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August 1998 decisions This month has a particularly significant collection of overseas takeovers:
Utilicorp grabs Power New Zealand After years of stalking, Utilicorp N.Z., Inc has approval to acquire control (up to 80%) of Auckland electricity company, Power New Zealand Ltd. The price is “to be advised”. The approval also applies to Utilicorp United Inc, the 79% owner of Utilicorp N.Z. The other 21% of Utilicorp N.Z. at the time of the decision was the Todd Family of Aotearoa. Since then the Todd Family have sold out and Utilicorp United is now the 100% owner of Utilicorp N.Z. (Press, 8/10/98, “Merucry sells its Power NZ stake”, p.27). The OIC advises:
Utilicorp has been fighting Auckland’s Mercury Energy for control of Power New Zealand since October 1994. Mercury and Power New Zealand are the two major suppliers of electricity to the greater Auckland region. Both Utilicorp and Mercury have spent enormous sums in advertising, litigation, and buying shares at increasingly high prices. In December 1997 a truce was apparently reached, to the great dislike of many local people. As we reported that month in some detail, the two companies formed a joint venture which gained OIC approval to take up to 100% of Power New Zealand and up to 51.18% of Waikato electricity supplier, WEL Energy Group Ltd. The Utilicorp/Mercury takeover of Power New Zealand was bitterly fought by minority shareholders and the directors ousted by the new owners. The prospective owners were described as “Australian crocodiles and American alligators.” The WEL Energy Trust, a community trust that owns 43% of WEL Energy, also vehemently opposed the takeover. Two court actions were threatened. One was to challenge the OIC’s approval of the December 1997 decisions. In the other challenged the right of the joint venture to own Power New Zealand on the basis that Utilicorp made a “cornerstone shareholding” agreement with Power New Zealand in 1994 allowing the directors of Power New Zealand to veto any sale of Utilicorp’s 30% shareholding in Power New Zealand. The WEL Energy Trust’s worry was that Mercury and Utilicorp would control WEL Energy through their 51.18% shareholding if the joint venture transaction was allowed to proceed. The current bid took quick advantage of Mercury’s weakness after the fiasco of the February to May 1998 central Auckland power blackout and the death of its chief executive and ruthless empire builder, Wayne Gilbert. As a result, Mercury faced high costs – estimated at $128.3 million – to compensate its angry customers and to carry out the work to remedy the power supply problems permanently. It announced in July that it could not afford to pay a dividend, having gone from a profit of $82.1 million in 1997 to a loss of $25.3 million in the year to March 1998 (Press, 4/7/98, “Power crisis costly”, p.27). In addition, the government’s power industry reforms, which were forcing both Power New Zealand and Mercury to split their retail and network (line) interests, were likely to reduce the value of the companies. That would particularly hurt Mercury as it planned to retain its line business, forcing it to sell its power purchase agreements and Southdown and Stratford electricity generation interests – possibly at a loss given falling power prices and a surplus of generation capacity (New Zealand Herald, 26/8/98, “Mercury boss ponders most profitable option”, by Mark Reynolds, p.E1). Power New Zealand itself was exhausted, having spent $605,000 on “takeover response costs” in the year ended March 1998 alone. Utilicorp also takes control of Bay of Plenty Electricity in the purchase. Power New Zealand owns 52.3% of Bay of Plenty (Press, 11/5/98, “Power NZ up, despite fight”, p.27). Utilicorp’s approval from the OIC was for only 80% of Power New Zealand so that it could leave the Power New Zealand Shareholders’ Society with 10.7%, the public with 9%, and an employee share ownership scheme with 1.7%. Utilicorp ended up with 78.6%. To gain the further shareholding, Utilicorp bought Mercury’s 33.2% for a reported $333.2 million (and Mercury a profit of over $100 million), the 7.94% owned by WEL Energy for $78 million, and shares owned by Waikato district councils (ironically, gifted to them by Power New Zealand to prevent a hostile takeover by Mercury: Press, 6/7/98, “Utilicorp nearing Power NZ control”, p.34). The price paid to the councils was 805 cents per share: well above both the 662.5 cents paid to Mercury and WEL Energy, and the going rate on the stock market of about 500 cents (Press, 11/9/98, “UtiliCorp bid on for PNZ”, p.29; 12/9/98, “No pressure for Power NZ sale – Utilicorp”, p.24; New Zealand Herald, 25/9/98, “Short-circuit for power proposals”, p.C1). In 1996, the High Court found that Utilicorp had broken the Securities Amendment Act by failing to disclose deals it had done with the Thames-Coromandel, Hauraki, Matamata-Piako and South Waikato district councils. They had promised to get Utilicorp’s permission before selling their Power New Zealand shares. The judge “found it hard to believe” that Power New Zealand had no knowledge of the deals, leading to a Stock Exchange investigation. A subsequent disclosure showed Utilicorp had done a similar deal with WEL Energy. (Press, 10/9/96, “Mercury battles Utilicorp in court”, p.16; 18/9/96, “Utilicorp discloses new verbal agreement for Power NZ shares”, p.40; 24/9/96, “Utilicorp bid backed despite no appraisal”, p.32; 8/10/96, “Mercury back to court”, p.40; 20/11/96, “Power New Zealand releases hold on councils”, p.37; 30/11/96, “Power New Zealand holding”, p.27.) In return for getting the WEL Energy shares in Power New Zealand, Utilicorp has agreed to sell back to the WEL Energy Trust the strategic 39.7% shareholding it has long held in WEL Energy, at 1400 cents per share: a total of $100 million. That shareholding had been strongly opposed by the WEL Energy Trust which has been fighting Power New Zealand and Utilicorp for local control for many years. Ironically, as alluded to above, in 1995 WEL was used by Utilicorp to try to get control of Power New Zealand by WEL buying up Power New Zealand shares, effectively giving Utilicorp 35% control (Press, “WEL makes bid for Power New Zealand”, 28/1/95, p.28). Aggressive Stagecoach (U.K.) buys privatised Auckland Yellow Bus Company New Zealand Bus Ltd, owned by Stagecoach Holdings Plc of the U.K., has approval to buy Transportation Auckland Corporation Ltd (TACL, or the Yellow Bus Company) from the Auckland Regional Services Trust for $111,555,555. This includes six hectares of land in Swanson Road, Mt Roskill, and on State Highway 16, Whenuapai. Stagecoach describes itself as “the world’s largest and most experienced urban transport operator”. It has operations in bus services, rail, airports and toll roads, and has gained a reputation for tough tactics in the U.K.
