RATHER THAN LICK his wounds after the battle for Fairfax, Malcolm Turnbull spent New Year’s Eve 1991 in Hong Kong at the annual meeting of an obscure company called Axiom Forest Resources, which owned rich mahogany-logging concessions in the dirt-poor Solomon Islands. Axiom screamed trouble. The foreign offshoot of a failed Australian miner, Axiom had been the subject of a reverse takeover by a Fijian company backed by a mysterious Malaysian tycoon, sinking its share price on the Hong Kong Stock Exchange until revelations of an improper share transaction saw all trade suspended. Enter Turnbull & Partners, which had done some work on the privatisation of New Zealand’s forests and was regarded as a corporate-turnaround expert. Turnbull later described his role as ‘corporate doctor’,1 but he did more than hand out a prescription. The doctor was the remedy, and with a couple of new friends—mining industry knockabouts Alan Doyle and Chris Turner—Turnbull snapped up 100 million shares in the company for an outlay of A$200 000, less than HK1 cent per share, and took over as chairman of the company.2
Turnbull had quickly seen the mismatch between the ailing share price and the valuations of Axiom’s logging concessions, partly due to investor uncertainty about forestry policy in the wake of elections in the Solomons in 1989. Turnbull had established in meetings with local politicians that logging was about to take off. Timber production in 1991 was already at the maximum level experts regarded as sustainable, but it doubled in the next four years, and kept rising.3 Within six months, Turnbull had Axiom shares relisted at HK42 cents, putting him and his partners $7 million in front. When a Macau developer launched a takeover bid at HK20 cents a share, well below the market price, Turnbull played a cool hand, talked the bid up to HK25 cents, and within seven months had sold out, quitting the board.4
Axiom presented itself as the acceptable face of the logging industry—promising not to clear-fell, setting reserves aside, paying royalties and issuing shares to locals—and green groups reckoned that if Axiom did what it said it would do, it would probably be better than a Japanese logging firm.5 But in 1994, the forerunner of AusAid found that an Axiom subsidiary called Silvania Forest Products was not living up to its promises and was ‘more like a clear-felling operation’.6 All this would come back to bite Turnbull a decade later when he was again running for parliament in the green-tinged seat of Wentworth, and again when he was federal environment minister pushing a Howard government program to combat climate change by reducing deforestation overseas. Turnbull had to defend his involvement, saying he too had been concerned about sustainable logging, and that although he didn’t visit the operations himself, Axiom was a ‘great dream … the whole purpose for indigenous people in the Solomons and other Melanesian countries getting involved in this project was to stop these practices’.7
For now, however, Turnbull and his partners had made a $5 million-plus windfall gain for less than nine months’ work and hardly any outlay. This was more like it, the way Turnbull wanted to do business, and he and Doyle decided to go half and half in a new merchant banking offshoot: Turnbull Doyle Resources. Turnbull wanted to be a mogul himself, and he quietly sought advice among those eastern suburbs men richer than himself on how to go about it.8 Clipping the ticket on big corporate deals was no way to make a substantial fortune. One was always, ultimately, working for somebody else. Turnbull would now put up his own capital and reap the rewards—just as Whitlam Turnbull had hoped to do five years earlier, before the 1987 sharemarket crash got in their way.
While Turnbull Doyle Resources took shape, Turnbull & Partners rolled on. There was advisory work on an unsuccessful $100 million bid for Tasmania’s historic Cascade Brewery, which ultimately went to Foster’s. There was a putsch at the private Bond University, which had been taken over by a Japanese client and suddenly insisted that both Neville Wran and Turnbull be appointed to the governing council, triggering a wave of resignations amid accusations of corporate meddling—although they did stem the flow of red ink.9 There was Westpac’s sale of its Channel Ten stake to Canwest.
