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TransAlta buys retail electricity supply business from Power New Zealand
TransAlta New Zealand Ltd, 67% owned by TransAlta Corporation of Canada, has approval to acquire the retail electricity supply business of Power New Zealand Ltd for a suppressed amount. Power New Zealand is 80% owned by Utilicorp United Inc of the U.S.A., 10.7% by Waitemata Electricity Region Territorial Local Authorities and 9.3% by “the New Zealand public”. The purchase gave TransAlta 227,000 new electricity customers, giving it a total of 530,000 or about one third of the market (Press, 14/11/98, “TransAlta NZ powers ahead”, p.23). Though the OIC suppressed the price when it released its decision on 31 December 1998, TransAlta had made a statement to the New Zealand Stock Exchange announcing the price a month previously (30/11/98), and news media had known at least two days before that. The price was $140.4 million for the Auckland purchase compared to $171 million for Southpower. So TransAlta paid considerably less per customer to Power New Zealand – $470 – than the $770 it paid to Southpower’s local authority owners. Small surprise that it wanted Southpower’s price suppressed until it had completed this purchase. At about the same time, TransAlta announced that it had offered $52.5 million to Power New Zealand for its interest in the Rotokawa steam field and electricity generation station (New Zealand Herald, 30/11/98, “$52.5 offered for Rotokawa station”, p.D2). Power New Zealand’s sale of its retail customers was forced by the Electricity Reform Act 1998, which forces companies to choose between owning an electricity supply network (lines) operation and owning an electricity retailing or generation operation. Power New Zealand (like most local electricity companies) chose to retain its monopoly lines network; unusually, TransAlta chose to retain its retailing operation. Since this approval, both have aggressively sought to expand their holdings. For more detail on TransAlta and its acquisitions, see our commentary on its takeover of Southpower’s retail operation in the October 1998 decisions. This also gives a wider background to the effects of the Electricity Reform Act, which have led to a rush of privatisation, increased overseas ownership of the industry, and highly speculative prices being paid. Operationally, Power New Zealand swapped its retail operations for TransAlta’s Wellington lines network, buying the lines at the same time as the present sale of its retail operations. It then paid $485 million (twice book value) for Tauranga-based TrustPower’s network (New Zealand Herald, 27/11/98, “Where to now for rationalised new-look electricity companies?”, by Mark Reynolds, p. C2). That makes it the largest network operator in the country with 470,000 customers or about 30% of the market (Press, 21/11/98, “Energy companies scramble for position”, p.26). The original business of its parent, Utilicorp United, was running lines networks in the U.S.A. On the basis of rulings of U.S. regulators and courts, Utilicorp has been described as “belligerent, dangerous, incompetent, litigious and given to price gouging” by Gregory Palast, a New York energy consultant who has testified as an expert against their price increases. For example, it had its charges cut by a regulator in Missouri, U.S.A., instead of granting the 9.3% increase it had applied for (Press, 11/3/98, “UtiliCorp charges cut”, p.29; Utilicorp United 1997 Annual Report, p.6). Palast’s assessment matches Auckland opinion, which labelled it as “American alligators” for its tactics in engineering control of Power New Zealand. The company was founded only in 1985, and appears, from its 1997 Annual Report, that acquisitions are as at least as much its objective as selling energy (it also sells natural gas). It describes itself as “clearly a first mover in mergers and acquisitions, international operations, non-regulated energy marketing and national branding” and boasts in large print: “We still have mergers and acquisitions in our blood”. It operates in 17 U.S. states, Canada, Australia (where it is manager and 49.9% owner of United Energy Ltd), New Zealand and the U.K. A major subsidiary is Aquila Energy which is a natural gas and electricity wholesaler, as well as dealing in “a wide range of related financial and risk management products.” The whole company has interests in all areas of the two energy sectors: electricity generation, lines networks and retailing; natural gas processing plants, pipelines, and retailing. It is branching into other areas such as appliance repair, and is using its customer base to market unrelated products including security and long distance telephone services. Both TransAlta and Utilicorp have an ideological commitment to deregulation (presumably meaning deregulation that allows them in). Utilicorp’s 1997 Annual Report devotes two pages (14-15) to deregulation, highlighting “Utilicorp has been a vocal advocate of deregulation”, and describing it as “customer choice”. “We still have a lot of advocating to do”, says its Chairman and Chief Executive Officer, Richard C. Green Jr. The company says that “about 15 states [of the U.S.A.] have either passed legislation or issued regulatory mandates to provide customers the right to choose their supplier by a certain date. Industry restructuring bills are pending in many states, and nearly every state is at least studying the issue” [their emphasis]. Like here, it is leading to further privatisation. Utilicorp gloats: “One issue under intense federal scrutiny is taxpayer subsidies for agencies like the Tennessee Valley Authority when investor-owned electric suppliers will be expected to compete against them. Such supports may get cut or ended altogether to ‘level the playing field’”. Utilicorp also notes similar developments in natural gas supply. TransAlta Corporation is a “founding sponsor” of the Centre for Regulatory Affairs, based at the University of Calgary, Alberta, Canada. The Centre for Regulatory Affairs was created to lobby for deregulation: “The purpose and function of the Centre for Regulatory Affairs (CRA) is to promote education and research in regulatory theory, regulatory practice in Canada, and regulated industry management, with an emphasis on the opportunities, challenges, and consequences of introducing competition and relaxing regulatory constraints. The intent is to achieve a critical mass of expertise and academic excellence that provides a basis for influencing public policy and regulatory practice in Canada, and for the development of effective management practices in regulated industries, through research, teaching, and public advocacy. The goal of the CRA is to become a strong independent voice and play a leadership role in determining and fashioning public policy in regulated industries…. The CRA’s interest in regulatory economics is broadly defined and includes not only regulatory economics, law, and management but extends to competition policy, privatization, and public enterprise.” The company’s president and Chief Executive Officer, Stephen G. Snyder, in March 1997 called for the acceleration of deregulation of Alberta’s electric utility sector – an action and speed many Albertans now regret (see our October commentary) (TransAlta press release 17/3/97).
