Foreign investment in Aotearoa/New Zealand
Overseas Investment Office – February 2010 Decisions
Kraft Takeover Of Cadbury
The most significant approval for February, although not directly involving a sell-out by NZ shareholders was Kraft Foods’ takeover of Cadbury. Specifically, Kraft Foods Inc United States of America (99.1%), United Kingdom (except Isle of Man and the Channel Islands) (0.9%) has received approval for an overseas investment in sensitive land, being the Applicant’s acquisition of rights or interests in up to 100% of the shares of Cadbury Plc which owns or controls: a freehold interest in 5 ha of land at 470 – 500 Rosebank Road, Auckland; and a freehold interest in 2.2 ha of land at 280 Cumberland Street Dunedin.
And an overseas investment in significant business assets, being Kraft’s acquisition of rights or interests in 100% of the shares of Cadbury Limited, the value of the assets of Cadbury Limited and its 25% or more subsidiaries being greater than $100m. The asset value was to be advised. The vendors were Existing shareholders of Cadbury Plc United Kingdom (except Isle of Man and the Channel Islands) (78%), United States of America (22%). The OIO states:
“The Applicant manufactures and sells packaged food and beverages worldwide. The Applicant has made an unsolicited offer to Cadbury Plc shareholders to acquire all the shares in Cadbury Plc. The Application relates to an international transaction of which the New Zealand component is just one element. As part of the transaction, the Applicant will purchase Cadbury Limited in New Zealand, which has assets in excess of $100 million, and also owns sensitive land. The Asia Pacific region has been identified by the Applicant as a region for growth potential. If this ambition is realised, jobs will likely be created or retained. New Zealand is likely to benefit from improved relations with the United States as a result of the Investment. Declining consent would also likely result in New Zealand’s international business image being adversely affected” (the 2005 Overseas Investment Regulations, in the section “Other Factors For Assessing Benefit Of Overseas Investment In Sensitive Land”, include: “whether refusing the application for consent will, or is likely to, adversely affect New Zealand’s image overseas or its trade or international relations” and/or “result in New Zealand breaching any of its international obligations”. Ed.).
That last sentence reads almost like a threat, perhaps to a Free Trade Agreement with the USA, which is a good enough reason in itself to decline the deal! As for the promise of jobs being created – fat chance (the fat involved being palm oil, not cocoa butter). Kraft would only be doing this deal if it felt savings (i.e. job redundancies) could be made within Cadbury’s operation, or synergies found with Kraft’s existing operations (i.e. job redundancies in both organisations). Concern has also been expressed about the future of Cadbury’s relationship with the Fairtrade Foundation and its support of cocoa farmers in Ghana.
And sure enough, it wasn’t long before the media started reported imminent job losses at Cadbury. As reported by Jill Treanor in the Guardian (26/5/10, “Kraft rebuked for broken pledge on Cadbury factory”): “US food conglomerate Kraft has been censured by the body that polices City (of London) takeovers for breaking the promise it made during the five month battle to buy Cadbury to keep its Somerdale factory in Somerset open. The decision by the Takeover Panel to issue its first public reprimand for three years also sparked the resignation of its new director general, Peter Kiernan, who had advised Kraft on its £11.6 billion hostile takeover of Cadbury. Kiernan was the main adviser at Lazard in London, the investment bank representing Kraft in the City. While the bank did not receive the same public censure as its client, it is understood to have received a private one behind the scenes after the panel ruled Lazard had ‘failed to discharge fully its responsibilities’ in ensuring information released by Kraft was verifiable.
“A senior and highly regarded banker is appointed as director general of the Takeover Panel every two years and acts as a poacher turned gamekeeper to monitor bankers’ and companies’ adherence to the rules designed to protect shareholders from being misled by companies during takeovers. The Takeover Panel’s ruling was based on Kraft’s promise in official Stock Market announcements that the UK would be a ‘net beneficiary in terms of jobs’ and its statement that, if it took over Cadbury, it would be ‘in a position to continue to operate the Somerdale factory… and invest in Bournville’.
