There is something very familiar about the collapse of Tom Hedley’s pub, property and construction empire, which was placed in the hands of receivers KordaMentha yesterday.
Hedley was one of those classic rags to riches tales that we all know and love. He was the knockabout plumber who became one of North Queensland’s richest and most prominent entrepreneurs and loved nothing more than sitting in one of his pubs enjoying a quiet schooner and a punt.
He even had a great nickname that all good knockabout entrepreneurs need: Barramundi Tom, a moniker given apparently because Hedley drove such a hard bargain.
And then there was the phenomenally rapid rise. In 2006, Hedley joined BRW’s Rich 200 list with a fortune of $515 million; the next year his wealth had risen to $715 million, making him one of the richest men in Queensland.
But there is also something terribly familiar about Hedley’s demise. Like so many entrepreneurs in this downturn and the last one, Hedley has been brought down by a combination of too-rapid growth, too much debt and a business model built only for boom times.
Hedley shot to prominence in February 2006, when Coles (then Coles Myer) agreed to buy Hedley Hotels Group for $306 million. The deal, which apparently took 15 months to negotiate (we told you that Barramundi Tom was no pushover) included 103 bottle shops, 17 bottle shop sites and 36 hotels, although Hedley kept the freehold to 30.
Most experts and commentators said at the time that Hedley had wrangled a terrific deal from Coles. But while many entrepreneurs would have been happy to settle down and enjoy their cash, Hedley was just getting started.
He went on an aggressive pub buying spree through 2006 and 2007, grabbing properties throughout Queensland and later pushing into New South Wales with Sydney’s famous pub family, the Laundy’s. By now of course, Australia’s economy was booming and the pub market was white hot. Hedley paid top prices for his acquisitions and funded most through debt.
In August 2007, Hedley floated the Hedley Leisure and Gaming Property Fund (HLGPF), a vehicle holding most of his pub properties. Hedley’s 60% stake was initially worth around $250 million, but it wasn’t long before problems emerged.
As the credit crisis deepened, debts of more than $700 million started weighing heavily on the listed company and its share price sank from around $3.50 to its current price of just 25c. Late last month, Hedley resigned as a director of the company to concentrate on his “substantial private business operations”.
The fall in the sharemarket appears to be behind Hedley’s collapse. Receiver Robert Hutson said falling share prices had triggered massive margin calls on Hedley’s stake in HLGPF.
Behind the pubs business, Hedley also had a large construction and property development operation.
He started out as a plumber in 1969 and subsequently established Hedley Constructions and a development arm called Hedley Developments. According to the Hedley Group website, the company has development projects underway in Cairns, Townsville and Port Douglas. Hedley was involved in residential projects, shopping centres and, of course, hotels.
Most of these property businesses are now in the hands of KordaMentha. Hutson said yesterday that Hedley and his management team had tried to restructure the empire, but the downturn in Cairns and Townsville and a lack of new developments made that impossible. These assets will need to be sold off – a tough ask given the state of the market.
Ironically, Hedley’s private plumbing business, HPS Pty Ltd, is not in receivership.
Hedley is said to be devastated by the collapse of his empire, but he’s not the only one that will be hurting today. The embattled pub sector will likely face more pain, as Hedley’s pub assets are sold into a depressed market. Hedley’s bankers, led by ANZ and Suncorp, have an exposure of around $250 million. And the city of Cairns, where Hedley employed hundreds of workers, is bracing for unemployment to shoot even higher.
Tom Hedley once described his beloved pubs as a “sort of fun place where you go to have a drink, you have a bet, you have a meal and, occasionally, have a blue”.
Pubs are also a great place to drown your sorrows – although it’s not Barramundi Tom’s shout any more.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
