Questions over IT stock launch

The Australian Securities and Investment Commission is considering an investigation into possible insider trading by senior academics and council members at the University of Melbourne.

The share value of the university's domain name registrar and technology services company, Melbourne IT, jumped eightfold in three months and has amassed A$12 million (Pounds 4.6 million) since its flotation on the Australian stock exchange six months ago.

Despite an instruction by vice-chancellor Alan Gilbert that no staff or members of university committees should benefit from the float, hundreds of thousands of shares in the company were allocated to academics and council members.

Melbourne IT became the first company to be floated by an Australian university on December 14 1999, in the middle of the dot-com boom.

The A$2.20 shares opened at A$8.20 and reached A$9.10 on the first day (when over a quarter of the 50 million shares were traded), making it the second largest first-day percentage gain ever recorded.

The shares hit a peak of A$17 in March before falling back to A$7 after the dot-com collapse.

In an interview for the Australian Broadcasting Corporation's investigative programme Four Corners, screened on Monday, Professor Gilbert rejected suggestions of insider trading and denied that any council member should have declared a conflict of interest when they learned their stockbroker would be the underwriter for the float.

"You should look for other Australian universities that for an investment of A$350,000 (the cost of establishing Melbourne IT) had made a capital gain of almost A$200 million," he said.

Professor Gilbert earlier told the university council that some of the proceeds of the float would be used to increase staff salaries.

A scathing report by Victoria's auditor general criticised the way the float had been handled. Reporting to the state parliament, the auditor general said that in selling 85 per cent of its stake in Melbourne IT, the university received A$78.4 million for an asset that was valued by the market five months later at A$350 million.

The auditor general questioned whether the initial share price properly reflected the true value of Melbourne IT.

In the first quarter this year, the company's revenue increased against budget by a "massive" 585 per cent to A$11.3 million - only A$3.6 million short of its entire revenue for 1999.

Melbourne IT has announced plans to buy new businesses and expand its operations.

More than two-thirds of revenue last year was derived from its rapidly growing internet names registration business, which tripled earnings between 1998 and 1999. Company chief executive Peter Gerrand said Melbourne IT now had a 6.5 per cent share of the global top-level domain registration market of .com, .org and .net.

Professor Gilbert is in London negotiating on behalf of the Universitas 21 network of universities with News Corporation, owners of The THES, over the establishment of a joint venture company to provide online and satellite-delivered postgraduate courses.

He told staff in an email that he would be based in London for six months, but academics and students have questioned why Melbourne's chief executive should be out of the country for so long when U21 has its own secretariat.

Speaking from London, Professor Gilbert defended the way the negotiations were being conducted.

"If we succeed in these negotiations, and I expect to, it will be with perhaps the sparest, least-costly negotiating capability ever to operate at this level," he said. "We are working with a number of outstanding professional advisers with appropriate legal, corporate and financial expertise.

"We are conducting negotiations in East Asia and the United States, as well as in Europe. The overall project has many facets, not least the establishment of a globally credible quality assurance agency that U21 will bring to the partnership, if it eventuates."