“The bid succeeded on 2 February but Kraft subsequently said a week later that it could not keep Somerdale open because Cadbury had already spent more than £100m in transferring production from it to Poland. The Panel concluded that while it accepted Kraft had an ‘honest and genuine belief’ that it could keep Somerdale open, it concluded the company should have sought more detailed information from Cadbury. Kraft, which first announced its intention to bid for Cadbury in September (09), when it made its first claims about Somerdale, could have taken ‘mitigating action’ to reverse its statement after meeting Cadbury’s management on 18 and 19 January, the Panel said. However, Kraft, even though it was warned by Cadbury management that the plans to close Somerdale were well advanced, did not ask for further information and proceeded with its ‘belief’ that it could keep Somerdale open.
“It is thought that Kraft had hoped the Panel, rather than launching the high profile censure, would instead issue general guidance to the Stock Market spelling out how companies should distinguish between their belief of being able to achieve something and their actual ability to do so. Kraft refused to apologise even though it had been forced into a humiliating public apology at the Business Select Committee in March when Marc Firestone, the company’s executive president, used the word ‘sorry’ three times. The MPs on the Committee later lamented what they called the ‘woeful handling’ of the closure of the Somerdale plant and said that the company had acted both ‘irresponsibly and unwisely’.
“Today Firestone preferred to use the term ‘regret’. He added: ‘We have decided to accept publication of the Panel’s decision rather than proceed to an administrative appeal. We believe it’s best for everyone to put this matter behind us so we can focus our energy on doing what’s most important now. We regret that, once we had full information, it was not feasible to keep Somerdale open, as we’d originally believed possible. Even though we never made a promise or a commitment to keep the facility open, we recognise that our statement of belief created uncertainty among Somerdale employees’, Firestone added. In accepting the Panel’s decision, Kraft said it now wanted to work with others to try to redevelop the Somerdale site, where the closure threatens 400 jobs.
“Kiernan had been due to take up his appointment as director general on 1 March but this was delayed by the ongoing Kraft takeover, during which Robert Hingley, who had been appointed director general of the Panel in December 2007, agreed to stay on. While a new director general is sought, Philip Remnant will return to the role he first held between 2001 and 2003. The panel said: ‘Peter Kiernan has … decided to withdraw his candidacy for the role of director general following the resolution of the Panel’s investigation into [the deal]’. The last public rebuke issued by the Panel was in November 2007, when Australian hedge fund manager Monterrey Investment Management was censured for failing to disclose share trades on time”.
In New Zealand Cadbury’s has a significant manufacturing plant in Cumberland Street, Dunedin and is one of the city’s largest employers. Concerns for Dunedin employees were summarised by Mark Price in the Otago Daily Times (7/4/10, “Cadbury staff to taste Kraft style”): “Workers at Dunedin’s Cadbury chocolate factory will get a taste of the management style of the new owners when negotiations over a new collective agreement begin in the next few weeks. The 186-year-old British chocolate company was sold to United States food giant Kraft, for $27.4 billion, in February.
“Otago Service and Food Workers Union spokesman Neville Donaldson said yesterday the current agreement with Cadbury expired in August (09) and the union had initiated the process that would lead to negotiations with the new owner. Mr Donaldson said the negotiations would enable the union to raise some issues with Kraft, including job security, the relevance of previous agreements with Cadbury and the likelihood of further restructuring. There was concern among workers about the future of the plant, which has just gone through a major upgrade as a result of a decision made by the previous Cadbury management. ‘Now we’ve got Kraft . . . a whole new group of people who look at things significantly differently’.
“He believed there were ‘a lot of arguments’ for the Dunedin plant to have a future, ‘but whether they are arguments Kraft are prepared to consider or listen to is another matter’. Mr Donaldson said he had been in contact with the new Dunedin operations manager, Peter Lennox, who had replaced long-standing operations manager John Booth. Mr Lennox was unavailable to speak to the Otago Daily Times yesterday and is travelling to Kraft’s Cadbury headquarters in Melbourne t oday. A Kraft spokesman in Melbourne did not return calls to the ODT yesterday”. See our October 2005 commentary regarding Kraft’s sale of Craigs and Chesdale brands to HJ Heinz and the history of Kraft in New Zealand generally.
