Foreign investment in Aotearoa/New Zealand
Overseas Investment Office – May 2010 Decisions
German banking behemoth snaps up Craigs Investment Partners
A busier month at the OIO dominated by deals in the financial sector. Firstly Deutsche New Zealand Limited German Public (46%), various overseas persons (32%), United States Public (16%), and Swiss Public (6%) received approval for an overseas investment in significant business assets, being the Applicant’s acquisition of rights or interests in 49.9% of the ordinary shares of Craigs Investment Partners Limited, the value of the assets of Craigs Investment Partners Limited and its 25% or more subsidiaries being greater than $100m. The asset value was stated as $4,708,500,000. The vendors were existing shareholders of Craigs Investment Partners Limited New Zealand Public (100%).
The OIO states: “The Applicant is an indirect, wholly owned subsidiary of Deutsche Bank Aktiengesellschaft, a company incorporated under the laws of the Federal Republic of Germany. The Applicant provides investment banking, asset management and private client advisory services in New Zealand, in areas such as global banking, private wealth management and research. The Vendor is one of New Zealand’s largest investment services firms, offering investment advisory solutions to private investors and wholesale financial services to institutions and corporate clients. The Applicant has entered into an implementation deed with the Vendor and certain existing shareholders of the Vendor to acquire 49.9% of the ordinary shares of the Vendor by means of a High Court approved scheme of arrangement. The Investment will strengthen both the Applicant’s and the Vendor’s range of products and services able to be offered to their clients. The Investment will also enable the Applicant to gain access to the Vendor’s local distribution network in New Zealand”.
Garth Vaughan of the Manawatu Standard reported background to the deal 9 February 2010.
“Global giant Deutsche Bank is understood to be eyeing a slice of local share broking firm Craigs Investment Partners. BusinessDay understands a restructure is underway at Craigs Investment Partners with Deutsche Bank tipped to take a stake of between 20 percent and 30 percent.
News of Deutsche Bank’s interest comes less than a year after Craigs employees took 100 percent ownership of their firm, formerly known as ABN Amro Craigs, by buying a 50 percent stake from Royal Bank of Scotland. That deal came as Royal Bank of Scotland exited its New Zealand business last April which had operated under the ABN Amro name.
Both Frank Aldridge, Craigs Investment Partners’ managing director, and Brett Shepherd, Deutsche Bank’s New Zealand chief executive of global banking, declined to comment.
Deutsche buying into Craigs could see some job losses with Deutsche tipped to take on Craigs’ investment banking work. It may also mean changes to the ongoing relationship the kiwi firm has with Royal Bank of Scotland given potential for a new alliance with Deutsche.
Currently Craigs and Royal Bank of Scotland’s Australian operations share and swap equity research, undertake share broking work for each other and strive to work together on trans-Tasman investment banking opportunities. In New Zealand Deutsche Bank offers investment banking, asset management and private client advice services. However, it does not currently have any wholesale or retail operations here.
The Frankfurt-headquartered Deutsche Bank last week reported 2009 net profit of 5 billion euros (NZ$9.9b), reversing a 3.9b euros loss in 2008. Fourth quarter profit alone was 1.3b euros. Deutsche Bank chairman Dr Josef Ackermann said the group had taken decisive strategic action in 2009 to overcome the global financial crisis and was well placed for both the challenges and opportunities of 2010.
Craigs Investment Partners was founded by Neil Craig as Craig & Co in 1984.”
Craigs Investment is one of New Zealand’s largest investment advisory firms, with a range of products and services for both private investors and corporate clients. Its services include investment advice and management, research, cash management, securities trading, institutional dealing and investment banking. In March 2010 Craigs Investment Partners launched the New Zealand Social Infrastructure Fund to raise up to $125 million for PPPs in “social assets”, such as building prisons, schools, hospitals and other social infrastructure. The fund hopes to get an 11% annual profit. (See Murray Horton’s excellent article, “Stop Thief The not so secret agenda to steal NZ peoples assets”.)
Deutsche Bank has an even dodgier history. As we reported in December 2008, Deutsche Bank went through a very messy US$10.1 billion forced marriage with Bankers Trust – messy because, before the takeover could be completed, Deutsche Bank had to settle up for its financing of concentration camps and profiting from their victims’ slave labour and expropriation of their assets during WWII. A takeover was reportedly more or less forced on Bankers Trust because of its losses in speculation during the Asian financial crisis – it has a reputation for being one of the more aggressive and risk-taking of the large U.S. banks. See our commentary in November 1996 for Bankers Trust exploits in this country.
NAB tries to nab AXA
National Australia Bank Limited Australia (100%) received approval for the acquisition of rights or interests in 100.0% of the ordinary shares of AXA Asia Pacific Holdings Limited, the value of the assets of AXA Asia Pacific Holdings Limited and its 25% or more subsidiaries being greater than $100m. The asset value was stated as $412,512,750; the vendor was AXA SA French Public (53.9%) and Australian Public (46.1%).
