Pratt the Visy Cardboard Entrpreneur Collusion in a Cardboard Cartel

Submitted by Share Trading on 22 December, 2005 - 06:49

Australia's third richest man, Richard Pratt, colluded in a cardboard cartel that could cost him up to $427 million in penalties, documents submitted to the Federal Court say.

The billionaire philanthropist and doyen of entrepreneurial Australia was named yesterday in a statement of claims lodged by the Australian Competition and Consumer Commission.

The document alleges 14 separate incidents of cartel behaviour, including price-fixing, between Mr Pratt's Visy cardboard empire and its business rival, Amcor.

The two companies represented 97 per cent of Australia's billion-dollar cardboard industry last year - a position held in place, the commission said, by a series of agreements between them dating back five years.

Mr Pratt denied the allegations against him last night.

It is alleged that Visy's chief executive, Harry Debney, and Amcor's managing director, Peter Brown, met in January 2000 in Mr Brown's home in Glen Iris, Melbourne, at which time Mr Debney suggested ending a price war being waged by the two companies.

Mr Debney allegedly gave Mr Brown a handwritten note suggesting the two companies should help one another maintain their respective market share, should not poach customers from one another and should maintain set minimum prices. The commission says Mr Debney said the agreement was offered with the imprimatur of Mr Pratt.

The companies allegedly appointed representatives to manage the agreement. According to the documents, Visy's general manager, Rod Carroll, and Amcor's general manager of sales, Edward Laidlaw, met dozens of times at Melbourne hotels. They are said to have communicated using public phones and mobile phones bought for the purpose of implementing the cartel.

The commission further alleges that in May 2001 Mr Pratt met Amcor's chief executive, Russell Jones, where the two confirmed their knowledge of the agreement.

Over several meetings up to 2005, the two companies allegedly struck 13 additional agreements that built on the foundation of the January 2000 relationship. The agreements are said to have included annual price increases and collusion to set prices that they would charge certain customers.

The investigation was triggered after Amcor sued four former employees who it claimed had taken lists of its clients to their new employer. During those proceedings, Amcor's lawyers found evidence of the alleged cartel. The company reported the conduct to the commission, exempting itself from prosecution through the regulator's immunity policy. Parties to a cartel can gain immunity if they are the first to inform.

Mr Debney and Mr Carroll are both named with Mr Pratt as respondents to all 14 counts in the commission's application. All three face penalties of up to $500,000 for each of the alleged breaches of the Trade Practices Act. But the penalties also extend to three companies owned by Mr Pratt — Visy Industries Holdings, Visy Industries Australia and Visy Board. Each company could attract penalties as high as $10 million per offence. If the judge decides to consider the three companies as separate entities, the Visy group, under which all three operate, could face penalties of up to $30 million per offence.

The potential $427 million penalty almost matches the $500 million Mr Pratt added to his $4.7 billion personal fortune last year, according to the rich list of the business magazine BRW. If proven, final penalties will be at the discretion of the court.

In a statement last night, Mr Pratt and Mr Debney said "we completely reject the notion that Visy was a knowing participant in widespread anti-competitive behaviour. On the contrary, Visy has always acted as an aggressive competitor … From time to time, competitors meet and discuss industry issues. This is not illegal, nor is it uncommon in business."

The two fingered Visy's "former employee", Mr Carroll, as the culprit, saying he acted without his employers' knowledge. "At no time have we approved or sanctioned any market sharing or price-fixing arrangement or understanding with Visy's competitors." They said Visy lifted its market share from 49 to 53 per cent between 2000-04, while "our major competitor" fell from 45 to 40 per cent.

A little bit more about Pratt: The owner of Australia's Richest Private Company

If Richard Pratt did not exist, a movie producer might have had to invent him. Victoria's richest man is a billionaire, philanthropist, actor and former footy player. He's also a driven, irascible, impatient outsider - a maverick tycoon.

Pratt's is probably the most remarkable life story of those that pepper the BRW Rich 200 list.

His family came from Poland after World War II and began making boxes for the orchard owners of Shepparton. Pratt taught his parents to speak English and took over the family business only after a career as a professional stage actor stalled. At 71, his story seems far from over. The past decade has been Pratt's most successful. In 1999 his fortune was worth $2 billion; today it's valued at $4.7 billion.

Pratt's paper and recycling empire, the Visy group, is privately held. He is the boss and patriarch whose wife, son and two daughters are connected with the business. There is also at Visy a second tier of close-knit executives who travel and work - often seven days a week - with Pratt.

Shortly after 5.30am most days, Pratt is driven from his mansion, Raheen, in the Melbourne suburb of Kew. Within an hour he has spoken to his most important overseas executives by phone - including Atlanta-based son Anthony, who runs US operations. Then it's off to the factories, mills, warehouses and offices of his $3 billion-a-year operation.

If he takes a rare break, it's with business associates. But he loves a party and likes to sing: one of his many mottos is "always celebrate success". Pratt seems to make little distinction between work and play. An evening meal might be at Raheen with clients; a Saturday stroll might be with lieutenants from the paper factories.

Pratt eats what he likes (he's partial to KFC). He drinks moderately and smokes copiously. He doesn't so much sleep as nap.

In 2000 the Pratt family woke to a public relations nightmare when it transpired Pratt had been keeping a mistress, Shari-lea Hitchcock, for many years. Moreover the union had produced a daughter, Paula. The public controversy surrounding the affair appeared to finish any ambitions Pratt had entertained of joining the establishment.

The affair ensured that Richard Pratt, AO (his wife of 45 years Jeanne also holds an Order of Australia) was never going to get a seat on the board of the Reserve Bank of Australia as did his long-time rival Frank Lowy.

Pratt is a former chairman of the Victorian Arts Centre. He is also Australia's most generous man, giving away about $10 million each year to charity. At the same time he's as tough as Chris Corrigan or any other leading industrialist when it comes to relations with unions.

However, the commercial property portfolio of the Visy group is in disarray. The company does not have a headquarters. He has loyal executives, but he has had great difficulty delegating power. His son is now in his 40s, while Pratt runs the global operation with an iron fist.

The action by the Australian Competition and Consumer Commission against Pratt is not his first brush with authorities. At Christmas 1993 the National Crime Authority investigated Pratt companies in connection with John Elliott and the Elders foreign exchange scandal. In a move that did irreparable damage to his business reputation, the investigators raided Pratt company offices and seized documents. Six months later the investigation stalled with the NCA agreeing to pay reasonable costs and to return the documents.

But the early 1990s were generally bleak for Pratt as attempts to diversify into financial services collapsed. There was also a significant legal action filed and later settled by the Fosters Brewing Group.

By the mid-1990s Pratt was back on his feet, moving into America, especially New York. The mayor, Rudy Giuliani, had opened up the city's wastepaper industry by getting the Mafia out.

When Giuliani offered the city wastepaper business to tender, there were few bidders ready to go back in where the dons had departed. But Pratt did a deal to buy a massive paper plant on Staten Island. Today Pratt exports wastepaper out of New York to China.

The latest investigation may open doors Richard Pratt has always kept closed. Billionaires rarely have blameless lives, but as a veteran of the courts Pratt will not be losing sleep over what must be to him the latest hurdle in a long-distance race.