Decision # 200920094
35% Of Matariki Forest Goes To Phaunos
Phaunos Timber Fund Limited United Kingdom (except Isle of Man and the Channel Islands) (34.4%), Luxembourg (29%), Sweden (7.2%), Netherlands (5.2%), Kuwait (3.5%), Denmark (3.5%), Various (3.4%), Norway (2.7%), Ireland (2%), Switzerland (1.7%), Channel Islands (1.6%), Italy (1.3%), France (1.2%), Spain (1%), Germany (0.9%), Belgium (0.8%), United States of America (0.3%), Iceland (0.2%), Austria (0.2%), India (0.02%) received approval to acquire rights or interests in 35% of the shares of Matariki Forestry Group which owns or controls: a leasehold interest in 13,770 ha of land in the Northland, Bay of Plenty and Gisborne/Hawkes Bay regions; and a freehold interest in 78,617 ha of land in the Northland, Bay of Plenty and Gisborne/Hawkes Bay, Manawatu, Marlborough, Otago and Southland regions.
Approval was also received for an overseas investment in significant business assets, being Phaunos’ acquisition of rights or interests in 35% of the shares of Matariki Forestry Group, the consideration of which exceeds $100m. The vendors were Existing Shareholders of Matariki Forestry Group Australia (60%), United States of America (40%); the consideration for the deal was $167,000,000. The OIO states: “Matariki Forestry Group (MFG) is the sole shareholder of Matariki Forests (MF). MF is the registered proprietor of more than four hundred land titles/computer registers which collectively form the Matariki Forestry Estate. There are currently two overseas investor shareholders in MFG, being a United States company Rayonier Canterbury LLC (40%) and an Australian company Matariki Forests Australia Pty Limited (60%) (Existing Investors).
“Phaunos Timber Fund Limited (Phaunos) proposes to subscribe for shares which will result in Phaunos holding indirectly (through Waimarie Forests Pty Ltd) approximately 35% of total issued Class C ordinary shares and 35% of redeemable shares in MFG. Phaunos fully supports Matariki’s current business operation in New Zealand and does not propose to obtain a controlling interest in Matariki. Phaunos considers itself to be a co-investor and is dedicated to lending its financial and technological resources to Matariki”.
A summary of the deal was reported by the National Business Review (26/12/09): “Matariki Forests has signed an agreement with Phaunos Timber Fund for a $167 million investment in the Matariki Forestry Group, subject to Overseas Investment Office approval. Matariki Forests owns the third largest forest estate in New Zealand, comprising 140,000ha. It is owned by a consortium and is managed by Rayonier New Zealand. The business was withdrawn from sale earlier (in 09), apparently because buyers had difficulty with funding. The forests are spread around the country. The investment was welcome as it underlined a positive outlook for the company, said Paul Nicholls, managing director of Rayonier New Zealand.
“Phaunos Timber Fund is an investor in timberland and timber related assets managed by FourWinds Capital Management, based in Boston. Foreigners have been big investors in New Zealand plantation forests, which are regarded as among the best in the world. Large forest investment companies already in New Zealand include Hancock Timber Resource Group. US forestry company Rayonier owns about 40% of Matariki, AMP Capital Investors and Deutsche Bank’s REEF Infrastructure fund are also investors”. See our August 2005 commentary for details of Matariki’s original purchase of 92,000 ha, and AMP’s buy into Matariki in June 2006.
