Bond Corporation Holdings Limited

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Bond Corporation Holdings Limited

Level 5
214 St. Georges Terrace
Perth, Western Australia 6000
Fax: 61-9-321-6585

Public Company
Incorporated: 1969 as West Australian Land Holdings
SICs: 6719 Holding Company, Nee

Bond Corporation Holdings, Limited, was an international conglomerate with operations in four primary fields: real estate, brewing, media, and natural resources. In addition, the company owned a wide and ever-changing variety of other properties. The companys founder, Australian entrepreneur Alan Bond, became famous in the 1980s as a high-stakes international financier, buying and selling properties worth millions by cleverly manipulating debt. In the wake of the 1987 stock market crash, however, Bonds juggling act became far more complicated, and his company collapsed into bankruptcy in the early 1990s.

Bond Holdings got its start in the 1950s when Alan Bond dropped out of high school. In 1957, after a stint as an apprentice sign painter, he took out a loan to start his own property development business. Within two years, Bond, at the age of 21, had become a millionaire.

In that year, 1959, Bond formed the Progress Development Organisation, which gradually acquired interests in 14 other companies, primarily property holders. In 1969 Bond incorporated his various holdings as West Australia Land Holdings, Limited, with headquarters in Perth. West Australias properties expanded to include more real estate, as well as television and radio stations.

In 1974 Bond changed the name of his company to Bond Corporation Holdings. In the following year, risky borrowing to finance acquisitions brought Bond to the brink of financial ruin, when an effort to buy an iron-ore extraction company in Western Australia in the midst of an unexpected economic downturn nearly bankrupted him. Disaster was averted when Australias ANZ Bank allowed him sufficient time to restructure his $73 million debt.

Thereafter, Bond sought to acquire and build cash-generating businesses in order to provide a steady source of revenue even during economic downturns. In this way, Bond would be able to back up his borrowings with an operation that had either a strong cash flow or valuable assets, which could be used as collateral. In line with this strategy, Bond moved strongly into the brewing industry. In 1983 Bond moved from being merely a wealthy man to being an Australian national hero, winning the Americas Cup in the Australia II; Bond was the first non-American ever to win the prestigious yachting race.

After this triumph, Bonds high-stakes dealings in international finance began in earnest, as he expanded his holdings beyond Australia. In 1983 Bonds holdings were worth about $450 million. By 1985, they had nearly doubled, to $810 million. In that year, Bond increased his holdings in the brewing industry when he bought Castlemaine Tooheys, a beer company based in Brisbane. With this acquisition, Bond took control of more than 40 percent of the Australian beer market.

In 1986 Bond moved into the American beer market, buying Pittsburgh Brewing, which made Iron City beer, for $30 million in 1986. The following year he borrowed money to buy Australias Channel Nine television network, the majority of Chiles national phone company, and the fourth-largest American brewer, the G. Heilman Brewing Company, based in LaCrosse, Wisconsin. Founded in the nineteenth century, Heilman had been a local operation until 1959, when it began to buy up other regional brewers. By 1980 the company had purchased 13 other beer producers.

With the Heilman purchase, the first signs of trouble in the Bond empire began to surface. Intent on solidifying his position in the highly competitive American beer market, Bond paid $1.26 billion for the Wisconsin company, which was three times higher than some estimates of the companys worth. Heilmans revenues had been flat for three years at the time of the purchase, and its strategy of growth through acquisition had come to an end when it had run out of plausible targets for purchase. Bond acquired the company at the height of the stock market inflation of 1987, just before the crash that took place in October of that year. Nonetheless, convinced that Heilmans network of distributors could help to introduce his Australian beers to the United States, Bond poured money into marketing and advertising for Heilman.

After the stock market crash, which ruined some other Australian entrepreneurs, Bond stepped up his acquisitions. In an auction at Sothebys in New York, he paid $72 million for a painting of irises by Vincent Van Gogh. By the end of the year, his empire was focused in four major areas: real estate, media, natural resources and energy, and brewing. Other ventures included Australias first private university.