The OIO states: “AXA Asia Pacific Holdings Limited (AXA APH) directly or indirectly owns a number of subsidiaries which carry on businesses in Australia, New Zealand and parts of Asia. The proposed acquisition will involve the Applicant purchasing all of the shares in AXA APH held by AXA SA (AXA APH’s parent company based in France and majority shareholder) and, through a scheme of arrangement, acquiring the remaining shares from AXA APH’s minority shareholders. Upon completing the proposed acquisition, it is proposed that AXA SA will buy back the Asian businesses of AXA APH from the Applicant. The Applicant considers that the acquisition of AXA APH will help grow the Applicant’s business in wealth management and financial protection so as to deliver the best possible products to clients and advisers within both Australia and New Zealand”.
While the OIO here in New Zealand maybe ok with this deal, the Australia’s Competition and Consumer Commission or ACCC, the equivalent of our Commerce Commission, is clearly not comfortable with this takeover. As reported by the AFP on 12 September 2010,
“National Australia Bank (NAB) said “all options” were on the table regarding takeover target AXA Asia Pacific and it was close to deciding whether to push ahead with its failed bid.
NAB’s 12.2 billion US dollar offer for AXA’s Australia and New Zealand businesses was rejected by competition officials for a second time Thursday over fears it would shrink the local financial services industry. Analysts expect NAB to walk away from the bid because AXA’s value has slipped since the initial offer, but bank spokesman Steve Tucker said it was still mulling whether to make a court challenge or further amendments.
“All the options are being considered at this stage,” Tucker told ABC television. “That’s the sensible thing to do, just to take our time and think it through, and we’ll make a pretty timely decision over the next few days.”
Tucker said NAB had done “quite a lot” to try to address the concerns of Australia’s Competition and Consumer Commission (ACCC) since it knocked back the bank’s initial offer in April, and it disagreed with the second rebuff.
“You have to be careful to get the balance between satisfying the concerns of the ACCC and keeping the integrity of the value of the deal in place,” Tucker said. “We thought we’d done that with a good package. We were disappointed to get the no decision.”
ACCC deputy chairman Peter Kell said AXA was emerging as a “vigorous and effective competitor” and the merger would have “taken them out of the picture.” Kell said NAB’s offer to divest key technology did not go far enough because the bank would still have taken AXA’s distribution network and products and benefited from the “significant investment” it had made building a profile.
Under the arrangement, French parent company AXA SA would have taken charge of its subsidiary’s Asian arm, while NAB would control the Australian and New Zealand businesses. Rival suitor AMP made an initial 11.5 billion US dollar offer which was elbowed aside by NAB, and it has said it still considers the deal “strategically attractive” at the right price.
Kell said the ACCC didn’t “have the same competition concerns about AMP,” and would not oppose its bid. “But ultimately whether AMP wants to take some further steps now is entirely up to them,” he said.”
A few days earlier, Peter Taylor of the Herald Sun speculated the NAB might go after AIA after having its bid for AXA-Asia Pacific rejected, and which you will see from the next OIO approval, AIA already has another suitor.
Specifically, Taylor reports:
“National Australia Bank is believed to be eyeing the local arm of global insurer AIA Group in the wake of the competition watchdog blocking its bid for AXA-Asia Pacific. The bank is said to be contemplating a move on the life insurer as it looks for bolt-on acquisitions as a consolation prize for AXA.
AIA’s Australian operations were “just a pimple” in the context of its sprawling Hong Kong-based life insurance parent but still worth several hundred million dollars, a source said.
American International Group, the New York-based company bailed out by the US government at the height of the global financial crisis, owns AIA and is planning to float the pan-Asian group as part of a catalogue of sales to reduce its debt to the US taxpayer. Like AXA, AIA runs its Australian business out of Melbourne.
Speculation that NAB, also Melbourne-based, will move on the AIA business comes after the Australian Competition and Consumer Commission yesterday again blocked the bank’s $13.3 billion takeover of AXA, reviving the possibility that AMP could swoop on the wealth management group…”
And John Durie of the Australian on September 10 under the heading “Watchdog ruling on NAB draws line in the sand on big bank takeovers” underlines why the ACCC rejected this takeover.
“NAB shareholders should thank ACCC boss Graeme Samuel for saving them from the potential nightmare of the AXA takeover. Not that the bank would see it quite this way, as Westpac and others are devoting efforts to marry wealth management arms with their bank distribution systems, and can do so without running foul of the watchdog.
The decision underlines a clear line in the sand against big bank takeovers, with the ACCC effectively putting a halt to any meaningful acquisition by one of the big four.
Just how AMP plays the game from here is the wild card: local AXA chairman Rick Allert is not about to give his realm away, so if his French parents don’t come to the party the status quo might remain. That at least is where tension will now lie, between the 53 per cent-owned Australian AXA and the French parent keen to buy its Asian assets.