Stagecoach runs Cityline services in the Hutt Valley, as well as in Auckland (Press, 17/12/97, “Stagecoach bid”, p.31). Its Auckland service initially led the Commerce Commission to refuse it permission to buy the Yellow Bus Company (Press, 25/2/98, “Yellow Bus appeal”, p.33). The company appealed and won. That will not give Aucklanders any comfort, given Stagecoach’s international record. The sale of the Regional Authority’s prominent asset was accomplished by decree from Wellington, leading to considerable bitterness in any case. Jenny Shipley gave the order to sell as Transport Minister in May 1997, demonstrating the large holes in the then-existing Coalition Agreement that specified consultation with local ratepayers or consumers over the sale of other local government assets. Stagecoach began business in Aotearoa in 1992 when it took over the privatised Wellington City bus system. Then called Stagecoach NZ Ltd, it changed its name a few weeks later to New Zealand Bus Ltd. In October that year it was given OIC consent to buy Wellington City Transport Ltd for $5,750,000. We commented at that time that its parent, Stagecoach Holdings Plc of Perth, Scotland had grown rapidly since 1980, feeding on privatisations, and “has 3,000 buses, a turnover of $500 million and operates in Britain, Canada, Kenya, Malawi and China. It has 11,000 employees worldwide.” That was only the beginning. According to its Web site (http://www.stagecoachholdings.com), Stagecoach, which “started in 1980 as a family business by brother and sister, Brian Souter and Ann Gloag”,
Its dramatic growth is indicated by its financial statistics, which show that from 1993 to 1998 its turnover grew more than nine times (to £1.38 billion), profits before interest and tax 12 times (to £216.5 million), dividends 50 times (to £30 million), and total assets almost 16 times (to £1.93 billion). According to one financial analyst, Stagecoach had a rate of return of 92% in the year ended 15/5/98 (Nick Pachetti at http://www.worth.com/articles/Z9807C02.html). In 1996 it acquired major Swedish bus company, Swebus, one of the top ten U.K. acquisitions in mainland Europe during that year, according to Acquisitions Monthly (January 1997 – see http://www.acquisitions-monthly.co.uk/magazine/html/1996_uk_acquisitions_in_europe.htm), making it the second largest foreign company in Sweden, by number of employees, in 1996/97 according to the official Invest in Sweden Agency (http://www.isa.se/default.cfm?page=/report98/foreign.htm). Swebus has grown hugely as a result of the introduction of “competitive tendering” of bus services in Sweden. The effect has been that “major operators tend to grow and expand (e.g., Swebus and Linjebuss), while smaller operators, including several public transport operators, have been absorbed or gone out of business”.
Stagecoach has also expanded into Hong Kong and China, by, in April 1998, becoming the second largest shareholder in Road King Infrastructure Limited. This company, though Incorporated in Bermuda, is 334th of the 500 largest Chinese commercial enterprises in the world, and 17th out of the 20 largest Chinese commercial enterprises in terms of growth of assets. “Road King and its subsidiaries specialise in the investment, development, operation and management of toll-road projects in China. At present, the Group has investments in road projects in eight provinces involving a total length of 975km.” (Press release, http://irasia.com/listco/hk/roadking/annual/97/respress9712.htm.) The Stagecoach fan club (yes! – see http://www.geocities.com/MotorCity/Downs/8661/links.html) lists information about a long list of Stagecoach subsidiaries, among them those in Wellington which include the Kelburn Cable Car as well as the bus service. In the U.K., major acquisitions have included bus companies, railway companies, a railway rolling stock company and an airport. Its tactics were described at a seminar on competition run by the University of Auckland Centre for Research in Network Economics and Communications in Melborne in September 1997 (see http://www.crnec.auckland.ac.nz/workshop/SEP26PUB.html). There, Professor David Newbery, Director of the Department of Applied Economics at Cambridge and Professor of Applied Economics, commented that it is “extremely costly” for large operators to compete with new competitors by lowering prices, so
That’s a fair introduction to the reputation the company has earned in the U.K. According to the Electronic Telegraph (produced by the publishers of the Daily and Sunday Telegraph, 20/12/95, “Bus chief greets his Waterloo. . . after 24 fair trade inquiries and nine monopoly reports”, by Toby Moore and Michael Fleet):
In another example, in South East Hampshire, Stagecoach took over two local bus companies, Southdown and Portsmouth CityBus and then in 1991 was forced to sell Portsmouth by the Secretary of State for Trade and Industry and the Monopolies and Mergers Commission (http://www.hants.gov.uk/scrmxn/c6121.html). The privatisation of British railways has been another bonanza for Stagecoach – and one where its reputation has been confirmed. In February 1996, it gained control of South West Trains Ltd. The Surrey Advertiser (21/3/97, “Rail firm risks losing franchise”, http://www.surreyad.co.uk/news/21-3-97/news131.html) reported:
While one market research firm went so far as to say that “Stagecoach Holdings PLC’s experience with South West Trains Ltd (SWT) has, so far, been a public relations disaster, and has damaged goodwill towards the privatised rail industry” (http://www.keynote.co.uk/public/cw/ratr97/ratr9706.htm), Stagecoach had no regrets. According to the Financial Times Television (2/12/97, “Stagecoach pretax profits hit £70.5 million”), South West Trains “notched up profits of £7.8 million, with passenger income at £151.9 million. Revenues grew by 8.3% and passenger journeys rose by almost 6%” (http://www.ft-television.com/today/stories97/40212974.htm). Stagecoach also owns the Island Line Ltd, another rail operator, and in June 1998 bought a 49% share of the Virgin Rail Group, co-owned by Richard Branson (Press, 23/6/98, “Stagecoach move”, p.26). Almost as controversial has been Stagecoach’s other entry into rail: the provision of rolling stock to rail companies. Rail privatisation set up “Roscos” – rolling stock companies – which lease trains to “train operating companies” (TOCs). The same Financial Times Television article reported that the government was threatening to regulate the Roscos. Stagecoach’s Rosco, Porterbrook, had “been a hugely profitable acquisition for the group. At present 17 of the 25 train operating companies which hire trains from the Roscos, use Porterbrook trains.” Stagecoach chairman, Brian Souter warned his company “would legally challenge any attempt to alter terms of existing contracts”. He said “the industry momentum to regulate Porterbrook and other rolling stock companies had not come from the government itself, but from ‘jealous’ rivals.’… Souter said some TOCs could be using the issue of Rosco regulation as a tactic to persuade the government to cut leasing prices in existing contracts.” The original purchase of Porterbrook by Stagecoach was not universally welcomed. The Office of the Rail Regulator noted (http://www.rail-reg.gov.uk/docs/64/section2.htm) that “This acquisition raised a number of concerns, primarily related to the fact that Stagecoach owned two passenger rail franchises. It was therefore thought possible that there could be some conflict of interest, and the Rail Regulator undertook public consultation before providing advice to the Director General of Fair Trading. After consideration by the Secretary of State for Trade and Industry, it was agreed that the acquisition could proceed, subject to a number of undertakings being given.” Though said not to be a public figure, Stagecoach head Brian Souter has some convenient political views. He gave public support to the devolution of parliamentary power to Scotland, where the company is based, and, crucially, support for the right of the Scottish parliament to raise taxes. That was seen to be a major boost to the Labour government (The Scotsman, 9/9/97, “Thatcher returns to haunt ‘No’ Campaign”, http://www.scotland-forward.org.uk/mirror/970909_1.htm). He also publicly supported the Tony Blair’s controversial “Welfare to Work” scheme. His political views appear to share some philosophies with the Business Roundtable and Roger Kerr: “Whilst not dismissing ethics as irrelevant, he stresses that some are incompatible with operating in a capitalist economy with its emphasis on ‘greed’” (quoted in http://les.man.ac.uk/cpa96/txt/harte.txt). Those attitudes have not been entirely absent from the company’s operations in Aotearoa. In September 1997, Tom Dowling, a Stagecoach bus driver in Wellington for three years, was robbed and repeatedly kicked in the head. It was the second time he had been assaulted while working for the company. At the police station he called his supervisor and was told to go home without pay for the rest of the shift, and he would have to pay for his taxi home (Press, 8/9/97, “Bad night for capital bus driver”, p.5). The company relented the next day, said he would be paid for his shift and the taxi, and sent him and his wife on a mystery weekend holiday. However the incident was simply one further example as far as the company’s drivers were concerned. By August 1998, the problem still remained. As the City Voice reported (20/8/98, “Stagecoach told to protect drivers”, by Mary Hobbs, http://www.cityvoice.co.nz/20_aug_98/pages/news.html#1)
Griffiths said Stagecoach was too mean to spend money on safety though it spent $110 million acquiring Auckland’s Yellow Bus Company. He might have added that Stagecoach, with its associated company, Stagecoach Aviation, also had enough to be one of the (unsuccessful) bidders for Wellington International Airport. At about the same time as it announced its Wellington bid, Stagecoach Aviation bought Glasgow Prestwick International Airport in Scotland for about $125 million (£41 million) (Press, 4/5/98, “Stagecoach seeking Wellington Airport”, p.34). Rivals in both bids were rival Scottish company FirstGroup, which was also a bidder for the Yellow Bus company. Stagecoach was also bidding for Sweden’s South Stockholm Airport and looking at similar purchases in the former Soviet Union (Scotland on Sunday, 10/5/98, “Stagecoach takes wing for NZ”). Coalition buster: U.K. joint venture buys Wellington International Airport The asset sale that triggered the collapse of the National/New Zealand First coalition is approved this month. NZ Airports Ltd received approval to acquire up to 66% of Wellington International Airport Ltd (WIAL), for $96,360,000. WIAL owns Wellington International Airport, including 110 hectares of land. NZ Airports is owned 40% by Alliance Life Common Fund Ltd of the U.K., 20% by Foreign and Colonial Special Utilities Investment Trust Plc of the U.K., and 40% by Infrastructure and Utilities NZ Ltd (Infratil NZ) of New Zealand. The sale had a relatively low profile, shadowed by the highly publicised and controversial sale of Auckland International Airport, until the political drama that arose from it. Even then, most news reports focussed on the political posturing rather than the facts of the sale itself. The airport, like many airports around Aotearoa, was jointly owned by the Government and local councils. In the case of Wellington, it was 66% owned by the government and 34% by the Wellington City Council (WCC). Initially the government appeared to assume that the WCC would also sell its share. That was apparently all that was required to satisfy the Coalition Agreement’s promise that, for sales of such airports, “any sale of over 24.9% would require prior approval of ratepayers or consumers”, though originally it seemed that ratepayer polls or formal consultations would be required. The only consultation the WCC carried out was as part of its routine consultation on its draft annual plan, which included the proposal to sell the shares. However there was strong lobbying of the WCC, not least by a group of regional MPs, local