Decision # 200920086
SkyCity Cinema Becomes Aussie-Owned
Amalgamated Holdings Limited Australia (100%) received approval to acquire rights or interests in 100% of the shares of SkyCity Cinema Holdings Limited which owns or controls a leasehold interest in 0.35 ha of land at 291 Queen Street, Auckland. The vendor was SkyCity Metro Limited New Zealand (69.3%), Australia (30.7%); consideration was $61,100,000. The OIO states:
“The Applicant has agreed to purchase the SkyCity cinemas business, which has an interest in sensitive land in Queen Street, Auckland. The cinema division of the Applicant’s group is currently the largest cinema exhibitor in Australia and Germany. The Applicant intends to maintain and develop the Queen Street property as a multi screen cinema complex. The investment will benefit New Zealand by introducing new technology and business skills into New Zealand. The Applicant is a key person in the cinema industry, and declining consent would likely adversely affect New Zealand’s image overseas. The Applicant’s group has a history of successful previous investment in New Zealand through the Rydges hotel chain”.
I doubt that declining this application would adversely affect New Zealand’s image overseas. Apart from hotel interests here (see our June 1998 commentary), Amalgamated Holdings Limited (owned by the Black family) is the ultimate parent company of Craigpine Timber Limited which owns approximately 3,555 ha of land primarily in radiata pine forestry in the Southland region as well as a sawmill. See our June 2008 commentary for more details. Details of the above deal were reported by Tamsyn Parker (NZ Herald, 8/1/10):
“SkyCity has boosted the final sale price of its cinema assets to Amalgamated Holdings by $2 million by including its Fiji real es tate in the deal. The casino operator yesterday confirmed the previously announced deal to sell its 113 screens to the Australian cinema operator after weeks of due diligence. The only condition yet to be fulfilled is approval from the Overseas Investment Office. SkyCity had previously said the sale was worth $59 million but yesterday increased it to $61.1 million. Chief executive Nigel Morrison said the extra value had come from its agreeing to sell real estate associated with its Fiji cinema business, which was included in the sale. Morrison said the company had been in talks to sell the real estate to another party but Amalgamated had decided it wanted the complexes too.
“The deal with Amalgamated does not include SkyCity’s 50% stake in ticketing software company Vista Entertainment Solutions or its freehold land in New Zealand – which consists of a cinema and retail complex in New Plymouth. But Morrison said SkyCity was also hoping to sell those assets in the next six months which would help the company realise a further $8.9 million, bringing the total to $70 million. ‘We hope to have it all wrapped up by June 30’. Morrison said the proceeds of the sale were small compared to the size of SkyCity’s total business but would likely be used to repay debt. However he did not rule out a potential acquisition in the future. Morrison said he expected Amalgamated to rebrand the cinemas within six months of taking them over. The parties are aiming to complete the transaction by February 18. SkyCity paid around $100 million to buy into the Village cinema business in 2001 and spent a further $50 million five years later to take full control. It wrote the business down by $60 million in the 2008 financial year”.
Decision # 200920097
US Company Takes Over Flock Hill Station Lease
Flock Hill Holdings, an unlimited New Zealand company New Zealand (75.1%), United States of America (24.9%) received approval to increase in the shareholding of United States company Coast Range New Zealand LLC from 24.9% (up to 100%) in Flock Hill Holdings, which is the registered proprietor of “Flock Hill Station” comprising: a leasehold interest in 13,988 ha of land at State Highway 73, West Coast Road between Castle Hill Village and Cass; and a freehold interest in 28.7 ha of land at State Highway 73, West Coast Road between Castle Hill Village and Cass.
The vendor was Existing shareholders of Flock Hill Holdings other than Coast Range New Zealand LLC New Zealand (100%); consideration was $5,273,000. The OIO states: “The Applicant currently owns “Flock Hill Station”, a Canterbury high country farm. The Station consists of some 14,000 ha located on State Highway 73. It consists mostly of leasehold land leased from the Freehold owner (being the University of Canterbury). The overseas investment transaction consists of an internal share restructure of the Applicant whereby one of three existing shareholders (US Company Coast Range New Zealand LLC – ‘Coast Range’) will increase its shareholding from its current 24.9% up to 100%. These shares will be acquired from the two other existing New Zealand shareholders. The overseas investment will provide further funds for the continued development of ‘Flock Hill Station’. This development will be carried out in accordance with a professional farming plan prepared by independent farm consultants”.