Even though the ACCC left the door slightly ajar by suggesting more distribution muscle could have swung its decision, NAB presumably has by now given up. It wanted to build wealth management power in part to offset the need to tap offshore markets to support its basic banking franchise. But there are better ways to do that than overpaying for integration nightmares like AXA.
The concept of co-ordinated effects has once again reared its head with the ACCC in making this decision. This being the idea that a merger in an already concentrated market would make it more likely for industry participants to collude. Thanks for the newsflash, Einstein.
The reality is Australian industry is already highly concentrated and the scope for collusion obvious. The ACCC has had enough and financial services mergers involving the big four are now effectively off limits.
Sadly, the process by which it came to this decision was nothing short of a disgrace. It was compounded by the forced decision of Samuel to excuse himself from the decision because of his involvement in the financial restructuring of troubled shopping centre group DFO. Samuel’s involvement with DFO was just fine because it was declared and known, but he magnified the issue by grandstanding about a blind trust which kept him ignorant of the troubles at DFO. The veracity of the blind trust was questioned and the whole structure was unnecessary.
Now the same questions could be raised about his involvement with the Franklins-Metcash deal also before the ACCC. In any case, there is no doubt the remaining members of the commission would have known exactly where Samuel stood on the issue. If he wanted to approve the deal, it seems unlikely his comrades would vote to reject it.
The original decision to reject the bid on April 19 shocked the market because it followed a series of other big bank takeovers approved by the ACCC, most notably the Westpac-St George deal and the CBA-Bankwest acquisition. While it ran against all precedent, there was an arguable case for the regulator to stop big banks getting bigger, but the excuse used for doing so was spurious.
The ACCC said it was concerned about lessening competition in the sophisticated platform market, and spent four months negotiating with NAB on a way to solve the problems. This involved letting IOOF have access to the North technology and assets for three years to allow it to grow to sufficient scale to be a better competitor. But even that process was flawed because it relied on IOOF doing everything. Yet NAB was the party contracted to the ACCC to ensure it worked.
In short, it was a nonsense and the overwhelming market view was that it would have zero effect on competition. That being the case, it beggars belief that the ACCC would drag NAB through to a flawed end and then unceremoniously slap it down.
NAB’s Cameron Clyne and his lawyers at Freehills would rightly be angered by the process. Particularly as they would have been better served by taking the ACCC to court and forcing it to justify its stance.
Just what went on in talks between NAB and its lawyers through this process would be illuminating, because the ACCC, for its part, claims to have been totally transparent. Few would agree. The market would have been served better by the ACCC simply declaring its hand at the beginning.
Samuel is not often cast as the hero by losers in a bid, at least initially. But, just as Toll’s Paul Little made a fortune when he was forced to divest Asciano shares at the top of the market, so it is that NAB shareholders have been saved. Clyne spent much of last year hoovering up financial services assets, including Aviva, part of Challenger and the House of Were, all sound and well-placed moves.
But the spending spree hit overdrive with the planned $4.6 billion acquisition of the Australian leg of AXA, which would have been an integration nightmare. And its long-term returns were uncertain.
Shareholders expressed their support for the failed deal yesterday, with NAB’s stock price climbing 3.7 per cent to $24.84 a share. AXA, as expected, continued to slide, losing 6.6 per cent to $5.08. And, as noted yesterday, the stock price falls on Monday and Tuesday should certainly raise concerns with the corporate plod, given the potential for inside leaks on the trade.
NAB would also be aggrieved by the timing of its rejection after the ACCC had allowed its northern competitors to bulk up. Then again, the ACCC can hardly be blamed for different commercial decisions taken within the bank oligopoly….
Over in Indonesia, the anti-trust regulators have taken a different tack to merger regulation. Under new laws, all sizeable mergers have to be notified after they happen and the parties will be fined up to $US2.8 million ($3.02m) for failing to do so. The fines work out at $US112,000 a day for each day there is no formal filing. Just what the authorities do about the merger then is another question altogether.
The ACCC and other anti-trust authorities do their best to stop anti-competitive mergers before they happen, because it is sometimes hard to pull them apart.”
It is hard to see the New Zealand financial services market being any less concentrated than Australia’s so we must have faith the our Commerce Commission would have rejected this merger also if it came before them? Here in New Zealand, NAB operates in the name of its subsidiary BNZ which it acquired in 1992, not long after a government bailout.
See our November 2001 commentary for details of AXA’s purchase of Sterling Grace Portfolio Management Group. Sterling Grace operates as Spicers in New Zealand and Monitor Money in Australia.
So how Prudent is this deal?
Given Australian media speculation about National Australia Banks’ (NAB) potential interest in AIA, the following OIO applicant may just have a battle on its hands, although sadly not with the OIO. The OIO continues to rubber stamp almost everything that comes before it. The battle as it turns out was with Uncle Sam, and Uncle Sam doesn’t like losing!