ASB Life Assurance Ltd, a subsidiary of ASB Bank, has approval to acquire life insurance and funds management company, Sovereign Ltd for $238,400,030. ASB is 75% owned by the Commonwealth Bank of Australia (CBA) and 25% by the ASB Bank Community Trust. Sovereign had been owned 53.97% by portfolio shareholders from the U.S.A., U.K., Australia, Germany, Italy, and other countries. The acquisition is intended to “facilitate the ASB group’s development in the life insurance market segment”. It includes 0.9 hectares at Weiti Road, Orewa, Auckland. The takeover was via a cash offer of 225 cents per share and announced in early October, a month before OIC approval was given. Sovereign listed only in April 1998, offering shares at the same price – 225 cents – and traded between 142 cents and 244 cents. By the time of the takeover they were at 232 cents, having risen 36 cents on the basis of the rumour of a takeover. Sovereign’s non-executive directors accepted ASB’s offer price after a valuation by Auckland merchant bank, Grant Samuel, valued the shares at between 210 and 230 cents. Part of the background to the acceptance was the increasing number of mergers within the Australasian finance industry, making it difficult for a small operator like Sovereign to survive. (Press, 9/10/98, “ASB bids for Sovereign”, p.27; 29/10/98, “Sovereign directors favour bid”, p.29; 4/1/99, “Axe falls on Sovereign”, p.28.) Kapiti sharebroker, Chris Lee, criticised the takeover in his fortnightly column in the business pages of the Press. Describing ASB as a “niche Auckland bank without the size to be a significant player in its market”, he said its primary activities were mortgages and as a savings bank. It needed to buy more market share if it was to get into funds management. However, Sovereign’s strength was as a reinsurer and a funds management intermediary with only a small income from life insurance. Its main income was through financial planners who recommend Sovereign managed funds to their clients. But Sovereign then passes the money on to other fund managers: its activities were “packaging and administration” of the funds. Lee described this role as “inefficient, highlighting the demerit of double ‘intermediation costs’, without any hope of double the market returns”. He suggested ASB would be trying the same game of “intermediation”, and would be a likely buyer of the Public Trust if it is privatised – and then itself a likely target of a larger institution. However the ASB challenged this, saying it was the fastest growing bank in Aotearoa (other than by acquisition) with high customer loyalty and customer service ratings. Its marketing director, Barbara Chapman asserted that Sovereign was not mostly involved in managed funds as Lee claimed, but “is a market leader in the life, disability and term insurance business”. She said “customers see their banking, insurance and funds management requirements as one”. Lee responded that though perhaps “a” market leader, Sovereign was far from being “the” market leader in size, and challenged her assertion that financial markets were becoming one. Chapman, defending ASB’s small size, had said that “it spurns the notion that ‘big is best/big is necessary’”; Lee retorted: “Is the ASB’s interest in Countrywide, where it was beaten to the punch by the National Bank, consistent with [this explanation]?” (Press, 2/11/98, “ASB bid barely causes ripples”, p.26; 16/11/98, “ASB puts its case on Sovereign bid”, p.19.) In March 1996, Sovereign Assurance Company Ltd, which was then owned “approximately 37.5% by various overseas individuals”, received OIC approval to buy FAI Holdings New Zealand Ltd, a subsidiary of FAI Insurances Ltd of Australia. FAI owned Metropolitan Life, and Sovereign and FAI/Metropolitan were ranked 10th and 11th among life insurance companies (by annual premiums in force) at the end of 1994 (Independent, 8/3/96, “Life Insurance Top 20”, p.26). Combined, they were reported to be among the top three based on volume of “new individual regular premium business” but about 6th in the 1994 ranking. Metropolitan also owned 38% of listed property investor Newmarket Property Trust and controlled its 29% owned rest home operator Metropolitan Lifecare – which had been in trouble with the Securities Commission which found shortcomings in a prospectus issued by it in 1994. It referred to “the inexperience of directors, their delay in warning investors of the likely prospectus shortfall, and the inadequacy of the company’s management and management information systems. Company advisers were also criticised.” (Press, “Sovereign to buy Met Life”, 16/3/96, p.27; 27/4/96, “MetLife will look into commission’s findings”, p.28; 29/4/96, “Master trusts yet to take hold in New Zealand”, p.34.) In May 1996, Sovereign Financial Services Ltd, a subsidiary of Sovereign Assurance Holdings Ltd, by then “approximately 47.2% owned by offshore investors”, received OIC approval to buy up to 100% of S.H. Lock (NZ) Ltd, a subsidiary of S.H. Lock Consolidated Ltd of the U.K.
