Medibank vindicated as court rejects ACCC deception claim

A court has rejected ACCC allegations that Medibank Private misled customers over a move to limit benefits.

Boral chief Mike Kane. Illustration: Sturt Krygsman.

Medibank boss Craig Drummond was quietly celebrating last night after the ACCC’s case against him was thrown out of court by Federal Court Justice David O’Callaghan.

Drummond was only months into the job last year when the Australian Competition & Consumer Commission threw the book at him, accusing Medibank of misleading statements and unconscionable conduct.

The court dismissed the claims, which is a big blow to the ACCC and a vindication of Drummond’s arguments.

But, then again, the issue is not exactly a cause for total celebration because Drummond, since taking the top job at Medibank, has also campaigned for the transparency the ACCC is seeking.

The allegation was it had changed its policies to deny claims for hospital radiology and pathology without telling members of the change. This was allegedly misleading.

The case was launched with much fanfare in June last year, in a peak time for health funds trying to attract new members.

Medibank argued that the changes only affected a portion of its members and that it had warned members they may be liable for out-of-pocket expenses.

It’s not the sort of case you can really boast about, but Medibank will be feeling rightly justified based on the decision handed down yesterday.

The ACCC was making a scapegoat of the fund in peak marketing period to advance its campaign for more transparency from health funds. Drummond would argue he supports the cause, so why hit him around the ears with a court action?

The ACCC may well appeal the case, but at this stage it is liable for Medibank’s costs, including the fees of King & Wood Mallesons for the defence.

The ACCC has also taken action against NIB, which is still before this courts. The ACCC argues with some validity that the private health funds have not exactly shone when it comes to making their policies plain for all to understand.

Justice O’Callaghan said of the ACCC case that Medibank used its business judgment, which you could argue against but which had “nothing remotely unconscionable about it”. Early on, Justice O’Callaghan confided there were “evidentiary facts” to support the ACCC’s claim.

The ACCC has singled out the health industry for special attention because it rightly believes it is uncompetitive and a big drain on the nation’s resources. It’s right to campaign but when taking matters to court it needs to have the facts to support the case. ­

Justice O’Callaghan clearly thought it didn’t have the facts on its side in this matter. That is a big black mark against the ACCC and will force it to look carefully at a potential appeal.

Telstra plan rejected

Telstra is the 800-pound behemoth of the telecommunications market in Australia, and ask its competitors when was the last time the big T did them any favours. You’ll get a blank “never”.

Against this background it can hardly complain when NBN Co declined to do Telstra a favour by agreeing on some financial engineering over its compensation payments.

The plan was to create a new vehicle based on the promised payments, leverage the ­vehicle and use it to pay special dividends to shareholders. It was an idea first floated at the investor day last year and then presented as a fait accompli on results day, when it also slashed its regular dividend.

It was sold to investors as minimising the pain, but the trouble was NBN had long expressed misgivings and by that stage hadn’t given its formal approval. It was in fact a sign of desperation from Telstra that it would spruik a deal that was not yet signed.

The NBN board met yesterday to sign off on its business plan, due out today, and formally rejected the Telstra plan.

After all, allowing Telstra to bring in third-party investors was a potential complication to future negotiations. And as Ian Martin from New Street argued at the time, it simply underlined the uncertainty over the NBN’s future.

For Telstra’s Andy Penn, it’s back to the drawing board and some actual earnings growth, rather than some clever financial engineering.

Telstra’s stock price fell 24c yesterday, but this was due in large part to trading ex its 15c dividend, which helped push the stock to a five-year low of $3.56 a share, before closing at $3.60.

Boral will bounce back

In Australia, Boral is more a road builder than buildings products group, but any way you look at it, the company is travelling along a lot better than the market gave it credit for yesterday.

The negative market reaction could be a simple fact of “buy the rumour, sell the fact”, or genuine concern about North Korea and Hurricane Harvey.

The latter will impact around 10 per cent of the company’s US earnings, but the impact could be short term, with a handy bounce as the damaged properties are rebuilt.

Chief Mike Kane confided yesterday that until it stops raining in Houston he won’t be able to assess the damage.

As the Texan city is built on sand the water should drain quickly, but it is an unknown and the market doesn’t like surprises.

South Korea is the key country in Boral’s USG joint venture, which last year reported a handy 18 per cent increase in earnings to $70 million. So the increased tension from North Korea is clearly a concern.

But for the moment the earnings impact is minimal, so you have to conclude the hit to the stock price of close to 3 per cent — dragging the price to a three-month low of $6.63 a share — was overdone.

The vast majority of Boral’s Australian revenue now comes from road building after its bricks division was sold off to CSR, with concrete, asphalt and quarries accounting for $2.5 billion of total revenues of $4.4bn.

Road building is a lucrative game right now and the Australian returns of 14.6 per cent are well ahead of group returns at 9.2 per cent.

Earnings from the US joint venture were up and North American returns were $66m.

But this was including just eight weeks of the Headwater earnings, and assuming Harvey isn’t a total wipe-out then US earnings will jump by around $220m in a full year, plus synergy benefits of about $90m.

Kane now spends around half his time in the US managing the acquisition.

For the moment his friends at the CFMEU have left him alone, so as far as he can see there is blue sky.

In Australia, housing starts have peaked at 234,000 and are now running at 212,000, slowing to 190,000 this financial year. That’s well above the normal cycle peak of 180,000 starts.

In the US home starts are running at around 1.2 million and edging further up by 100,000 a year, towards a normal peak of around 1.5 million stars.

This tells you there is more upside to come from the US.

Australian and US infrastructure spending, one assumes, is going to increase, not decrease and that’s good for Boral.

Meanwhile, in Australia Boral is trialling new plasterboard applications which will improve its USG joint venture product Sheetrock.

The company has edged ahead of CSR in market share in plasterboard in Australia.