Back to this OIO approval. Prudential Group plc United Kingdom (44%) United States (27.3%) Norway (2.8%) Japan (1.4%) Netherlands (1.3%) China (1 %) Germany (1%) and various overseas persons (21.2%) received approval to acquire rights or interests in 100.0% of the ordinary shares of AIA Group Limited, the value of the assets of AIA Group Limited and its 25% or more subsidiaries being greater than $100m. The vendor was American International Group Inc through AIA Aurora LLC The AIG Credit Facility Trust (for the benefit of the United States Treasury) (79.8%) i.e. the US taxpayer and various overseas persons (20.2%). The asset value was stated as $119,127,556 as at 30 November.
The OIO states: “Prudential plc (Prudential) has reached an agreement with American International Group Inc (AIG) for the merger of Prudential and AIA Group Limited (AIA), an indirect wholly-owned subsidiary of AIG. Prudential is an international retail financial services company with significant operations in Asia, the United States and the United Kingdom. AIG is a leading international insurance organisation with operations in more than 130 countries and jurisdictions. Prudential believes that the merger of its Asian operations with AIA will create a leading financial services and insurance business with a significant focus on the Asian markets.”
The following description of Prudential is from Wikipedia.
“Prudential was founded on 30 May 1848 in Hatton Garden in London as The Prudential Mutual Assurance Investment and Loan Association providing loans to professional and working people.
In 1854 the Company began selling the relatively new concept of industrial branch insurance policies to the working class population for premiums as low as one penny through agents acting as door to door salesman. The army of premium collection agents was for many many years identified with the Prudential as the “Man from the Pru”. It moved to its traditional home at Holborn Bars in 1879 and converted to a limited company in 1881.
The Company was first listed on the London Stock Exchange in 1924. In 1997 the Company acquired Scottish Amicable, a business originally founded in 1826 in Glasgow as the West of Scotland Life Insurance Company, for $1.75bn.
In 1998 Prudential set up Egg, an internet bank within the UK. The subsidiary reached 550,000 customers within nine months but had difficulty achieving profitability. In June 2000 an initial public offering of 21% was made to allow for further growth of the internet business but in February 2006 Prudential decided to repurchase the 21% share of Egg. Egg was subsequently sold to Citibank in January 2007.
In 1999, M&G, a UK fund management company, was acquired. In June 2000 the Company was first listed on the New York Stock Exchange to help focus on the US market. In October 2004 Prudential launched a new subsidiary, PruHealth, a joint venture with Discovery Holdings of South Africa selling private medical insurance to the UK market.
In April 2008 Prudential outsourced its back office functions to Capita: about 3,000 jobs were transferred (1,000 in Stirling, 750 in Reading and 1,250 in Mumbai). This significant outsourcing deal worth an estimated £40m for an initial three year period built on Prudential’s existing relationship with Capita who took over its Belfast operation in 2006 along with approximately 450 employees in a smaller operational restructure.
On 7 April 2009, it was announced that Prudential was in talks with Manchester United regarding becoming the English football giant’s shirt sponsor in 2010. However, on 3 June 2009, Manchester United announced that it had signed a four year shirt sponsorship deal with American insurance giant, Aon Corporation. The deal is said to be worth £80 million over four years, replacing United’s deal with AIG as the most lucrative shirt deal in history. In 2010, Aon will replace troubled American insurance company AIG, which is restructuring itself having received a $150 billion (£109 billion) bail-out from the U.S. government.”
Well despite not taking over Man U’s shirt sponsorship from AIG, was Prudential going to buy AIA from AIG? Even though the OIO’s statement that an agreement between Prudential and AIG had been reached, talks between Prudential and AIG fell over in May. I suppose getting OIO approval around the same time was prudent. Now NAB seems to have an interest in AIA and Uncle Sam the ultimate owner of AIG will want to put a decent price on AIA to recover US taxpayer bailout billions, which is exactly what it did.
As reported by the Washington Post on 27 September:
“The U.S. Treasury Department may announce plans as early as this week to return American International Group Inc. to independence and recoup taxpayer money from the insurer’s bailout, according to three people with knowledge of the talks.
The biggest part of that strategy is for Treasury to begin converting its $49 billion preferred stake into common stock for sales by the first half of next year, said the people, who declined to be identified because the negotiations are private. The timing of an announcement depends on the pace of talks between regulators and the New York-based insurer, and discussions may extend beyond this week, the people said.
The government is seeking to dispose of its AIG stake as Chief Executive Officer Robert Benmosche, 66, prepares divestitures of two non-U.S. divisions that he said would largely repay the firm’s Federal Reserve credit line. MetLife Inc. said this month its purchase of American Life Insurance Co., for about $15.5 billion, is “on track” to be completed on Nov. 1. AIG may hold an initial public offering of another business, AIA Group Ltd., in October.
The insurer’s objective is to “repay the taxpayers and position AIG, over time, as a strong, independent company worthy of investor confidence,” said Mark Herr, a spokesman for the firm. “We have been in discussions with the U.S. Treasury, the Federal Reserve Bank of New York and trustees of the AIG Trust over the terms of the government’s exit from AIG.”