There was also the fallout from the Tourang debacle, in which Turnbull made a right nuisance of himself by turning his advisory fees into enough shares in Fairfax that he became the company’s largest individual shareholder, and proceeded to torment the board about its excessively generous remuneration scheme. Turnbull asserted that the proposed shower of free options on executives and directors was ‘not an incentive, that’s a present’.10 Ahead of the next annual meeting, Turnbull took legal action to stop the scheme being voted on by shareholders. In court, it was once again a family affair, with Turnbull represented by father-in-law Tom Hughes QC, instructed by his wife Lucy. As one reporter wryly noted, Turnbull was ‘left with little to do but turn a spiral notebook into a skeleton of its former self [as he passed on] the benefit of his own advocacy skills’.11 Turnbull won, much to the chagrin of Fairfax, which was forced to pull the options scheme on the day of the meeting, embarrassing the otherwise unembarrassable chairman Conrad Black in front of the 2000-strong crush of shareholders, who gave Turnbull prolonged applause.12
Significantly, given Turnbull’s later role as minister responsible for the National Broadband Network, Turnbull & Partners was also a player in the birth of pay television in Australia, as an adviser to upstart United Communications (UCOM). The company’s founder, computer dealer Albert Hadid, had been talked into getting involved by his hairdresser. He soon met Turnbull, who was non-committal but had plans of his own.13 Ultimately they did work together and the until-then-unheard-of UCOM and associates stunned everybody in the business by bidding high and winning both satellite licences up for grabs in the first pay-TV tender in 1993. It was a gutsy play that saw Turnbull backfilling—trying to line up funding and partners with programming—until UCOM on-sold the rights to the network that later became Galaxy, with Hadid making a handy $33 million profit along the way.14
At a time when competing technologies were developing rapidly—satellite, microwave and fibre-optic cable—the prime minister Paul Keating had already been approached by visionary Chris Corrigan about an expensive plan to lay ‘cable to the home’. Corrigan was trying to find places to invest money from a listed cashbox called Jamison Equity, and was having little luck. Jamison had worked alongside Turnbull in 1991 on an unsuccessful bid for West Australian newspapers, which wound up in court. Jamison had also been one of the underbidders for Fairfax. Now Corrigan had proposed to raise $5 billion-plus to lay fibre-to-the-home, and detailed his plan to the NSW Labor Council secretary Michael Easson, who passed it onto the PM.
Corrigan obviously had an eye on developments in the US, where Democrat presidential candidate Bill Clinton had promised federal funds to help build a national network of fibre-optic cable to reach every household and business ahead of the 1992 election, and his running mate Al Gore was already talking about the information superhighway. Spying a political opportunity, and eager to introduce some real competition for (then) Telecom, Keating copied the idea for the 1993 election, promising to set up an inquiry into the viability of running broadband to the home. So at the end of the year the Australian Broadcasting Authority’s Brian Johns was appointed to head up the Broadband Services Expert Group. Pre-figuring the internet, the buzz was all about coming interactive services like home shopping, home banking and home gambling, as well as video-on-demand. Johns’ problem was, that by the time his report was coming out in early 1995, Telstra and Optus had announced their rival coaxial cable rollouts for pay TV, and weren’t sharing their commercial-in-confidence plans with anyone. The Expert Group’s final report eschewed a ‘big bang’ investment in fibre cable to the home, estimated to cost up to $12 billion, opting instead for an evolutionary approach. In a speech full of flowery words about children and the future—and stand-by lines that would be flogged mercilessly by politicians of all stripes over the ensuing decades, like how information infrastructure was to the 1990s what the railway and the telegraph were to the 1890s—Keating basically left broadband to the market, observing, ‘Telstra and Optus are investing billions of dollars which will guarantee a first-rate telecommunications network in Australia next century.’ With the benefit of hindsight, it was an opportunity missed. What followed was one of the country’s worst policy failures, as billions were wasted delivering duplicate coaxial cable networks to the richest third of Australian households, while the rest of the country looked on, and an opportunity to save money and lay pure fibre-optic cable once and for all, went begging. Jamison’s plan was filed away under good ideas gone begging. Turnbull & Partners would soon be engaged by federal transport minister Laurie Brereton on privatisation of the loss-making Australian National Line whose stevedoring arm went to Jamison, and then to Corrigan’s Patrick corporation, setting the scene for the 1998 waterfront dispute.
In the mid 1990s, Turnbull also advised News Corp on a bid for Australis, the country’s ill-fated third pay-TV network. After his clever footwork with the bondholders during the Tourang bid for Fairfax, Turnbull was recommended to Rupert Murdoch by Sam Chisholm, then at BSkyB, and Bruce McWilliam, who had been hired as in-house counsel when he left Channel Nine and who could see a similar angle in the jockeying for Australis. Australis had grown out of Steve Cosser’s initial move to set up a channel delivered by microwave, listed on the ASX, but soon switched to a satellite platform capable of reaching 6 million homes. Australis stitched up the Hollywood Studios and struck a lucrative deal to supply programming to Foxtel, then half-owned by News and Telstra. Australis was the second-ranked pay-TV operator at one point, with 110 000 subscribers, just behind Foxtel’s 115 000 and ahead of the 100 000 subscribers signed up to the Optus Vision consortium of Optus, Packer’s PBL and Kerry Stokes’ Seven Network. But Australis was under-capitalised, racking up debts to US bondholders to sustain cash outflows of millions of dollars a month in the bloodbath that was the first decade of pay-TV in Australia, amid the duplicate HFC cable roll-out and the Super League war. Consolidation was inevitable and News looked at bidding for Australis, engaging Turnbull & Partners. On Turnbull’s figures, Australis was a black hole and he confidently predicted in 1996 that the company was doomed and anyone who put money in would lose it.15 In the end, after successive merger negotiations with Optus Vision and Foxtel were blocked in court and by the competition regulator, Australis went under, having lost more than $650 million in less than five years, spawning a mini-courtfest. Foxtel did its own deal with the Hollywood Studios and bought most of Australis’s subscribers from the liquidators, entrenching its dominance. Arguably, Turnbull’s financial advice had helped save News Corp hundreds of millions of dollars.
