Splashing out to sell T3

TELSTRA chief executive Sol Trujillo has made no secret of his habit of using private jets and staying in top hotels.

Telstra chief Sol Trujillo's use of private jets has raised eyebrows in the past

But this week's report by the Australian National Audit Office (ANAO) has highlighted the spectacular financial effects in 2006 of a decision by Telstra managers to increase the scope of an international roadshow accompanying what became known as the T3 share sale by the federal Government.

The overall $15 billion government selldown process, from which the share price has incidentally never recovered, cost a total of $204 million including government, Telstra and advisory costs. According to the ANAO report, "the routing and number of group presentations for the T3 roadshow had a dramatic effect on the overall estimated costs".

It attributed the blowout to:

* An increase in flight and accommodation costs.

* An increase in the number and size of group meetings from three set shows and one monitor show to six set shows and 10 monitor shows.

* An increase in the number of days that the Global Roadshow Co-ordinator team would be travelling.

* An increase in the executive team's use of first-class travel.

* Additional use of private jet charters in Europe, the US and Asia.

Bankers involved with the sale said that getting to 10 cities in five days around the US, where fund managers are dotted all over the country, could only be accomplished through the use of private aircraft.

Mr Trujillo's use of private jets has raised eyebrows in the past.

Mr Trujillo, who moved from the board of US West in 2000 to take over as chief executive at France Telecom's mobile subsidiary Orange, is reported to have fallen out with France Telecom chief Thierry Breton over his use of private jets.

For the past three years, Telstra shareholders have been footing the bill for Mr Trujillo's huge overseas travel schedule and his stays in such hotels as the five star Bellagio in Los Angeles. In fact, barely 5 per cent of Telstra's business and 20 per cent of its shareholders are offshore.

A Telstra spokesperson said that the T3 sale costs of $204 million were well within the sale budget of $306.5 million and "well below" the range of sale costs estimated during the scoping study.

"In terms of accommodation, the teams were undertaking business that required appropriate business facilities," the spokesperson said.

"For example, over the first four days of the roadshow, 26 meetings were held across two continents. To do this, our executives needed accommodation so they could hold planning meetings in their rooms plus conduct other business such as sending and receiving extremely confidential information."

In New York, they stayed at the St Regis Hotel on 55th Street, not far from Central Park.

Room prices at the St Regis start at $US1195 ($1250) a night.

The hotel's website boasts an "incomparable butler service" and rooms with "silk wall coverings and antiques ... custom-made furnishings, deeply carved crown mouldings and wainscoting, and marble baths".

In London it was the Berkeley, just near Hyde Park in Mayfair.

Standard rooms come in at pound stg. 390 a night and suites start at pound stg. 1100 ($2270).

The bookings were made by Telstra, the ANAO report said.

"This standard of accommodation was required by senior Telstra management on several occasions."

And no one in the Government argued with Telstra.

It was a new Telstra and a company that was determined to take no directions from its major shareholder but one prepared to wage war against it.

"It was also conscious that attempting to impose specific accommodation arrangements on Telstra management in particular locations was unlikely to generate willing participation in the roadshow and had the potential to jeopardise meeting sale objectives," a finance department representative told the ANAO.

By the time the T3 sale started to take shape in early 2006, Telstra had already called a capital strike - pulling its plan to build a $5 billion, five city fibre-to-the-node network in December 2005.

On the eve of the T3 process in September 2006, Telstra chairman Donald McGauchie was forced to gag Telstra's aggressive main spokesman, Phil Burgess.

A combination of summer breaks in the northern hemisphere and the desire for Telstra to have a full-year result under its belt meant that October/November was the logical time-frame to hold the sale.

"While initial planning programmed the offer launch as early as possible on the October/November timing window, by July 2006 the offer launch was moved to late in that window to accommodate Telstra's planned Investor Day."

Telstra's management did not make things easy and their availability affected the duration and cost of the roadshow, the ANAO report said.

The banks originally arranged a three week, multi-region roadshow with two teams, code named Orange and Blue after Telstra's corporate colours.

But the Telstra executive team was unable to commit to this schedule or even a revised proposal. Eventually they agreed to the final 32 day extended tour which, while hectic, turned out to be far more lavish than anyone had expected.