In April 1988, Bond raised $350 million by selling off his American bakery division. With these funds, the company continued on its international buying spree. In May he bought Australias Bell Group from fellow financier Robert Holmes a Court for $685 million. In June 1988 the Bond Corporation released figures showing a 70 percent rise in after-tax earnings, to $224 million, and operating revenues of $1.4 billion, up 100 percent from the year before.

At the same time, Bond Corporation Holdings also reported $5.7 billion in debts, and the source of the companys strong financial returns provided additional cause for concern. In theory, Bonds brewing, liquor, and hotel operations provided the cash to fuel the rest of the company. In reality, however, only 37 percent of the companys revenues in 1988 came from these subsidiaries. Nearly 56 percent came from property, international, and corporate divisions, which produced one-time profits from real estate sales, sales of ownership in other companies, and foreign currency exchanges.

Problems in Bonds American brewing operations were symptomatic of those plaguing the company as a whole. Heilmans sales dropped significantly after Bond increased the price of the companys products, in an effort to pump up revenues to pay off debt, and tried to market Heilman beers to young urban professionals rather than the blue-collar consumers that made up the companys traditional customer base. The companys former customers were alienated, and the projected new customers did not materialize. In an eight-month period ending in June 1988, Heilman lost $75.6 million. Heilmans losses continued in the following year, mounting to $126.7 million, as the companys share of the American beer market fell to 6.8 percent.

Despite these worrisome signs, Bonds buying continued. In October 1988, the company paid $220 million for the St. Moritz Hotel in New York. Ignoring warnings that his debts, which had suddenly reached $7 billion, were attaining dangerous levels, Bond spent the fall of 1988 amassing shares of three British firms, including the British Satellite Broadcasting company, Allied-Lyons PLC, a major beer and liquor producer, and Lonrho PLC, a mining, agriculture, newspaper, and hotel conglomerate with annual revenues of $5.6 billion. Bond paid $610 million for shares of Allied-Lyons, and $590 million for a 20.4 percent stake in Lonrho. Lonrhos principal owner counterattacked by issuing a 93-page analysis of the Bond holdings, labeling them technically insolvent. Although Bond denied these charges, they caused an already jittery investment community to become more wary. The price of the companys stock slid on markets in Australia, Europe, and the United States.

In an attempt to counter this lack of confidence on the part of investors, Bond spent $116 million to buy back shares of Bond Corporation International, Limited, a Hong Kong-based subsidiary of his company. In Australia, he sold $ 1.64 billion worth of major properties, including real estate in downtown Sydney, a 14.9 percent stake in the Standard Chartered Bank of Britain, and a 5.5 percent stake in Australias largest company, the Broken Hill Proprietary Company. His sales of assets were hampered by the fact that observers predicted disaster for the company, prompting buyers to hold out for a lower price.

In addition to these troubles, Bond was forced to defend himself against charges that he had abused his status as a broadcaster and had no right to own 14 Australian radio and television licenses. Other government investigations questioned the accuracy of the Bond Corporations 1988 financial reporting, looking for stock violations, and government tax accountants scrutinized the companys elaborate tax shelters. By the start of 1989, Bonds sprawling empire was coming apart at the seams. Estimates of the companys debt ran as high as A$10 billion.

By May 1989, Bond had decided to unload his Lonrho holdings, worth $610 million, but no buyers appeared to purchase the stock. The company was more successful in selling off a prime piece of Hong Kong real estate, the 46-story Bond Centre office tower, which brought $284 million.

In November 1989, however, one of Bonds primary subsidiaries, which included his brewing properties, reported a debt of A$7.5 billion, and losses for the previous year of A$928.7 million, the worst in Australian history. In the annual report, the companys auditors concluded by expressing substantial doubt that the company could continue as a going concern. One other major subsidiary and the Bond holding company itself failed to submit annual reports on time. In response, the Australian Stock Exchange suspended trading in the companys stocks.