Decision # 200920041
Other February Decisions
Mauro Balzarini Italy (100%) received approval to acquire a freehold interest in 4.5 ha of land at Lot 14 Olivers Ridge, Elysium Way, Queenstown. The vendor was Alexander Douglas Naismith Blyth and Tara Blyth United Kingdom (except Isle of Man and the Channel Islands) (100%); consideration was $975,000. The OIO states: “The Applicant has business dealings in New Zealand through Wellard Group Holdings Pty Limited’s subsidiary, Wellard NZ Limited, which requires him to spend approximately two months of each year in New Zealand. The Applicant recently established a residence in New Zealand in order to further his business interests here. The Application relates to a piece of land adjoining that he previously purchased.
“Wellard Group Holdings Pty Limited’s intention is to develop its New Zealand exporting business, with a focus on the export of breeding cattle, meat cattle and sheep. It views New Zealand as strategically important as New Zealand produces agricultural products that are in high demand throughout the world. Wellard Group Holdings has built a very successful business in Australia and intends to replicate this in New Zealand. The Investment will benefit New Zealand by enhancing and protecting areas of indigenous vegetation. The Applicant has also offered to contribute to the Wakatipu Trails Trust, and is a key person in the shipping and livestock industries”. See our April 2009 commentary for details of another land purchase in Queenstown by Balzarini.
Decision # 200920077
Gastronomad Trust United States of America (100%) received approval to acquire a freehold interest in 1.4 ha of land at 58 McMillan Rd, Katikati. The vendors were Anthony Ian Gallaugher and Jennifer Jane Gallaugher New Zealand (100%); consideration was $759,000. The principal beneficiary of Gastronomad is Erik Wolf who is resident in Oregon, USA. He intends becoming a New Zealand resident.
Decision # 200920101
And finally for February, a confidential decision. All we know at this stage is that the applicant is an Aussie (100%), the vendor a Kiwi (100%), and the criteria for which the OIO was satisfied, namely: “The overseas investment transaction has satisfied the criteria in sections 16 and 18 of the Overseas Investment Act 2005. The ‘benefit to New Zealand’ criterion was satisfied by particular reference to the following factors:
Overseas Investment Act 2005
- 17(2)(a)(i) – Creation/Retention of jobs
- 17(2)(a)(iv) – Added market competition/productivity
Overseas Investment Regulations 2005
- 28(c) – Affect image, trade or international relations”.
Decision # 200920103
Summary Statistics February 2010
Asset Value
| February 2010 | Jan-Feb 2010 | Jan-Feb 2009 | |
|---|---|---|---|
| Number of approvals | 7 | 12 | 22 |
| Net Investment $ | 48,355,970 | 141,508,058 * | Confidential |
| Gross value of consideration | 235,107,000 | 439,568,251 * | Confidential |
| Asset Value | Confidential | Confidential | Confidential |
* Stated as confidential by the OIO, but calculated by CAFCA from subsequent OIO tables
Freehold land approved for sale
| February 2010 | Jan-Feb 2010 | Jan-Feb 2009 | |
|---|---|---|---|
| Number of approvals | 5 | 8 | 20 |
| Net land area (ha) | 9 | 1,923 | 1,990 |
| Gross land area (ha) | 78,659 | 80,742 | 2,823 |
Other interests in land approved for sale (for example leases and crown pastoral leases)
| February 2010 | Jan-Feb 2010 | Jan-Feb 2009 | |
|---|---|---|---|
| Number of approvals | 4 | 4 | 5 |
| Net land area (ha) | Confidential | Confidential | 209 |
| Gross land area (ha) | 0 | 25,980 | 25,980 |
Applications declined
| February 2010 | Jan-Feb 2010 | Jan-Feb 2009 | |
|---|---|---|---|
| Number of Declines | 0 | 0 | 0 |
| Total proposed purchase price ($) | 0 | 0 | 0 |
| Total proposed area to be acquired (ha) | 0 | 0 | 0 |
Fishing Quota
As usual there was no fishing quota approved for sale this month.
Campaign Against Foreign Control of Aotearoa,
P.O. Box 2258
Christchurch.