Azimuth Consultants bought out by Intelligroup of the U.S.A.
Intelligroup Inc of the U.S.A. has approval to acquire the Azimuth Group. Locally owned and independent, Azimuth was one of the country’s best respected information technology management consulting groups. The acquisition, for $29,756,370, includes Azimuth Holdings Ltd, Azimuth Consulting Ltd, Azimuth Corporation Ltd, and Braithwaite Richmond Ltd. The vendors are David Anthony Stott and Alexander Wilson, each with 50%. The OIC reports that “… the Azimuth Group provides business planning and management consulting services and information delivery services to a wide ranging client list of multi-national, national and regional organisations in both the private and state sectors. Intelligroup states it wishes to expand its Australasian and Asian operations. … the proposed acquisition will provide Intelligroup with a strong New Zealand base with additional offshore operations in Australasia and Asia. … the acquisition will also complement the existing operations of Intelligroup in Australasia and Asia and will provide a significant broadening of the locations from which Intelligroup will be able to offer its services.” Reuters reports that Azimuth has a staff of about 100 (most of them highly experienced and qualified), while Intelligroup employs over 1,300 people around the world (Press, 1/12/98, “NZ consultancy sold”, p.26).
Refusal reversed: sale of Maruia land to Canadian approved
In June 1998, Leroy Downs Ltd, owned by Joseph Asch, a citizen of Canada, had an application to acquire land for deer farming in Canterbury refused. It was “not considered to be in the national interest”. Most other details were suppressed. Without further explanation, that refusal has now apparently been reversed. Leroy Downs Ltd has approval to acquire 82 hectares of land at West Bank Road, Maruia, Canterbury, which adjoins conservation land, from P. R. Quedley for $365,000. It will be used for deer farming with another block of land at Maruia already owned by Asch. That land is 133 hectares and its purchase was approved by the OIC in February 1995, for $485,000, via the holding company Lichfield Nominees No. 37 Ltd. As in the 1995 decision, the land will be managed by Mr and Mrs Brown who live in the Maruia Valley. The new piece of land will be leased to the Browns, enabling them, says the OIC, to double their farm turnover and make one economic deer farming unit. Mr Brown had previously had to undertake contract work off the property to supplement his income. “The opportunity would not have otherwise been available to the Browns … without the help and financial support of Mr Asch.” Put another way, the farmers can longer afford to own their own farm.
Retrospective approval for land sale for gold mining at Earnscleugh, Otago
Retrospective approval has been given for the Earnscleugh Joint Venture to acquire three hectares of land at Earnscleugh, Central Otago for metal ore mining at a price of $369,500. The joint venture consists of Perilya Mines NL of Australia (82.35%) and March Mining (Central) Ltd of Aotearoa (17.65%). The OIC says that “In 1996, Perilya (through its subsidiary Mintago Investments Ltd) and March entered into a joint venture agreement (being the Earnscleugh Project) to establish a substantial gold mining operation in central Otago. The property was acquired as part of the initial acquisition. However, due to an oversight by legal counsel acting on behalf of the applicant, formal consent was not sought for this parcel of land at that time.” In the original approvals, 408 hectares were acquired in 18 blocks of land. The amount paid in most cases still remains suppressed by the OIC. In April 1998, the OIC gave approval for the 2,574 hectare Earnscleugh Station in Central Otago to be sold to the Earnscleugh Joint Venture for $1.5 million. It was stated that the mine will require only a 50 hectare area of the station, forming part of the Earnscleugh Flats. The joint venture was negotiating to sell the balance of the land. See our commentary on that approval for further details of the mining project.
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