body councillors, residents’ groups and business interests. Convened by Rongotai MP, Annette King, it called a public meeting in May to stop the sale of both the WCC and Government shares. The concerns were that the airport was a natural monopoly, and hence able to raise prices at will; its potential to pay dividends to the public, particularly after the completion of the new terminal being constructed; and its place in the development of Wellington. The group proposed a trust to buy the government’s shares (City Voice, 11/5/98, “Regional bid to keep airport in local hands”). In the end, the WCC decided against selling its shares. That should have put the government in no doubt: the people had spoken. Indeed, New Zealand First deputy leader Peter Brown said the caucus was against selling the Government’s 66% unless the WCC agreed to sell (Press, 7/8/98, “Airport sale split looms”, p.3). Instead, the political argument was over the half-problem of ensuring the airport company was at least 50% New Zealand owned. The structuring of NZ Airports Ltd was carefully devised to achieve that. Only 40% of the company’s dividends will go overseas (ignoring any overseas shareholding in Infratil). But since 60% of NZ Airports is overseas owned, and NZ Airports has 66% of WIAL, control is overseas. So only half the problem was solved in the compromise – and, given that this is a strategic asset and a monopoly, the less important half. The price was reportedly dropped from $150 million to achieve this dubious compromise (Press, 5/8/98, “Infratil cited for Wgtn Airport”, p.26). The $96.36 million sale price was seen as cheap – on the basis of its earnings, cheaper than similar airports in Australia. Infratil naturally defended it as “fair and equitable” (Press, 19/8/98, “Airport price tag ‘fair’”, p.27). Infratil NZ was set up to raise money to buy up utilities – principally, in practice, privatised utilities – in Aotearoa. It is a publicly listed company with diversified shareholding, but control is largely in the hands of the management company it contracts to run it, Infratil Management. This management company is 80% owned by Morrison and Co, Wellington investment bankers, and 20% by Mr Duncan Saville. Infratil was largely the creation of Lloyd Morrison of Morrison and Co, who heads Infratil Management. Datex’s “New Zealand Investment Yearbook 1998” lists Infratil NZ’s principal investments as Trustpower (Rotorua, 21%), CentralPower (Palmerston North/New Plymouth, 20%), Port of Tauranga (21%), Powerco (New Plymouth, 9%), South Port (owner of Port Bluff, 8.9%), and “modest holdings” in Ports of Auckland. It is also involved in a development project with Solid Energy to assess the viability of medium scale coal fired electricity generation. It made a windfall gain of $2.199 million on the purchase and quick resale of a shareholding in Auckland International Airport (Press, 21/10/98, “Boost for Infratil NZ”, p.31). Sister company Infratil International was publicly listed in 1997 following a rights issue to the shareholders of Infratil NZ. It invests in similar businesses overseas and Morrison and Co also manage it. According to Datex, its main asset is 11.8% of Airport Group International (AGI), based in California, whose operations consist of airport management and development, and airline services. Co-owners include billionaire speculator George Soros, and Lockheed Martin Corporation. “It is one of the world’s leading specialist airport owners and operators with operations at 22 airports world-wide.” While the sale of Wellington Airport was being finalised, it was buying the cargo division of USAirports (Press, 26/8/98, “AGI buys USAirports cargo arm”, p.24). It is in the market for airports in Australia, and jointly owns a long-term concession for Perth International Airport. Infratil International also has a 50/50 joint venture with Sea-Land Orient to run a Brisbane container terminal, and is looking for airports or ports for sale in Western Europe (Press, 7/10/98, “Infratil Int has shopping list ready”, p.27). The OIC acknowledges that the other two shareholders in NZ Airports are just “investment companies”. So while the OIC “is advised that the shareholders of NZ Airport Limited believe that collectively they have the necessary strengths required to further develop the efficiency and profitability of WIAL”, there is nothing in the new majority owner that suggests it has special expertise in running airports – only in taking profits from them. That is, the management of the airport won’t benefit from the change of ownership – unless Infratil invites in AGI to run the airport. In that case, consent has been given to the wrong party, and what little local participation New Zealand First saved in the takeover is likely to be for nought. More likely what we will see is more profits being wrung from the company. A consortium led by AGI was reported to be a bidder for the airport. Other reported bidders included Stagecoach (owner of Glasgow Prestwick International Airport in Scotland, simultaneously bidding for Sweden’s South Stockholm Airport and looking at similar purchases in the former Soviet Union: see elsewhere in this commentary), FirstGroup of Scotland (also a bidder for the Yellow Bus company in Auckland), TBI of Cardiff, U.K. (which also runs airports in Cardiff, Belfast, Orlando in Florida, and Skavsta near Stockholm), and Serco (Press, 4/5/98, “Stagecoach seeking Wellington Airport”, p.34; Scotland on Sunday, 10/5/98, “Stagecoach takes wing for NZ”; New Zealand Herald, 23/7/98, “Cardiff group in race for airport”). Lloyds TSB of the U.K. buys Countrywide Bank from Bank of Scotland NBNZ Holdings Ltd, owned by Lloyds TSB Group Plc of the U.K., has approval to acquire Countrywide Banking Corporation Ltd from its owner, the Bank of Scotland (of the U.K.) for $850,000,000 “subject to adjustment”. The sale includes 280 Queen Street, Auckland (0.2253 hectares). The National Bank of New Zealand (NBNZ) was listed by Management (December 1997) as the fourth largest Bank (and financial institution) by assets, in Aotearoa