The insurer and its government overseers are set to discuss terms of the exit strategy by Sept. 29 and may issue a statement after that meeting, said one of the people. Mark Paustenbach, a Treasury spokesman, and Jack Gutt of the New York Fed declined to comment.
AIG would be required to hold at least a 30 percent stake in AIA for the first year after the Asian unit’s listing, according to a preliminary IPO document sent to fund managers today. AIA shares are slated to start trading on the Hong Kong stock exchange on Oct. 29. Hong Kong-based AIA will probably boost pretax operating profit to at least $2 billion for the fiscal year ending Nov. 30, AIG disclosed Sept. 25 after providing the forecast to certain analysts.
AIG, once the world’s largest insurer, was first rescued in September 2008 by the Federal Reserve. After three revisions, the firm’s $182.3 billion lifeline includes a Fed credit facility, a Treasury investment of as much as $69.8 billion and up to $52.5 billion to buy mortgage-linked assets owned or backed by AIG.
The company, which in addition to the Treasury’s preferred stake owes about $20 billion on the Fed credit line, is the only insurer yet to repay its Troubled Asset Relief Program rescue funds. Hartford Financial Services Group Inc. and Lincoln National Corp. repaid their bailouts, and this month Treasury raised more than $900 million selling warrants in the companies.
Treasury Secretary Timothy F. Geithner said last week that the U.S. would “largely get the taxpayers’ money back” from TARP. Estimates for losses on the $700 billion program are shrinking, Geithner said, citing a Congressional Budget Office estimate that TARP would cost $66 billion, compared with $105 billion in an earlier Treasury report.
AIG gained about 24 percent in New York Stock Exchange trading this year. It slipped 4.5 percent last year and plunged 97 percent in 2008, the year writedowns tied to soured housing- market bets forced the insurer to take a rescue.
AIG’s plan to gain independence “could result in the issuance of a large number of additional shares of AIG common stock,” the company said in the Aug. 6 filing. The new securities “could result in significant dilution to AIG’s current shareholders,” the firm said.
The government’s exit from AIG could be modeled after that of New York-based Citigroup Inc., in which the government sold shares through a set trading program, Benmosche has said. Citigroup is still 18 percent owned by Treasury.
AIG’s trustees, a three-person panel, wield the government’s almost 80 percent stake in the insurer and control votes on asset sales, mergers and the selection of top executives. Treasury added two members to AIG’s board of directors this year under an agreement that allowed for the appointments if the company skipped dividend payments on the government’s preferred shares for four straight quarters.
The entire proceeds from the AIA share sale will go to AIA Aurora LLC, an AIG special purpose vehicle, to pay down preference units with a liquidation value of $16 billion owned by the New York Fed, said another preliminary IPO document sent to fund managers and seen by Bloomberg today.”
The AIA IPO suggested in the above article duly went ahead. As reported by Reuters on 22 October:
“AIA, the Asian life insurance arm of AIG raised $17.9 billion (11.3 billion pounds) by pricing its Hong Kong IPO at the top of its range, as investors piled into a company with a wide footprint across rapidly growing Asia. The pricing of the IPO, set to be the world’s third biggest, comes amid a boom of new listings in Asia and puts an end to a long-running saga for American International Group Inc. Its bid to sell AIA and use some of the proceeds to pay back part of a whopping $182.3 billion U.S. bailout it received during the financial crisis began two years ago and included two failed auction attempts and two floatation efforts.
AIA said on Friday the IPO was priced at HK$19.68 each and fully exercised the upsize option, confirming an earlier Reuters report. If the underwriters exercise the overallotment option, the IPO size will rise by 15 percent to $20.5 billion. AIA’s trading debut is set for October 29. “Investors did not dare to miss this jumbo deal, as the market has ample liquidity and the sentiment is very strong,” said Antonny Cheng, a fund manager at Gain Asset Management Ltd.
AIA has been in the Asian region for more than 90 years and operates in 15 markets, with forecast pre-tax operating profit of $2 billion.
Life insurance premiums in Asia-Pacific are forecast to grow at a compound annual clip of 12.3 percent between 2009-2014, Sigma Swiss Re estimates, compared with flat to modest growth in other parts of the world.
Still, the company faces a tough challenge with expanding in China, where the mainland’s top industry players dominate and more foreign competitors are flooding the market.
The IPO will value AIA at $30.5 billion at the top end, with AIG holding a 41.6 percent stake that will drop to 33 percent if the green-shoe option is exercised in full.
“It’s more or less fully valued after the shares were sold at the top end,” said Francis Lun, general manager with Fulbright Securities. “Still one could expect a 5 percent upside on debut.”
AIA sold 5.86 billion secondary shares and exercised the upsize option to sell an additional 1.17 billion secondary shares due to strong demand from investors.
Unlike many other foreign insurers, AIA has 100 percent ownership of its entities in China, Indonesia, Malaysia, Thailand and Vietnam. AIA has more than 300,000 agents in Asia.
