Sydney view: Breakup of struggling Pacific Dunlop sad but inevitable

The inevitable finally happened to Pacific Dunlop last week when the company announced it was to be broken up and split into a good company with growth prospects and a bad company with few prospects.

It's a sad end for one of the great Melbourne industrial powers of the 1970s and 1980s, but the company's demise has come none too soon.

The fortunes of Pacific Dunlop have been heading south since the market took a dislike to the purchase of the Petersville Sleigh food business in the early 1990s. A company which once knocked on the door of the top 10 by market capitalisation has been in danger of dropping out of the top 100.

Last week's decision to split its Ansell division from the struggling remnants provided a stay of execution, although it was none too convincing. The share price bounced off its 16-year lows for a day or two, but is back there already.

Of course, PacDun is not alone. All of the great Australian conglomerates have slowly been pulled apart in the past decade. If they didn't implode after the 1980s market crash and the 1990s recession, it became abundantly clear that they were unwieldy beasts, and fund managers didn't like them any more.

Southcorp has sold packaging and electrical goods and is now seeking solace in its wine business; Mayne Nickless is concentrating on health; Amcor has settled on paper (without the packaging); and Boral gave its shareholders an even-money bet between bricks and energy.

The two great survivors of the era are CSR and Wesfarmers. But CSR has already launched itself down the breakup path by selling aluminium and putting sugar up for sale, and Wesfarmers has foreshadowed a complete restructure of its capital that could pave the way for a similar move.

Alan Jackson is in the firing line, too. The man who created one of the most successful conglomerates, BTR Nylex, is struggling to keep together his Nylex Mark II, Austrim.

This company became a darling of the market after Jackson returned from Britain in the late 1990s and set about another acquisition spree. But last week the company announced its profit had fallen by a third and it was reviewing its business structure. Its share price, less than half its peak of last year, fell a further 15 per cent.

As for PacDun, its future lies in condoms and rubber gloves. The Ansell business has for the past five years been the company's only hope for salvation.

As the company found buyers for Cochlear, Telectronics, the Loscam distribution business, cables, electrical distribution and battery group GNB Technololgies, its only investments have been in a handful of businesses that have sought to reinforce the growth prospects of its start division.

Ansell was to have been spun off last year, but the IPO was cancelled after the tech rout gave US share offerings a bad name. It has sales of $1.3 billion and provides nearly all of PacDun's profits.

That means that the other businesses - Pacific Brands clothing business, the Goodyear tyre joint venture and an auto parts distribution business - had twice the revenue but could barely produce a profit between them.

These three businesses will become the playthings of corporate raiders Roy Disney - the entrepreneurial nephew of the great cartoonist, who had a crack at Brierley Investments last year - and Alan Newman, the former righthand man of Robert Holmes a Court.

* * *

There are two great themes coming out of the current profit reporting season in Australia - lots of people had a great time at the Olympics and no one made any money out of their internet add-ons.

Both events have had a nasty effect on some bottom-line profits. The theme was typified by Fairfax and Foster's, two of the sponsors of the Olympics and two companies which have have been dabbling in the internet as both an exploratory and defensive measure.

Foster's spent $27 million promoting its presence at the Games, but it reckons it was good value and will result in the sale of an extra three million cartons of beer.

If only all marketing budgets were that effective!

* Giles Parkinson is editor of AFR.com.