By this time, Bonds interest payments on his debt had reached almost $1 billion a year. Bond outlined a complicated plan to reduce the companys debt to $2.2 billion in the next nine months by selling remaining assets and rearranging his stock holdings.

In December 1989, a group of banks led by the Australia National Bank, Limited, convinced an Australian court that Bonds brewing subsidiary had violated the conditions of a loan agreement, and the company was put into receivership. In February 1990 the brewer emerged from receivership, but the banks returned to court to have it put back in receivership one month later.

In June the holding company missed a debt payment of $2.8 billion. The following month Bond agreed to step down as head of Bond Corporation Holdings, Limited, in a move to appease the companys many creditors. The companys valuable Australian brewing properties were sold to Bell Resources, an independently managed affiliate of Bond, but the struggling Heilman was retained.

By February 1991, the Bond companies had reduced their debt to $3.1 billion. Nevertheless, the company missed a $340 million payment to Australian Consolidated Investments, Limited, formerly Bell Resources. Rather than shutting Bond down, however, the company, which was also partially owned by Bond, agreed to a debt-for-equity swap that allowed Bond to stay afloat.

In June 1991 Bond Corporation Holdings reported that its revenues had dropped 96 percent over the past year, and that it had lost $512.7 million over the previous nine months. The explanation for these losses was that the company had devalued many of its investments and had divested itself of 97 percent of the Heilman brewery, which had filed for bankruptcy protection in January 1991.

In mid-1991 Bond Holdings finally declared bankruptcy, and the company began an effort to sell off all of its remaining assets, under the administration of the Ferrier Hodgson accounting group. The company sold its Australian brewing companies, Swan, Castlemaine, and Toohey, its energy holdings in petroleum, minerals, and coal, and its interest in the Chilean phone company. In December 1991 the company sold the last of its breweries, Pittsburgh Brewing, which was purchased by U.S. investor Michael Carlow. One month earlier, Heilman, now independent, had emerged from bankruptcy.

Although the once-mighty Bond empire had been almost completely dismantled by the start of 1992, the effects of its collapse lingered on. Former employees of the Bond company were charged with major breaches of the law by the Australian Securities Commission in 1992. In April of that year, Alan Bond was declared personally bankrupt, after failing to pay $194 million to a Hong Kong bank to which he had personally guaranteed a loan to a nickel mining project. In addition, Bond was involved in investigations into business-government relations in West Australia state, and possible violations of the Australian Securities Code.

At the end of May, Bond was convicted of fraud in connection with the 1988 bail-out of a bank that had failed after the 1987 stock market crash. Bond had convinced a friend to invest $6 million to save the bank, without revealing that Bonds company was receiving a $12 million fee for the deal. When the bank finally collapsed, $200 million, including all of the friends investment, was lost. Bond was sentenced to two-and-a-half years in prison.

In August 1992, however, Bond was released from jail on bond after an appeals court ordered a retrial. This was not the end of Bonds legal difficulties, however. Two years later, he was again charged with fraud in connection with the sale of a painting by Edouard Manet. In May 1994, a doctor testified that Bond was too ill to withstand trial, having suffered brain damage during open heart surgery in February 1993.

Further Reading:

Alan Bond Is Declared Bankrupt in Australia, New York Times, April 15, 1992.

Alexander, Paul, Rise and Fall of a Tycoon, Glasgow Herald, May 30, 1992.

Hutcheon, Stephen, Suddenly, Alan Bond Is Losing His Gilt Edge, Business Week, May 29, 1989.

Rose, Michael, Sailing Close to the Wind, Macleans, December 4, 1989.

Wieffering, Eric J., A Tapped-out Buyout, Corporate Report Minnesota, May, 1990.

Yang, Dori Jones, Alan Bonds Buying Spree, Business Week, November 14, 1988.

Elizabeth Rourke