Though the corporate advisory work was all very interesting, it was not going to make Turnbull the kind of money he was after. Over the eighteen months to the end of June 1992, Turnbull drew a salary of $615 000 and, on top of that, took home the lion’s share of a $4 million dividend.16 Over the next twelve months, however, his income nearly dried up as he wrote his second book, The Reluctant Republic, and got busier with Keating’s Republic Advisory Committee. Turnbull & Partners’ fee revenue fell from almost $17 million to $4 million, and net profit fell from $5 million to just over $500 000.17
Turnbull decided to make a foray into mining, and in typical fashion he did not do it by halves. He had dabbled with mining projects before: sorting out Kerry Packer’s disastrous dive into Hunter Valley coal; booting an Irish cabal off the board of the delightfully named Whim Creek, with Nick Whitlam. The collapse of the Soviet Union in 1991 opened up opportunities on a much larger scale. Investing in Russia was not for the faint-hearted, but resources that could not be exploited by clapped-out state-owned enterprises were going cheap to foreign investors—in gold, for example, the going rate was a tenth of the price of North American projects.18 A well-connected Australian, Ian MacNee, was one of the earliest movers, invited by soon-to-be-president Boris Yeltsin to scout for opportunities before Russia even became an independent state.19 By 1992 MacNee had struck a deal with a nearly broke provincial miner, Lenzoloto, which held the licence for the massive Sukhoi Log gold deposit in Siberia. Holding an estimated 50–80 million ounces of gold, Sukhoi Log was potentially the world’s biggest gold mine. Worth US$15 billion if fully developed, it would be an open pit 2 kilometres long and half a kilometre deep. Under the deal, drawn up even before the ground rules of Russia’s privatisation program had been established, MacNee’s company Star Technology would invest US$250 million to take 37.5 per cent of the Sukhoi Log project, with the state keeping half and workers getting the balance. It was a remarkable deal, the first foreign entry into the Siberian gold fields, and because it had been done without a tender it immediately caused a stir among larger rivals like Anglo American and RTZ, who had been beaten to the punch. For Star, the blue sky was enormous: its stake in the project could be worth billions. Back home, Turnbull Doyle Resources raised $40 million for the Australian-listed vehicle Star Mining, pulling in some big-name international mining fund managers. Wran was made chairman, and Turnbull Doyle itself took up 5 per cent of the shares at a discounted 20 cents each, representing $2 million down, or roughly $1 million each for Turnbull and Doyle.20
The trick was to make sure Star’s groundbreaking agreement held, and it was a nail-biting exercise as it worked its way through the Kremlin to the desk of Russian prime minister Viktor Chernomyrdin.21 There was some intrigue: the Star project involved plenty of trips to Russia and some greasing of the wheels there, including through a political consultant employed by the company, Natalia Sokolova, niece of radical right-wing politician and former Russian presidential candidate Vladimir Zhirinovsky. An internal Star document uncovered many years later revealed that donations of $300 000 were planned for Zhirinovsky party accounts—Turnbull would admit he was aware of previous political donations by Star, but none to Zhirinovsky.22
Whatever MacNee, Turnbull and Co. were doing in Russia, it worked—for a while. By the end of 1994, the news flashed round the world: ‘Star venture gets big Siberia gold lease’.23 MacNee started selling almost immediately, and instead of jumping, the stock, trading at 34 cents, began a gradual slide throughout 1995 as the company raised another $65 million from investors for the massive project. Quietly, Wran and Turnbull sold out too, and by mid-year they left the board as well. Turnbull recalls that after Star’s capital raisings, by 1995 his and Wran’s shareholdings were ‘much diluted and with the company moving to the northern hemisphere (which made sense) it was time for us to move on. We didn’t have a lot of value to add anymore.’24 As it turned out, they got out ahead. Others would not be so lucky: initially a speculative market darling, Star Mining was about to lose its shine.
By the end of 1995, Star shareholders were getting edgy about the lack of progress, the share price reflecting the nervousness. Inexplicably, the Kremlin took another year just to lift secrecy provisions over the old geological data, without which Star could not develop mine plans or bankable feasibility studies.25 Star appeared to have all its ducks in a row when it reached a mining agreement with major South African miner JCI at the end of 1996, but then it all started to go bad. First came the sickening news that a tender would be called after all, then MacNee resigned, and in April 1997 the dream was snuffed out completely: a Russian court invalidated the original agreement, finding Sukhoi Log had been incorrectly privatised and the whole process would have to begin again.26 Star kept hoping against hope that its original contractual position would be recognised, but it was up against powerful forces like Canada’s Barrick Gold, which was pushing for a new tender.27 Star shares, long in decline, were now worthless.