“This is a cost effective way for IPO investors to ride China’s growth,” said Francis Gaskins, president of IPOdesktop.com in Marina del Rey, California. Asian IPOs raised $90 billion in the first three quarters, more than double the combined total from the United States, Europe, the Middle East and Africa, according to Thomson Reuters.”
Did prudence get the better of Prudential? Perhaps, but Uncle Sam rightly believes the Asians now have deeper pockets than the English. What’s the bet NAB will now walk away from AIA also.
See our March 1997 commentary for details of Prudential’s’ purchase of NZI life, and our March 2009 commentary regarding Uncle Sams’ bailout of AIG.
Another aperitif for AMP, this time it’s Aperef
AMP Investments New Zealand Property Fund New Zealand (100%) has received approval for the acquisition of rights or interests in 100% of the ordinary shares of APEREF II Limited which owns or controls:
- a freehold interest in 60.9 hectares of land at SH1, Waikanae; and
- a freehold interest in 9.6 hectares of land at Corner Hudson Road and State Highway One, Warkworth.
Approval was also received for an overseas investment in significant business assets, being the Applicant’s acquisition of rights or interests in 100% of the ordinary shares of APEREF II Limited, the value of the assets of APEREF II Limited and its 25% or more subsidiaries being greater than $100m. The asset value was stated as confidential, the vendors were existing shareholders of APEREFF II Limited other than AMP Investments New Zealand Property Fund Australian Public (55.1%), AMP Superannuation Investment Trust, New Zealand (37.1%), New Zealand Public (5.5%), and John O’Sullivan, New Zealand (2.3%).
AMP Investments NZ Property fund is part of the AMP Capital Investment Funds, a unit trust under the Unit Trusts Act 1960. It is a shareholder in APEREF II Limited. APEREF II Limited is a wholesale fund managed by AMP Capital Investors Limited and is an overseas person. APEREF II Limited provides investors with the opportunity to participate in property development and trading investment in New Zealand in the commercial, industrial, residential, retail and retirement villages markets.
The OIO states; “The Applicant acquired further shares in APEREF II Limited (and therefore increased its existing 25% or more ownership or control interest in APEREF II Limited) on nine occasions between 6 July 2007 and 2 May 2008. APEREF II Limited has interests in the securities of Waikanae North Limited and Warkworth Properties 2008 Limited which own sensitive land at Waikanae and Warkworth. APEREF II Limited also has a 50% interest in the securities of Great Northern Developments Limited, the value of the assets of which exceeds $100 million. The Applicant invests in APEREF II Limited to gain exposure to APEREF II Limited’s diverse portfolio of property-related assets. The investment will complement the Applicant’s, and the related entities of the Applicant’s, existing investments and enhance returns to investors. These existing investments include commercial property and residential subdivisions.”
APEREF is an acronym for AMP Private Equity Real Estate Fund. AMP through APEREF and other investment funds already has sizeable property holdings here in New Zealand. See our commentaries for other AMP property purchases here in New Zealand. These include June 2005 (Nelson Mitre10 and Tauranga supermarket), October 2005 (Capital Properties including many government departmental buildings), September 2006 (Bayfair Shopping Centre, Mt Maunganui), March 2007 (Northwood Supa Centre, Christchurch), June 2007 (Palms shopping centre, Christchurch), September 2007 & February 2008 (Lion Nathans site at Kyber Pass, Auckland), May 2008 (Botany Town Centre, Manukau Supa Centre, and Lynnmall Shopping Centre) and AMPs purchase of Summerset retirement villages February 2006.
Devonport Naval Base has a “new” leaseholder
In another overseas share shuffle with particular relevance to our Devonport Naval Base, Babcock International Group PLC United Kingdom Public (76.2%), United States Public (13.5%) and various overseas persons (10.3%) received approval to acquire rights or interests in 100.0% of the ordinary shares of VT Group plc which owns or controls a leasehold interest in 2.1 hectares of land at Calliope Rd and Queens Parade, North Shore, Auckland. Consideration was stated as $4,000,000, the vendors were existing shareholders of VT Group plc United Kingdom Public (85.2%), United States Public (7.1%), various overseas persons (6.5%), and Canadian Public (1.2%).
The OIO states: “The Applicant and its subsidiaries operate global engineering support services across six key divisions – Marine, Defence, Rail, Nuclear, Networks and Engineering and Plant (e.g. one of its subsidiaries manages and operates the naval engineering facility at Devonport Naval Base, Auckland). The Applicant previously managed the NZDF dockyard via its subsidiary Babcock NZ. Babcock NZ provided services to the New Zealand Navy until VT Fitzroy took over this function in 2004.
The Applicant seeks consent to acquire all of the ordinary shares in VT Group plc (VT Group), a United Kingdom listed company, by means of a Court-sanctioned scheme of arrangement, or a takeover of VT Group Plc, in the United Kingdom.