that year. Countrywide was sixth. Together they would be second, pushing the Bank of New Zealand down to third. The largest is WestpacTrust which of course carved its place at the top via the takeover of Trust Bank – which Lloyds TSB initiated by beginning negotiations to buy it, but was outbid by the outsider. Countrywide was originally a building society. It privatised itself into a bank, and was initially owned 40.1% by the Bank of Scotland and 20.05% by General Accident Insurance Company New Zealand Ltd of the U.K. In May 1992, Bank of Scotland bought out General Accident’s share, and soon after, the remaining shareholding, accompanied by complaints at the low price it was offering. At the same time, Countrywide took over and absorbed the United Bank. United was another former building society, which was bought by the State Bank of South Australia. SBSA then went broke to the tune of $3 billion, suffering from its excessive enthusiasm for expansion and loans to such sure winners as Equiticorp and Chase Corporation. Such were the triumphs of the deregulation of banking in the 1980s. The 1992 merger led to many layoffs among the 250 United head office staff in Christchurch as the head office was merged with Countrywide’s Auckland headquarters. The present merger will have the same affect according to Paul Goulter, secretary of the financial sector trade union, Finsec, even though the two banks are complementary to a degree. National was based in Wellington and Countrywide in Auckland, leading to concerns for the jobs of head office staff. Countrywide is strong in Auckland with 70 branches nationally, of which 25 are in Auckland, while National is strong rurally (it bought the Rural Bank in 1992) with 163 branches including 41 in Auckland and 40% of the rural banking market. Some reduction in numbers of branches is likely, with consequences for the combined 5,000 staff. The Bank of Scotland sold Countrywide because it felt it “had a limited future on its own” and had grown as far as it could on its own. Mergers amongst the remaining 18 banks are expected by industry analysts, some possibly driven by mergers between the Australian parents which own four of the top five (Press, 29/7/98, “Nat Bank moves on C’wide”, p.28; 30/7/8, “Banks merger means job losses – unionist”, p.9; 30/7/98, “Right time to sell Countrywide – bank”, p.29). At one time after the privatisation of the BNZ, the National Bank was a leader in lowering interest rates. In recent times it has been considered weaker than other banks because of falling profit rates. However a reason for its falling profit rates may be the greed of its parent. The National Bank has twice lent more money to Lloyds than Reserve Bank rules allow. In 1995, Lloyds (in a parallel to what happened here the following year) bought the U.K. Trustee Savings Bank, TSB, for $2.3 billion. The National Bank lent $1.06 billion to TSB in the first three months of that year, and exceeded the limit of 75% of total capital required by the Reserve Bank as a condition of the Bank’s registration. The loan was “unwound” at the end of 1995, but repeated again (to the tune of $1.02 billion) in the first three months of 1996, taking 21% of its capital. The Reserve Bank showed itself to be toothless in this process: it did little but get the National Bank to promise not to do it again. It is to be hoped that the takeover of Countrywide is not “open wide” to former colonial masters forgetting they are no longer former. (Press, 29/6/96, “Nat Bank lending exceeds RB rules”, p.27.) The pattern is consistent with Lloyds’ behaviour in the U.K. In January 1997, the British in-vestment watchdog, the Investment Management Regulatory Organisation, fined Lloyds $784,000 for breaches of rules relating to its pensions transfer business between 1988 and 1993 (Press, 13/1/97, “Lloyds Bank fined”, p.42). At the end of 1997, Lloyds’ total group assets were £158 billion, and Lloyds TSB had over 82,500 employees, according to the OIC.
Royal & Sun Alliance insurance takes over Guardian Assurance In a decision almost completely suppressed until released on appeal in February 1999, Royal & Sun Alliance Life and Disability (New Zealand) Ltd, a subsidiary of the Royal & Sun Alliance Insurance Group Plc of the U.K., has approval to acquire Guardian Assurance Ltd from GRE International Holdings BV, a subsidiary of Guardian Royal Exchange Plc of the U.K. The price the OIC reports is $179,200,000, though NZPA reported it at $182.5 million. The OIC states that Royal & Sun Alliance ” intends to amalgamate the insurance other businesses of Guardian Assurance into its own oeprations, thereby achieving various efficiencies.” In March 1998, Royal & Sun took over Norwich Union in Aotearoa. After that, according to the Press, the merged company in Aotearoa was the fifth-biggest life insurer and had more than $1.5 billion under management. The present takeover makes the company the largest insurance company in Aotearoa and the third largest among life, superannuation and investment companies, based on premium income, according to its chief executive, Alan Bradley. It will have $2.2 billion funds under management. Guardian Assurance employed about 140 people and Royal and Sun about 800 in Aotearoa (Press, 10/3/98, “SunAlliance grows”, p.36; 19/11/98, “Royal SunAlliance buys Guardian NZ”, p.35). Counterpoint takes over Pacific Capital and T/A Pacific’s shares in Dairy Brands Counterpoint Equities Ltd of Aotearoa, Australia and Singapore, is involved in two decisions. In the first, it has approval to acquire all the shares of Pacific Capital Assets Ltd for “between $33 and $49 million“. In the same decision, one of its main shareholders, the Hudson group (specifically Hudson Corporate New Zealand Ltd) also gained approval to acquire up to 44.9% of Counterpoint. Counterpoint is offering shares as payment for Pacific Capital. Hence Hudson will end up with more than 25% of Counterpoint, which requires OIC approval. The merged company has since been renamed Savoy Equities. In the second decision, Counterpoint gets approval to acquire up to 28.72% of Dairy Brands New Zealand Ltd from T/A Pacific Select Investments LP of the Bahamas for $3,900,000. Counterpoint was owned before the Hudson purchase as follows:
Pacific Capital Assets was owned as follows:
Pacific Capital Assets owns the 3.46 hectare site on which it plans to develop the controversial Britomart centre in central Auckland on Customs Street East, Britomart Place and Quay Street. The OIC gave approval for the Britomart development in April 1997. Dairy Farms owns 3,961 hectares of land in Canterbury, Otago and Southland and “is the second largest listed dairy farming company in New Zealand”. Originally part of corporate farmer and anti producer board activist, Apple Fields (see for example January and July 1995 decisions), it “processes the milk produced from its farms and manufactures ice cream, including the brand ‘Killinchy Gold’”, which Apple Fields bought from its founders in 1994. At the time of the current transaction, Counterpoint owned approximately 50% of Dairy Brands and controlled three of the six members of its board. In July 1997 it bought Apple Field’s 43.8% stake for $9.1m, at about $6.5m below book value (Datex, June 1998). T/A Select Pacific, from which Counterpoint is now buying the shares “is an overseas company whom the applicants advise is a relatively short term investor in Dairy Brands”. That is a turnaround from January 1995, when it originally bought into Apple Fields. Then, the OIC stated: “The applicant states that over the past few years it has been the only substantial investor in Apple Fields and claim that their [sic] increased shareholding will provide a level of stability to the share register of Apple Fields…” The OIC says that “Counterpoint acquired its majority shareholding in Dairy Brands with the intention of identifying opportunities for Dairy Brands to undertake value added processing of dairy products for both domestic and international markets.” However its main achievement to date appears to be selling assets:
Both the Britomart project and Dairy Brands are in some trouble. Savoy declared a loss of $1.49 million in year ended 31/8/98 (Press, 17/11/98, “Savoy loss widens in latest year”, p.28). The Auckland City Council and Tranz Rail are appealing against the Auckland Regional Council’s refusal to give resource consents to the central Auckland underground Britomart transport centre. But the Environment Court failed to resolve the case after incomplete hearings in September 1998, leading to speculation that the newly elected Councils would use the delay to get out of the controversial project (National Business Review, 16/10/98, “Cost of quitting Britomart deal could be as low as $1m”, p.13). The delays caused further losses to Pacific Capital, which reported a $961,000 after-tax loss in the six months to 30/6/98. Meanwhile Counterpoint was under heavy criticism for its takeover offer of Pacific Capital. Accountants Arthur Andersen, making an independent report to Pacific Capital directors, said the offer (of 5.5 Counterpoint shares for each Pacific Capital share) was unfair, and other conditions were also flawed. Nonetheless, the takeover succeeded, valued at 33 cents a share. This may put the company into further trouble however. The prospectus allowed shareholders to sell back their shares at 50 cents each if the project was not underway by 30/6/98 (Press, 1/7/98, “Pac Cap positive”, p.27; 14/9/98, “Britomart hearing delay hurts PacCap”, p.30; 18/9/98, “Counterpoint offer near 100%”, p.27). And as the OIC relates:
Dairy Brands was split off from Apple Fields, which has moved from agribusiness into subdividing its disused orchards into large (two to four hectare) semi-rural sections for the wealthy. Its first project was called “Parc Provence” and “incorporates an imposing Oamaru stone gateway, whitestone paved boulevard, a canal, and classic architectural lines” (Press, “Apple Fields in Gallic vein”, 24/2/98, p.26). In a style typical of the company, Apple Fields’ plans rest heavily on yet to be approved rezoning consents from local councils. Apple Fields was subject to Securities Commission investigation and criticism over its “Rural Super Bonds” scheme (see our January 1995 commentary), and Dairy Brands has inherited some of the mess. Dairy Brands’ chair, former Minister of Finance, Ruth Richardson, said in October 1998 that Dairy Brands still owed about $8.9m to bondholders, but expected to announce soon that this had been paid off (Press, 10/10/98, “We can pay – Kain”, by Neill Birss, p.21). Apple Fields was not in as good shape: that month it was being raked over the coals for being late on a Rural Super Bonds $300,000 quarterly payment. But Dairy Brands’ debt levels were given as the reason for the sale of the farms. It has reduced the number of farms it owns from 31 in 1997 to 14 in October 1998. That reduced its debt ratio from an unhealthy 60% to 30%. Its rate of return was 5%, but it was aiming for 15% (Press, 9/10/98, “Dairy Brands in better condition”, p.27). According to the Press (27/8/98, “D Brands stake increased”, p.26), Counterpoint paid 39 cents a share for 10 million T/A Pacific shares, 79% above the market price of 22 cents. Pacific Capital had earlier bought two million shares at 32 cents a share from T/A Pacific, whose remaining shareholding was 4.1%, down from 24.6%. Singleton Group of Australia in joint venture owning Ogilvy and Mather John Singleton Advertising Pty Ltd, of Australia, has approval to acquire Ogilvy and Mather (New Zealand) Ltd from WPP Group Plc of the U.K. for a suppressed price. John Singleton Advertising is owned 67% by the Singleton Group Ltd, an Australian publicly listed company, and 33% by WPP Group. OSI subsidiary, Leges, of the U.S.A. taking remainder of Glovers Food An associate company of the giant OSI Group, Leges Corporation Inc of the U.S.A., which already owns 45% of Glovers Food Processors Ltd, has approval to acquire up to 100%. It will acquire the 45% shareholding of retiring Glovers’ founder, Mr M. Glover, “over the course of the next three years”. The price is stated