Just like Axiom, the Star imbroglio would come back to haunt Turnbull when he went into politics a decade later. One investor who’d lost millions on the Sukhoi Log deal, Wollongong plumber Nik Krkovski, would shadow Turnbull on the election trail in Wentworth, distributing leaflets claiming he’d been encouraged to invest by Turnbull at a shareholder meeting in 1993. Turnbull’s staff were also surprised one day when Natalia Sokolova turned up at the electorate office—Turnbull would say only that her visit was ‘to seek assistance on a personal matter’.
MacNee had his problems, too. For years he’d had a mistress, Louise Melnikoff, who worked for Star and was a shareholder to boot. Not only wouldn’t MacNee pay out her shares, but he misled her into thinking he’d left his wife. When Melnikoff realised the truth and tried to break off the relationship, he made violent threats, and she went to court to take out an apprehended violence order against him.28 It was not the first legal action against MacNee. Like his old mentor Kerry Packer, Turnbull could surround himself with some dubious characters.
Turnbull and Wran were more successful in China, which was also opening up to foreign capital in the early 1990s. In 1994 a Turnbull Doyle subsidiary, TDR China Investments, entered into the first Sino-Western mining venture, pegging a 60 per cent stake in a zinc project at Caijiaying in Hebei province, 300 kilometres northwest of Beijing—the Chinese government retained the rest. TDR tried to raise more than $100 million to develop the mine, and although it didn’t succeed right away, it did find an Australian partner, Pinnacle, to do a feasibility study. The mine was ultimately built, although it was well after Turnbull and Wran resigned as directors of the venture in 1996 and sold their interest. Turnbull often boasts that the mine now employs hundreds of people and generates sales of $100 million a year.29 Certainly it was more successful than Turnbull’s other China foray, the abortive float of Air Australia International in 1994, created by developer-cum-aviation chief Colin Hendrick, which snared the rights to fly weekly from Sydney to Beijing, and had put down a deposit on a jumbo jet but failed to raise enough money in time to get the new airline off the ground. Turnbull & Partners was at first going to underwrite the float, and was preparing to take a cornerstone stake, but the whole venture collapsed in a pile of recrimination and threatened lawsuits, with Qantas belittling its prospects at every opportunity.30 Both ventures were ahead of their time, and would later boost Turnbull’s China credentials.
When another Turnbull Doyle project in risky territory, Ghana Gold, faltered early on, Turnbull realised that mining was not the smooth path to riches it was cracked up to be. Nor was Doyle an ideal long-term business partner. In 1996, he was banned from running a company for two years after the Australian Securities and Investments Commission took him to court for making improper use of his position as director of an Australian mining company with interests in Chile.31 Doyle and Turner resigned as directors at the end of that year.
After pocketing his windfall gain from the Solomons logging play, the millions in Fairfax fees, and selling off his commercial property, Turnbull was cashed up. Malcolm and Lucy started thinking about moving out of the Paddington terrace they’d paid too much for, and started popping up at prestige property inspections in the eastern suburbs. In 1993, businessman Warren Anderson’s deepening financial troubles led the bank to take possession of Boomerang, the historic Elizabeth Bay mansion he’d bought from Alan Bond’s wife Eileen in 1985. Turnbull bid by phone at the packed mortgagee sale, going $200 000 over his self-imposed $6 million limit, but was beaten by telephone-pager entrepreneur Nati Stoliar.32
A few months later Malcolm and Lucy forked out $5.4 million in cash for Le Gai Soleil—translation: the gay sun—the Mediterranean-style 1930s mansion on Wunulla Road, Point Piper, where the Turnbull family have lived ever since and have decided to stay in preference to Kirribilli House, which John Howard made his official residence in Sydney. The property was owned by Klara Saunders, wife of Westfield co-founder John Saunders, who in the 1950s hired Frank Lowy as one of his delivery boys and soon went into business with him.33 The Saunders had bought it for under $1 million from Alan Bond in 1979 and it had been on and off the market for six years. In 1988, with prices booming, it had an asking price of $12 million, but five years later the Saunders had to drastically lower their expectations.34 Built on 1400 square metres of land, with access to Lady Martins Beach and Felix Bay—precisely where Turnbull’s mum and dad had first met forty years earlier—the five-bedroom house faced north-west, with amazing views across the harbour towards bushy Bradleys Head, and had a huge parquetry rumpus room, pool and spa, and self-contained staff quarters. Society architect Michael Suttor was engaged to do faux Spanish-mission style renovations that took two years to finish.35 The Turnbulls hated the name and dropped it.