An indirect wholly-owned subsidiary of VT Group, VT Support Services Limited owns 70% of VT Fitzroy Limited which has a leasehold interest in sensitive land situated at HMNZ Naval Base, Devonport, Auckland. VT Fitzroy Limited provides dockyard facilities and engineering services to the New Zealand Navy, other New Zealand defence entities and commercial customers”.
This appears to be a reversal of a deal done in 2004, when VT Group took over the lease from Babcock, see our commentary June 2004. It has come about because of Babcock Internationals recent merger with VT Group.
According to Wikipedia, Babcock International Group plc is is a British-based support services company specialising in managing complex assets and infrastructure in safety-critical and mission-critical environments, particulary defence services. Although the company has civil contracts, its main business is with public bodies, particularly the UK Ministry of Defence and Network Rail. The company has seven UK operating divisions and overseas operations based in Africa and North America. The Company is organised into the following divisions: Airports, Defence Services, Rail, Infrastructure Services, Networks, Nuclear Services, Marine, Africa, VT Group US, VT Flagship Training Ltd. and Eagleton.
Founded in 1891, principally as a boilermaker, it has gradually moved into the supply of defence equipment as a result of rapid expansion during the 2 World Wars in the first half of the 20th Century. In the 1960s the company became involved in the development of the UK’s nuclear power stations. In 2000 Babcock took the strategic decision to move away from manufacturing towards maintaining and supporting the critical equipment and infrastructure of customers. In 2002 Babcock was reclassified on the London Stock Exchange from Engineering to Support Services.
In September 2009 Babcock acquired UKAEA Ltd from the United Kingdom Atomic Energy Authority (UKAEA). This extended Babcock’s existing nuclear skills (bringing additional expertise in waste categorisation, decommissioning of high hazard facilities, encapsulation and storage of hazardous materials and transportation of waste) and provided Babcock with its first operational Tier 1 position in the civil nuclear market and a direct relationship with the Nuclear Decommissioning Authority, complementing its existing Tier 1 position in the military nuclear market.
In March 2010, Babcock announced a merger with VT Group for £1.32bn. The combined companies would create a defence and support services group with sales of £3bn and more than 25,000 employees in Britain, the US and elsewhere.
Babcock International Group plc is not to be confused with Babcock & Brown, a former multi-billion dollar high flying Aussie based investment bank, has been one of the more spectacular casualties of the 2008 credit crunch.
Auckland International Airport buys half of Queenstown International Airport
In a controversial decision, Auckland International Airport Limited various overseas persons (22.9%), New Zealand Public (18.8%), Auckland City Council, NZ (12.6%), NZ Superannuation Fund Nominees Limited (10.2%), Manukau City Council, NZ (10%), Australian Public (7%), HSBC Nominees (NZ) Limited (5.8%), National Nominees NZ Ltd, NZ (5.7%), United States Public (4.4%), and United Kingdom Public (2.6%) received approval to acquire rights or interests in up to 49.9% of the shares of Queenstown Airport Corporation Limited (QACL) through the issue of new shares by QACL, which owns or controls:
- a freehold interest in 23.4 hectares of land at 64 Grant Road, Frankton; and
- a freehold interest in 131.1 hectares of land at Lucas Place, Frankton.
The OIO states; “Effective 8 July 2010, Auckland Airport acquired an initial 24.99% shareholding of the increased capital in QACL by subscribing for approximately 4.0 million new shares at a price of $6.91 per share, for a total consideration of $27.7 million. QACL may exercise an option for Auckland Airport to increase its shareholding to 30-35% at any time up to 30 June 2011. The price for the additional shares will be $7.47 per share, plus a lump sum consideration of $2.2 million, reflecting the additional value of a shareholding over 25%.
The Applicant owns and operates the Auckland International Airport, New Zealand’s largest and busiest airport in terms of both passenger movement and revenue.
The Applicant will subscribe for new shares in QACL, comprising up to 24.99% of the total shares in QACL (the initial issue of shares). QACL owns and operates Queenstown International Airport, the fifth largest airport in New Zealand in terms of passenger numbers. QACL may exercise an option which would allow the Applicant to subscribe for further shares in QACL, which will, together with the initial issue of shares, comprise up to 49.9% of the shares in QACL.
The investment will foster a closer strategic and working relationship between the two airport companies, and provide QACL with capital to pursue development and expansion opportunities”.
You may recall Auckland International Airport Limited (AIA) made headlines back in 2008 when the OIO refused the sale of a controlling shareholding in Auckland International Airport to the Canada Pension Plan Investment Board. The Labour Government had introduced a new regulation under the Act, which allowed greater control over the sale of strategic assets on sensitive land, but in the end, the decision of the Ministers did not depend on the new regulation. See our commentary in April 2008 for details of this rare OIO refusal.
The controversy with this approval centres on the secrecy involved, the lack of public consultation in putting the deal together, and the price paid by AIA (at the bottom range of a valuation report). Air New Zealand even made a complaint to the Commerce Commission on the basis of “substantial lessening of competition in a market”, however this was considered “unlikely” by the Commission. Air New Zealand is making a further challenge via the High Court.
