We rebuffed them once and then we continued to repair our shop and things didn’t improve as quickly as we expected. The BGH consortium then co-opted other shareholders to exert pressure on us.”

Dwyer acknowledges that the move by AustralianSuper came out of the blue for the board. “First, I completely get the need for industry funds, which are so significant in our economy, to be innovative to generate returns. We knew we were vulnerable but we hadn’t considered that as an alternative, and you will remember that Ben Gray previously had been around our board table as a representative for TPG so he knew the business intimately and he knew where the value was.

“I think that we as a board team really navigated that well. Our job is to listen and sort of take views, but as the chairman, you can’t cave in.

“And I really felt that strongly in this instance that we needed to extract full value for the assets of the business. And pleasingly, Brookfield saw that. And we had in the end a creative structure which permitted Aussie Super to participate. I think that everyone got a good outcome.”

Switkowski, on the board at the time, agrees. “Deep thinking between Paula and UBS, that strategy was developed, supported by the board, and worked pretty well with institutional shareholders.”

From the higher levels of the BGH Aussie Super camp, there is also professional respect for Dwyer: that she played hard and well for her constituency, that she took good advice from UBS’s Kelvin Barry and held her feet to the fire on price; and that if the company had not gone private, it would be worth $1 a share for investors.

“In speaking to Brookfield,” Dwyer tells me, “the hospitals shuttered and resources diverted to provide emergency care for COVID patients, it’s a very challenging environment. For a listed public company it would be particularly challenging.”

Very privileged

In all her board experience (including as the current chair of Allianz Australia) Dwyer says it really does matter who you are on a board with and when you make a choice about the organisations you join. “I think the relationships are tested when these big transformational events occur. And I’ve been very privileged to lead in two situations really good board teams who have demonstrably made ­really good decisions.”

One of Dwyer’s most confronting moments came at a Tabcorp AGM where shareholders delivered a sizeable first strike on the remuneration report over bonuses to management. “At that time in 2018 many companies received a first strike of their remuneration report,” she responds, “and it was the environment of the banking royal commission. I think investors were justifiably frustrated by a perceived lack of accountability across the leadership in corporate Australia, so the one way they could demonstrate their frustrations is by voting against the REM report. Prior to that meeting we made the changes that our shareholders asked for, but unfortunately not in sufficient time for them to change their vote. We listened and we responded.”

ANZ delivered dividends this last week to shareholders and came through the royal commission with noticeably less hubris than its peers.

Dwyer supports ANZ chief Shane Elliott’s call last week that this is the moment for banks to show their true worth. “The banks are not only well-capitalised but they are well-regulated and governed and they are able to respond to the significant challenges we’re facing. At some stage we’re going to have to address the economic impacts of the shutdown, getting back to work, opening our borders and increasing our productivity so we can restore the economic settings of the country and ultimately restore our prosperity. Large companies, small businesses and individuals all have a role to play and I believe banks are at the centre.”