In 1999, Turnbull bought the vacant home next door, Gwandalan, for $7.1 million.36 He mainly wanted the extra beach frontage and annexed a 253-square-metre portion of the block onto his own title, including the private jetty and a boatshed for Turnbull’s beloved kayak and MV Lucinda—sometimes spotted doing a quick dash over to upmarket Rose Bay restaurant Catalina for takeaway. Turnbull demolished the existing house and built a completely new duplex, renting it out for a decade at up to $5000 a week before finally selling it for $13.6 million in 2011.37 The Turnbulls’ mansion, according to the handful of agents who dominate this tiny, crazy prestige market, is now unquestionably one of the most valuable homes in Sydney, worth around $40–50 million or more.
The Turnbull home has played host to many high-profile parties, political fundraisers and charity events, but the media are rarely invited. There are plenty of photos of the Turnbulls’ ornate iron front gate, where journalist crews are often stationed for a doorstop or drive-by picture opportunity, with the family Prius or the Volvo coming or going. But there are no pictures of the inside of the house—it does not appear in Michael Suttor’s own catalogue of his work.38 People who’ve been there say the house feels big but the decor is modest, with no showy furnishings and well-chosen works by contemporary Australian artists such as Susan Norrie and Bill Henson, as well as British star Tracey Emin. The view is pretty, and secluded, rather than sweeping. Still, as Lucy explained, the Point Piper address is not without its visitors:
Complete strangers often come and ring on the doorbell. Media come and ring on the doorbell. Often when Malcolm’s away, often at really weird times of night … I feel very exposed because I’m there on my own now and … it pretty much freaks me out. So that’s why to the extent that I possibly can, I want the house to be … a sanctuary from public life … I feel more comfortable if my home stays my own home … I don’t want that sense of intrusion to be any greater than it needs to be.39
A prime ministerial security detail will give at least a temporary reprieve from pests and stickybeaks, if not journalists. The year the Turnbulls bought the mansion at Point Piper was also the year Lucy had a difficult miscarriage. It was her second (the first had been between the birth of Alex and Daisy) and at thirty-six, she made the tough decision not to try for any more kids:
I think it would have been great to have more children. Sadly that didn’t happen because … going through a miscarriage and worrying about having an unwell third child when you’ve got two fantastically healthy ones made me have reservations … I think in an ideal world Malcolm would have had ten children … the problem with that was that, as I said to him, I don’t really mind how many children you have but you’re having two with your first wife.40
Turnbull, many of whose ancestors had families with kids numbering in double figures, has often said that his only real regret in life is not having more children.
In 1994, fellow Kerry Packer outcast Trevor Kennedy came to Turnbull with an investment proposition: they should put up $450 000 each to buy half an electronic mail business. The guy behind the idea was someone both men knew well: Sean Howard, the young founder of Australian Personal Computer magazine. Howard was a genuine technology innovator. A med school dropout, he had made his first million at age twenty-four, in 1984, by selling 60 per cent of his magazine to Kerry Packer—Turnbull, as Packer’s lawyer, helped seal the deal. In 1992, when Consolidated Press was preparing to float and ‘Chainsaw’ Dunlap was ripping through the business, Howard did an even better deal, extracting $10 million for the remaining 40 per cent of APC magazine while hanging on to a little loss-making mail business now called OzEmail.41 Howard recalled:
I left when Kerry didn’t want OzEmail stuffing up his price-earnings multiples, because of course it was losing money, it was a bit of an anchor. Every dollar we lost was $15 less he was going to get on the value of his magazine business. So he sort of said, ‘Oh, you can have this one for a buck.’42
Howard applied $7 million to kick off OzEmail, but within two years he’d burned through half the seed funding. Needing more capital, he approached Kennedy, who recommended that Turnbull be brought in on the deal. Flamboyant stockbroker Rene Rivkin was going to join them, but chose not to. Together, Kennedy and Turnbull put in $900 000 for half the business—Turnbull’s 25 per cent stake was bought through his merchant bank, meaning a third of it in turn was owned by Neville Wran—and OzEmail was up and running. Howard later recalled that within months of the original OzEmail deal, ‘the damn thing was making money … they’re the breaks I suppose’.43
On one hand, OzEmail was scraps off Packer’s table. In the years of internet frenzy that followed, as the old-economy Australian sharemarket was overrun by dotcom spivs and spruikers like Sausage and Spike, and while the big guns of online jobs, cars and property classifieds were still getting organised, Packer’s son James repositioned the family’s old-media empire relatively well: a quarter-stake in the pay-TV consortium that became Foxtel; a foot in Seek and Carsales.com.au. Though One.Tel and Ecorp hit the wall, at least James Packer didn’t sit like a rabbit caught in the headlights, waiting to be run over. He did much better than that, particularly given the grand exit he managed to pull off a decade later, selling the family’s major publishing and broadcasting interests to private equity at full prices in a series of transactions from 2007, before the financial crisis set in.
