November 26, 2007
In a sorry end to a glittering career, Australian cardboard-box king Richard Pratt was caught price-fixing
By Eric Ellis
After 50 years building one of the worldıs largest packaging companies with it, a $5 billion fortune, Australian Carbroad Box king Richard Pratt should be luxuriating in a reputation as one of Australiaıs most successful entrepreneurs and most generous philanthropists.
Instead, the 73-year-old Melbourne tycoon and one-time football star, who fled the pogroms of pre-war Europe, is being publicly tarred as a liar and a thief.
His privately held Visyboard Group was busted by Australian regulators for operating a cartel in Australiaıs $2 billion box-making industry along with its main competitor, Amcor, for creating a duopoly that robbed customers of hundreds of millions of dollars. Says Graeme Samuel, chairman of Australiaıs Competition and Consumer Commission: "Anyone who has bought a bar of chocolate or a piece of fruit packed in a box made by Visy or Amcor has probably been ripped off."
Itıs a sorry end to a glittering career. In September, just as the case was headed to trial, Pratt pleaded guilty to one count of breaching Australiaıs antitrust laws, and his company admitted to 37 violations, settling for $35 million. Pratt wouldnıt comment, but his personal assistant, Tony Gray, says, "We regret what has happened."
The drama surrounding the two packaging titans has electrified corporate Australia. In 2000, regulators say, executives at Visyboard and Amcor, which control 90% of the box market between them but had spent the 1990s fighting a bruising price war, met to call a ceasefire. Rather than slug it out in the marketplace, they agreed to keep prices artificially high.
Over the next four years, executives met clandestinely every few weeks- lunches in sleazy pubs, booze-ups in motels, and furtive chats on untraceable pre-paid mobile phones.The plotters strolled together in parks, worried they might be under surveillance by regulators. It turned out they were - by themselves.
The cartel, estimated to have cost customers and consumers as much as $1 billion, ended when Amcorıs board blew the whistle in 2004, as it was losing market share to Visyboard, and turned over its tapes to the government.
In return, Amcor got immunity from prosecution, and regulators went after Pratt, one of the biggest donors to Australiaıs ruling Liberal Party. Pratt protested Visyboardıs innocence for two years. But the Amcor tapes were damning. Last month, just as legislators were proposing to criminalize cartels, Pratt caved in. Amcor sacked its senior executive team long ago, but Pratt stayed loyal to his wrongdoers, paying their fines and keeping himself on as executive chairman.
Prime Minister John Howard says he likes Pratt, describing him as generous. "We donıt have any proposal to return his donations," he says of Prattıs millions in political gifts to the Liberal Party during its decade in power.
The fine against Visyboard, although a record, looks cheap for Pratt. And the company is healthier than ever, having increased its market share from 45% when the cartel began to 60% today. Its annual revenues are up by $300 million. "The fine sounds a lot to the average person," says Brent Mitchell, research manager at Melbourneıs Shaw Stockbroking, "but Visyboard will probably see it as a business expense."
With admission of guilt by Visyboard, a bigger concern could be a succession of lawsuits brought by customers. Melbourne law firm Maurice Blackburn Cashman is leading a class action seeking as much as $600 million in damages from the two companies. Litigants claim they were charged 8%-15% higher for boxes over the cartelıs four years. New Zealand regulators have also launched an investigation into the two companies, which control 70% of that countryıs box market. And drinks giant Cadbury Schweppes has initiated a $100 million claim against Amcor, arguing prices were fixed in the PET (polyethylene terephthalate) packaging and aluminium can sectors too. Amcor denies those charges.
For its part, Visyboard says it has "assured" customers they were charged properly, and it doesnıt anticipate reputational fallout in the U.S., where its packaging plants generate about $800 million in sales.
Shaw's Mitchell says future contracts will be "toughly negotiated by customers."
Perhaps, but not nearly as tough as Prattıs battle to salvage his reputation.