to be “$659,699 for 30%“. The company manufactures, process and distributes beef, poultry and fish products. The major shareholders in Leges, with 45% each, are Gerald A Kolschowsky and Sheldon Lavin, with the remaining 10% owned by OSI Industries Inc. According to the OIC, they “have been involved in similar businesses in the United States and elsewhere in the world for much of their working life. They are currently major shareholders in a large multi-national food company.” Since their involvement in Glovers, “shareholders have reinvested the profits back into the Company”. OSI is “one of the largest privately held meat-processing corporations in the world” according to its own Web site, http://www.osigroup.com. It was founded by the Kolschowsky family. More controversially, it is “McDonald’s biggest burger supplier” in the world according to Meat Marketing & Technology, October 1997, “Bulletin From the Burger Battles” (http://www.mtgplace.com/magazines/M_c871.asp). OSI describes its own history as follows on its Web site:
Gerald Kolschowsky gave $200 to Republican Representative Jim Nussle in both 1995 and 1996 (http://www.com/hpi/fedind/0ia02040.html). Meat Marketing & Technology, quotes a “key industry consultant and fast-food insider” saying that
OSI lists operations in Australia, Austria, Belgium, Brazil, Bulgaria, China, Costa Rica, Croatia, Czech Republic, Denmark, France, Germany, Guatemala, Hungary, India, Indonesia, Italy, Latvia, Mexico, Netherlands, New Zealand, Northern Ireland, Panama, Philippines, Poland, Portugal, Puerto Rico, Romania, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Taiwan, Turkey, Ukraine, United Kingdom, United States, and Yugoslavia. One of its more grotesque jobs for McDonald’s was in the Ukraine as a result of the Chernobyl disaster. The Seattle Times, on 24/6/97, in an article entitled “War and peace: Do Big Macs make the world safer?”, by Tom Hundley of the Chicago Tribune (see http://www.seattletimes.com/extra/browse/html97/mcdo_062497.html) reported from Kiev on the process McDonald’s went through to start up in the Ukraine:
But perhaps OSI’s most controversial moments were in association with McDonald’s during the McLibel trial in the U.K. when McDonald’s accused Greenpeace activists David Morris and Helen Steel of defamation. The seven year court case became a trial of McDonald’s itself, including its industrial record and its effect on the environment. One of the key accusations made by Morris and Steel was that McDonald’s were destroying rainforests and forcing tribal people off their lands. In the words of the final judgement in 1997, these statements “depended upon the contention that cattle ranching to provide McDonald’s restaurants with beef patties has caused deforestation and displacement of small farmers in Costa Rica and Guatemala, and that both cattle ranching and soya farming to produce cattle feed to provide McDonald’s restaurants with beef patties has caused deforestation and displacement of small farmers and indigenous peoples in Brazil.” The judge found these claims unjustified (see http://www.enviroweb.org/mcspotlight-na/case/trial/verdict/verdict_jud1d.html for this part of the judgement, from which the following information comes). The judge ruled that allegations against McDonald’s on rainforest destruction, heart disease and cancer, food poisoning, starvation in the Third World and bad working conditions were unproven. On the other hand, he ruled that they had proved that McDonald’s “exploit children” with their advertising, falsely advertise their food as nutritious, risk the health of their most regular, long-term customers, are “culpably responsible” for cruelty to animals, are “strongly antipathetic” to unions and pay their workers low wages (http://www.enviroweb.org/mcspotlight-na/case/trial/story.html). In reality it was companies like OSI who were being judged as much as McDonald’s regarding rainforest destruction and the dispossession of tribal people and small farmers of their land. In Brazil, the centre of the claims about destruction of rainforests and brutal eviction of tribal people and small farmers, McDonald’s beef supplier was
The judge did not dispute the fact that there had been massive destruction of rainforest in Brazil, and enormous human misery. For example, he quoted Mr George Monbiot, “writer, broadcaster and academic who spent two years in Brazil, between 1989 and 1992, investigating the causes of deforestation in the Brazilian Amazon”, saying he was “patently a decent witness who knows Brazil well. I do not have any real reservations about his evidence of the general causes of destruction of rainforest and forest generally, including the large part, direct and indirect, played by cattle ranching generally. There was ample support for that. Nor do I have any real reservations about his evidence of the general causes of displacement of small farmers and indigenous peoples generally where they have been displaced, including the part played by some cattle ranches and soya farming.” To quote the judgement:
Where the evidence fell down was that no witnesses called were able to say definitively that Braslo’s beef suppliers were using dispossessed or ex-rainforest cleared land, though it was clear that some of the beef came from areas in which considerable clearing and dispossession had occurred. Further, while Braslo certainly supplied beef to McDonald’s Brazil, the judge found that no beef was imported by McDonald’s suppliers for use in the U.S.A., because McDonald’s specified home-grown meat, and very little was imported from outside Europe for McDonald’s in the U.K. Similarly, OSI is a 55% owner of McKey Food Services Ltd, the sole supplier of beef hamburger patties and many pork products to McDonald’s restaurants in the United Kingdom itself, the location of the anti-McDonald’s campaign and the trial. In fact, McKey’s was originally majority owned by McDonald’s U.K. subsidiary. In Germany, McDonald’s patties are supplied by L. & O. Fleischwaren, a joint venture between OSI and Lutz of Germany (a partner in Braslo).