On the other hand, the Packer interests did miss an opportunity in OzEmail, and at a time when ex-Packer honchos Howard, Kennedy and Turnbull were all on the outer, the ensuing triumph was sweeter for knowing they’d snuck one past Kerry. They were not motivated by personal bitterness. In fact, as their business expanded rapidly, the trio offered Packer the opportunity to reinvest, as Howard recalled in 1996:
In fairness to Kerry, he has such a sprawling empire he can’t be on top of every opportunity. In April last year we actually tried to get him back into the fold, or get back into his fold, whichever. He came out here [to OzEmail headquarters in St Leonards, Sydney] and spent a couple of hours looking over the place but he couldn’t stomach the value of the business. It would have been a sizeable stake. I think he missed a good investment, though.44
OzEmail was not the first internet service provider in Australia, but realising the local market was too small to back such a risky venture, OzEmail became the first Australian company to raise capital by listing on the technology-heavy NASDAQ exchange in the United States. The roadshow, led by Turnbull, the company’s chairman, was an over-the-top hard sell by Australian standards, but it proved a smashing success in America. Looking back over the ‘hot and heavy’ arrival of Australia online, financial journalist Kate Askew wrote that Turnbull was
brilliant in the job, so brilliant that it mattered little that he stopped midway through one presentation to ask an institutional investor, who would have been a valuable addition to the company’s register, to leave if he couldn’t be quiet. The investor acquiesced on both fronts—he remained quiet and he did later invest in the business … nothing could keep Turnbull down. Not even a Boston limousine driver, who warned Turnbull, Howard, and OzEmail operations head David Spence that the female fund manager from Fidelity that they were visiting was so ferocious that the last company executive to visit her had emerged in tears. The trio were ushered into a conference room where Turnbull set up the computer on the table for the presentation. Howard dived under the table to plug it into the power point. At that very moment the terrifying fund manager entered. Turnbull introduced himself and Spence and then said: ‘Our chief executive Sean Howard has heard how ferocious you are with companies seeking capital and so terrified is he that he is hiding under this table’. She burst out laughing and … took a big slice of the IPO [initial public offering].45
David Spence credits Turnbull for doing a lot of the hard sell on the road, which was touch and go as the market moved up and down: ‘In the last week we worked from morning to night, one meeting after another, ten meetings a day and at the end we could have sold it many times over, which we did.’ Spence recalls staying at one Philadelphia hotel with Turnbull; when they arrived late they found their rooms full of smoke and were switched into themed rooms: ‘I ended up in the Arizona room which had a cactus in it and Navaho bedsheets … and Malcolm ended up in the Mississippi River Boat room and ended up with glitter covering him the next day. We had these meetings starting at 7.30 in the morning, and Malcolm had glitter all over him.’46
Turnbull had fun preparing the prospectus, too, and Spence recalls he worked all night to knock out the first draft himself. As the drafts bounced back and forth across the Pacific, he got suspicious that OzEmail’s highly paid US advisers weren’t actually reading the document. Turnbull later recalled:
I put in a sentence that there was a risk that the company may when travelling overseas fall into the company of libidinous locals, contract noxious diseases, become insane and fail to attend to the company’s business. This stayed in the company for two drafts. Finally the sentence caught the eye of the most junior member of the legal team … [who] actually rang me up and said, ‘Look, is this a real risk, Mr Turnbull? I haven’t seen this in an American prospectus before.’47
Floating OzEmail on the NASDAQ in 1996 was a stunning success and helped wake Australian investors to the internet boom. The OzEmail founders had to revise their float plans to accommodate demand, issuing more shares and lifting the price so the shares peaked on day one at US$17, raising US$45 million for the company and making paper fortunes for the founders—roughly $60 million between Kennedy and Turnbull48—who had sold a third of the company to American investors but were locked in until a six-month escrow period expired.49
As the OzEmail story unfolded over the next three years, success was not preordained. Investors were incredibly flighty and trade was extremely volatile. On the NASDAQ, the shares spent twenty months below their issue price—plumbing a low of US$6—as investors got leery of a promised Asian expansion that didn’t eventuate, and competition from the likes of Telstra’s BigPond and America Online (later AOL) loomed. There was an embarrassing court defeat by the Tasmanian founder of Trumpet, dial-up connection shareware that OzEmail improperly distributed in a promotion. There was a challenge at the Trade Practices Commission, led by Turnbull, to the bundling of Telstra dial-up software with Microsoft products. There were dry gullies, like a half-price internet fax service, and the early search engine ANZWERS, and the online advertising joint venture with Rupert Murdoch’s BSkyB—all quite visionary, but subsequently overtaken by the industry. But there were breakthroughs, too, like what was billed as the world’s first internet phone call, launched with great fanfare by Paul Keating in Sydney in 1997, even though that first historic call—to Turnbull, on a skiing holiday in France—went unanswered, leaving the former PM cursing, ‘Malcolm! Where the fuck are you?’ and doing a lone stand-up routine in front of amused reporters.50
