Jones helps himself to high-rise share of development deala Toward the end of 19
ID: 2818267 • Letter: J
Question
Jones helps himself to high-rise share of development deala
Toward the end of 1999,Alan Jones, Radio 2UE’s breakfast show host appeared before theAustralian BroadcastingAuthority inquiry for a second time. Julian Burnside
QC, counsel assistingthe inquiry, quizzed Jones about his relationship with the developers, Walker Corporation and WalshBay Finance.
Jones had been paid an annualstipend of $250 000 fromJuly 1997 to advance the interests of Walker on-air, with bonuses of up to $200 000 if Walker’s shares increased
in value. The deal was that after the first anniversary of the contract, if the share price reached $1.55 the developer would pay Jones $100 000, and that the bonus would
increase to $200 000 in the second and third anniversary periods, dependent on increases in Walker share prices. Jones had not terminated the Walker contract despite being
ordered to do so by JohnConde, 2UE’s chairman.
In amemo presented to the inquiry, Jones had suggested that his agent, Harry M. Miller, ask Walker for moremoney. He apparently credited Walker’s success (a 107 per
cent increase in net profit that year) with his efforts on their behalf. ‘Let’s face it, they wouldn’t be in the public placewithout moi!’Jones told the inquiry that the memo
was written as a joke.
Jones defended his actions in relation to Walker, saying he never gave them free favourable mentions on-air, despite the contract’s focus being on-air support. Mr
Burnside said:‘The curious thingis that what you have done, youweren’t obliged to do, andwhat youwere obliged to do, you haven’t done.’ Outside the inquiry journalists
elicited the fact that Jones had an investment interest in theWalker Finger Wharf development at Woolloomooloo.
On 1 June 1998 Jones signed another promotional agreement for an annual $200 000 with the developer, Walsh Bay Finance. Walsh Bay’s project was redevelopment of
the oldwharves in theRocks. The company’s representative, David Mann, was questioned about the deal he arrangedwith Jones and admitted that it was done to counteract
negative public responses to thewharf redevelopment. On 2 June Jones broadcast the first highly favourable editorial of four about theWalshBay redevelopment.
The developer WalshBay apparently also targeted other media personalities, like Piers Akerman, a columnist for theDaily Telegraph , who also commented favourably in
print on their redevelopment of Walsh Bay on 2 June. Akerman denied that money had been a factor in writing his laudatory piece but admitted he had discussed the
redevelopment with a friend over lunch. The friend was a Transfield executive. Transfield offered Akerman a case of expensive Grange Hermitage wine after the story
appeared but Akerman stated that he declined the offer.
Adapted from A. Meade, ‘Jones helps himself to high-rise share of development deal’, 18 November 1999, p. 1
Question: 10.27 Read the above headline and then consider why we might expect, or not expect, the market to react to radio announcements made by Alan Jones.
Would a market reaction imply anything about the efficiency of the capital market?
Just need the answer in 100 words or below
Explanation / Answer
Share price always discounts all the published and probable news whichever is available to the market. Now as per the given scenario, market won't be able to differentiate the underlined deal between the announcer and the beneficiary. So if the news is material, then share price will react.
Now from this reaction of the share price with the announcement, we can't say that market is inefficient. If any news is material then it has to affect share price in each type of efficient market(weak, semistrong and strong). So the only parameter which we suppose to look into before making any comment about efficiency is whether the affecting news is material or not.
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