BRL Hardy (Australia) may increase shareholding in National Liquor Distributors In a decision almost completely suppressed until released on appeal in February 1999, BRL Hardy Ltd of Australia, has approval to acquire up to 55% of National Liquor Distributors Ltd. It already owned 33.33% and will pay $5,500,000 for another 22%. The other shareholders are Brian Vieceli (33.33%, Aotearoa), the Nobilo Family (16.93%, Aotearoa), Gardner Capital Ltd (14.27%, Canada), and Geoff Cumming (2.14%, Aotearoa). BRL Hardy describes itself to the OIC as
It says that “the increase in shareholding is an interim step in a restructuring which will, in due course, see National Liquor Distributors listing on the New Zealand Stock Exchange, with BRL’s shareholding reducing to 24.59% of the company at that time.” It is not clear whether the extra 22% shareholding was ever taken up. After the float, BRL Hardy had 23.6% of the company, renamed Nobilo Wines (see also the September 1998 decisions). Emerald Capital had 18.5%, and the Vieceli family 9.2% (Press, 2/12/98, “Nobilo Wines offers shares, plans market listing and expansion”, p.31). Castlepoint Station in the Wairarapa sold to U.S. residents The large sheep, cattle and deer station, Castlepoint Station occupying 12 kilometres of the Wairarapa coast, has been sold to Anders Nash Crofoot and Emily Wood Crofoot, residents of the U.S.A., for $5,900,000. The station is approximately 65 kilometres from Masterton. The sale of the station aroused major local controversy, occurring at the same time as the even more unpopular sale of the historic 5,899 hectare Glenburn Station to a U.S. forest company for around $4.6 million (See May 1998 decisions). According to the Commission, “the Crofoot’s have been granted permanent residency status and will be arriving in New Zealand in mid-September with the intention then of residing here permanently.” They want the station “in order to utilise the property as a home/residential base upon residing in New Zealand permanently later this year”. “Castlepoint Station is an extensive coastal hill country sheep and beef property capable of intensive utilisation. It is stated there is a full range of buildings and facilities with a new centrally located woolshed and yard facilities having only recently been completed. Additionally it is stated the Station has a very good reputation for quality stock. Castlepoint Station currently runs approximately 22,831 sheep, 1,039 cattle and 120 deer stock units [sic]. “Additionally it is stated a small part of the property comprising approximately 2.6 hectares in area is utilised for tourist related ventures commonly known as Castlepoint Holiday Park.” The above details from the OIC appear to contain some errors or inconsistencies. The station was quoted as being of 2,954 hectares in its Wrightsons Real Estate “for sale” advertisement and in the Wairarapa Times Age. The OIC quotes 2,951 hectares when detailing the land involved, but later describes it as “approximately 2,955 hectares of land”. The advertisement showed 22,813 sheep, not 22,831. The advertisement also boasted “two homesteads plus numerous other facilities”. Sumitomo takes full ownership of Summit-Quinphos Sumitomo Corporation of Japan has approval to take 100% ownership of Summit-Quinphos (N.Z.) Ltd by acquiring the remaining 32.26% from Grant McComb for a suppressed amount. Summit-Quinphos is a fertiliser importer. It was formed ten years ago and has gained a 15% share of the North Island market, and recently entered the South Island with its first store at Timaru, from which it aimed to expand to three South Island ports and “a spread of” stores. According to the Press, “it is the third-largest fertiliser company, behind the two big farmer co-operatives, Ravensdown and BOP Fertiliser, which together hold a 90 per cent share of New Zealand’s fertiliser sales”. In 1996 it tried to take over Southland’s SouthFert. Instead, SouthFert was sold to BOP Fertiliser. It specialises in imported reactive phosphate rock-based (RPR) products. The Press reported that “independent scientist Doug Edmeads said RPR was not the same as superphosphate – the phosphorus in superphosphate was immediately available, while RPR released it slowly. Most soils in the South Island needed both phosphorus and sulphur, but unlike superphosphate, RPR did not have significant amounts of sulphur. All the fertiliser companies sold RPR products, but these were not all the same – some were slower-acting than others, he said.” (Press, 12/11/98, “Third player in fertiliser sales”, by Heather Chalmers.) Singapore resident buys 34% of company subdividing land at Ruakaka Edwin Sheares of Singapore has approval to acquire 34% of La Pointe Beach Estates Ltd from R.D. Paris and others for $1,000,000. The company owns “approximately 48 hectares” of land at One Tree Point, Ruakaka, Northland on which it plans a “major subdivision scheme”. The first stage has been completed and involves “the creation of 50 individual dwelling sites” of which a quarter have been sold. The $1 million will allow further expansion, and Mr Sheares or his associates “will be in a position to raise some funds off-shore”. Swiss capital into Framingham Wine Company of Marlborough Andreas E. Rihs of Switzerland has taken a 40% shareholding in the Framingham Wine Company Ltd which has approval to buy almost three hectares of land at Conders Bend Road, Marlborough for $210,000. The land, part of an existing vineyard owned by the original owners of Framingham Wine Company who are together now 40% shareholders in the company, will be used to develop a winery. Previously Framingham labelled wine was made through a third-party wine processing facility.
Hawera Forest Owners Assn (49% Taiwan) buys 99 ha. more land for forestry Four members of the Hawera Forest Owners Association (Hawera Forest II), which consists of “43 members, of which 21 are ‘overseas persons’”, have approval to acquire a total of 99 hectares of land at Tangahoe Valley Road, Hawera, Taranaki for $423,980 for forestry. Each “member” is two to five people, or, in one case, a limited liability company, Greens Trading Co Ltd. All are domiciled in Taiwan. The seller of the land is in each case New Zealand Forestry Group Ltd, and the OIC states that
The New Zealand Forestry Group appears to specialise in these modus operandi: it gets small-holders (often overseas) to buy small blocks of a larger block of land it owns, and then contract it to manage the land for forestry. It is the same company that has been selling land in Paparangi, Wanganui and elsewhere. The last time it made similar arrangements with the Hawera Forest Owners Association was in December 1997 when the association consisted of 22 members, of which 17 were ‘overseas persons’. On that occasion it had approval to acquire a total of 668 hectares of land at Morea Valley, Hawera, Taranaki for $2,805,600 for forestry.
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