OzEmail kept building momentum. When their shares finally bounced up over the offer price in mid-1998, flirting with US$30,51 the founders sold a small proportion to Australian investors, creating the first pure-play internet stock on the ASX. It was a spectacular debut. Issued at $2.60, OzEmail touched $3.65 on day one, showing dotcom fever still had a way to run, and sparking more bursts of breathless reporting of the paper profits Howard, Kennedy and Turnbull had made.52
Although it was breaking new ground all the time, OzEmail was always strategically weak in an industry evolving at the speed of light. As Howard explained at the end of 1996 in regards to being an internet-access provider, ‘We thought a year ago [that it] was a stepping stone to becoming online publishers. We now think it’s a stepping stone to becoming a fully-fledged telco.’53 He was right, but of course that was much easier said than done. OzEmail became the biggest internet service provider in Australia, amassing 200 000 subscribers within four years: partly by getting in early; partly by doing clever deals like being the first ISP to get into schools through a statewide contract with the NSW Department of Education, the Catholic Church and an early alliance with Optus; partly by acquiring smaller rivals like AccessOne and Camtech; and partly by offering exclusive content such as live stock prices, live AFL in conjunction with Channel Seven, and a Hotmail-like service called MyMail. But it became increasingly clear that what users really wanted from ISPs was not content but bandwidth: the most data at the fastest speed at the lowest price.54 In hindsight, this was always going to be a job for telcos. As infrastructure requirements rose exponentially and retail prices fell relentlessly, market dynamics were against comparatively small ISPs like OzEmail, which were rapidly consolidating.
Kennedy and Turnbull became worried that the light at the end of the tunnel would turn out to be a freight train.55 Selling the company to a much bigger player was the logical endgame, but Telstra was determined to grow BigPond, which soon overtook OzEmail, and Optus, at one point thought to be a buyer, was dithering.56 AOL was also mooted as a buyer but instead emerged as a competitor. The future was not looking bright. OzEmail was forced to defer a much-needed capital raising of a $250 million, and its shares sunk as low as $1.35 and were trading at $2.29 by November 1998.57
OzEmail was no chimera, however, like so many other Australian dotcoms. It had real revenue growth, which was doubling and tripling year on year, although profits were much rarer because Howard kept reinvesting earnings back into the business, particularly into gearing up for internet telephony, buying cable and satellite infrastructure58—he was planning on building a billion-dollar business and had to be persuaded to sell. By the end of 1998, OzEmail had eighty POPs (points of presence) around Australia and another fifteen in New Zealand, where it was the dominant player. OzEmail was then lucky enough to attract a cash bid from MCI WorldCom. Its network was connected to the US through WorldCom subsidiary UUNet. UUNet was expanding in Australia, started talking to OzEmail, and one thing led to another. WorldCom was on a spending spree which, it turned out, it could ill-afford: chief executive Bernie Ebbers would be found guilty of cooking the books and the company would implode within a year in what was then the biggest corporate collapse in US history. But none of that would matter to OzEmail’s shareholders, who had taken US$520 million in cash, representing US$22 per NASDAQ-listed share and A$3.54 for the ASX-listed shares—nearly 40 per cent up on their trading price and more than double the lows of a month earlier.59 It was an impressive deal, and Turnbull played a key role in brokering it. He sat in the library of law firm Ebsworths with Kennedy and Howard, trying to talk UUNet into one last raise, insisting ‘you don’t want to lose this deal by nickel-and-diming’.
At that point Kennedy, who was hovering over Turnbull with Howard at his elbow, took the phone from [Turnbull’s] hand and with a deadly earnestness said: ‘And that applies to you too, Malcolm’. So Turnbull took the phone back and split the difference with UUNet.60
OzEmail was in a difficult situation, and would need telco-grade infrastructure if it was going to compete in the market for internet access. As David Spence explained:
At that stage, broadband was coming, and the only way to resell broadband was to resell Telstra [copper]. We were under a huge amount of pressure … and we were concerned that we wouldn’t be able to maintain the margins or our growth rate, just reselling Telstra. So you can’t say we took a hell of a lot of convincing to sell at that price.61
When the money was divvied up, Sean Howard, who stayed with the company, made a $118 million fortune from the sale of OzEmail. Kennedy made $60 million. Turnbull & Partners had the same stake as Kennedy, but Wran, who owned 30 per cent of the merchant bank, got almost $20 million of that. Turnbull’s share was $40 million. Howard had already entered the BRW rich list in 1998, based on the value of his OzEmail stock, and in 1999 Turnbull made his debut, although BRW, which did not take the Wran shareholding into account, wrongly attributed him a fortune of $65 million. No matter: given the value of Turnbull’s property holdings, the figure was probably not too far off.
Asked by his former editor Trevor Sykes what he planned to do with the windfall, Turnbull answered, ‘Invest it very, very carefully’, adding that he was unlikely to reinvest it in a public company but rather ‘might just lie low for a moment’—a signal the market was getting toppy (it had reached an unsustainable high).62 As it happened, the dotcom boom had another fifteen months to go, hitting its peaking in March 2000. Howard, Kennedy and Turnbull did reinvest some of their money together, setting up a new technology venture capital firm in 1999 with Jeff Zulman and Rodney Adler—who was only a few years away from being convicted and jailed for breaching his duties as director of HIH insurance. Together, the five partners put $1 million each into KHATZ Capital (the acronym was formed from their surnames), but it was too late by the time they got going, with dotcom valuations soaring ahead of the inevitable bust, and the firm was wound up in 2004, without troubling the scorers.63
In the wake of the OzEmail sale, Turnbull did the right thing by the taxman, according to his former accountant at PwC, Eugene Wong, who years later said he was offered various ways to handle his large capital gains tax problem, including sending the profits offshore, investing in a nursing home scheme or—somewhat ironically, given all the fuss caused Packer by the Costigan inquiry—taking part in a film scheme proposed by financial engineers Babcock & Brown. ‘To be fair to Malcolm,’ said Wong, ‘he chose not to enter into any tax planning and even said it was because he had future political aspirations and didn’t want any tax skeletons in his closet.’64
An interesting side deal fell out of the sale to WorldCom. In May 1998, OzEmail had paid $2 million for a 55 per cent controlling stake in a Brisbane ISP called PowerUp, which also owned the country’s biggest web-hosting service, WebCentral.65 In 2000, MCI WorldCom decided against buying the remaining 45 per cent of PowerUp,66 and in the resulting complicated deal, Turnbull’s FTR Holdings bought half of WebCentral back for $11 million—right at the top of the boom.67 Chaired alternately by Malcolm and Lucy, and with Howard and Kennedy on the board, FTR was an ASX-listed company set up in 1995. It made some dud investments at the peak of the frenzy, like the million-odd dollars splurged on online retailer ChaosMusic, which imploded, leaving Lucy to be berated by grumpy shareholders as the bust set in and share prices plunged. However, it did own the rights to a you-beaut court transcription service called ‘For the record’, which won contracts across the court systems of the United States and Canada, as well as Australia. WebCentral, similarly, went from strength to strength. Chaired by Howard, it was soon FTR’s biggest business. In July 2004, FTR bought out the other half of the company from the original PowerUp founders for almost $20 million.68 With Google heading towards its mammoth float, the pundits were calling it ‘dotcomback time’,69 and in 2006, after chasing FTR for eighteen months, Melbourne IT agreed to pay $61 million for WebCentral.70 It was double what they had paid for the business. The OzEmail troika had done it again, this time without a tailwind: building up a substantial online business and onselling it right through the tech wreck.
Kennedy was always gracious in acknowledging the brilliance of Howard, saying in 1998 that while OzEmail had always looked like it had endless potential, ‘it was Sean who foresaw that rather than the rest of us. It’s not something I could or would have found myself.’ In 2012, when their final joint IT investment, an Australian-developed search engine called ISYS, was sold to Lexmark for $32 million, Kennedy said: ‘Malcolm and I have been led by Sean’s technology brilliance for eighteen years and this marks the end of it.’71
Turnbull has not always been quite so gracious, drawing a good-natured rebuke from Sean Howard in a letter to The Australian in 2010:
I DO wish Malcolm Turnbull would stop claiming, as he did on the ABC yesterday, that ‘I’ve been involved in the internet since 1994 when we started OzEmail’. The corporate entity which ran OzEmail changed in 1994 when Trevor Kennedy and Turnbull invested in it, but OzEmail itself began two years earlier, in 1992, within days of my selling my remaining share in a computer publishing business to Kerry Packer.
Upon that sale, I established the OzEmail office in Sydney’s Bondi Junction. It was there, after Kennedy had decided to invest in OzEmail that, on his urging, Rene Rivkin visited us and ultimately elected not to invest. Only then did Kennedy approach Turnbull. Malcolm initially passed on the opportunity, but on Kennedy’s second approach he decided to invest in what was by then already Australia’s largest ISP. OzEmail’s rapid growth was the reason the business needed Kennedy and Turnbull’s investment capital of $500 000 each.
It was I who, in 1992, two years before Malcolm’s investment, thought up the name OzEmail while taking a shower. I recall being rather tickled with myself for conceiving that name. And I recall showering alone.
Sean Howard, Sydney, NSW72