A summary of the deal was reported by Ben Heather in the Dominion Post on 19/10/2010:
“The partial sale of Queenstown International Airport was kept secret because there was no time to consult the public, the airport’s board decided. Records of a Queenstown Airport board meeting on June 28 – released under the Official Information Act – show the board was concerned informing the Queenstown Lakes District Council would delay the sale for up to a year. “Markets for QAC [Queenstown Airport] is strong right now; this may not be the case next year.” Delays associated with the possible election of a new district council was another reason given for keeping the deal under wraps, the records show. The board was worried waiting a year could affect the sale price and delay projects needed to increase the airport’s capacity. There was also concern about servicing mounting debt, expected to reached $51 million in 2012, which could leave Queenstown Airport exposed in the event of another “global shock”.
Last week, Queenstown Lakes’ newly elected mayor, Vanessa van Uden, previously a strong critic of the deal, told BusinessDay the incoming council would review the partial sale. Auckland International Airport paid $27.7m for newly issued shares in council-owned Queenstown Airport on July 7, giving it a 24.9 per cent stake that it can increase to 35 per cent.
The deal now faces two reviews in the High Court, with opponents alleging there was an obligation under the Local Government Act to consult publicly before issuing new shares in a strategic public asset. Councillors, including Ms van Uden, were only told of the deal the day it was finalised. The only two elected members who were told in advance, and sworn to secrecy, were outgoing mayor Clive Geddes and deputy mayor John S Wilson, neither of whom sit on the new council.
Under the Official Information Act, Queenstown Airport has released 350 heavily edited pages of documents but has refused to provide the valuation report underpinning the deal. Opponents have repeatedly tried to obtain that report, claiming the sale should have been subjected to a competitive tender to obtain the best price. The documents show the airport was valued at $126m but when setting a price to be paid by Auckland Airport for the newly issued shares, it was reduced to $113m.
The board decided the discount was acceptable because it reflected Auckland Airport’s minority stake. A higher share price would be charged if Auckland Airport decided to increase its stake to 35 per cent. In the weeks leading up to the deal, the board also sought confirmation from the valuer that it had not missed out on a better price by foregoing a competitive tender. The documents also reveal the intense secrecy surrounding the deal.”
Details of the High Court challenge were reported by Dave Cannon in the Otago Daily Times 3 days earlier:
“Changes made to the Queenstown Airport Corporation’s statement of intent nine days before the sale of 24.99% of shares to Auckland International Airport made public last July are at the centre of claims made by two parties seeking a judicial review of the decision, High Court documents reveal.
Air New Zealand and the Queenstown Community Strategic Assets Group Trustee Ltd (QCSAGT) are challenging the strategic alliance between the two airports, while the Queenstown Lakes District Council is also a defendant in the case, which is likely to be heard next year.
The Otago Daily Times has been granted permission by Justice Christine French to view all the court documents relating to the case, with the exception of an agreement referred to in an affidavit sworn by John Martin, of the strategic assets group, on August 15.
Both plaintiffs – Air NZ and QCSAGT – in separate claims which share common grounds, are asking the High Court to overturn the decision on the grounds that it was unlawful under various sections of the Local Government Act and that they and the public were not consulted and therefore deprived of the chance to be heard.
The three defendants – the QLDC, QAC and AIAL – deny this.
The plaintiffs claim the QAC’s statement of intent was changed on June 29 by the QLDC – the sale of the shares, for $27.733,181.35, was announced on July 8. Previously, the section on capital subscription read: “No capital injections from shareholders are expected in the current period”, but it was changed to: “The company will consider the need for and sources of subscriptions as may be required.”
Air NZ, in its claim, says even in its amended form this did not allow the share sale to go ahead, while the QCSAGT goes further, saying it did not empower the QAC to implement any such capital subscriptions “without authority properly given by the QLDC”.
The QLDC’s decision to change the wording had the effect of permitting the transfer of QLDC’s ownership and control of the QAC and could not be done without proper consultation under the Act. Consequently, amending the statement of intent was outside the powers of the QLDC and therefore null and void. This is denied by the defendants.
Air NZ, in its claim, says it and its wholly owned subsidiary, Mt Cook Airlines, are the most substantial customer of the QAC, paying $4.34 million a year in landing and other related charges, while also employing 75 people in the Queenstown district. It carries out 61 domestic flights a week into Queenstown (500,000 passengers a year) and another four international flights a week (47,000 passengers annually), contributing $2.24 million in passenger levies a year.
It also claims the QLDC, under the Act, has a policy on private partnership and the decision to sell the shares was “significantly inconsistent” with that policy. The share sale was a “significant decision” and so there should have been a competitive tender process.
Air NZ is asking the court to declare the QAC-AIAL agreement unlawful; seeks an order restraining the QAC from increasing AIAL’s shareholding; and also seeks an order for the QLDC to comply with the consultation process under the Act. In response, AIAL says the council’s decision was not one of the transfer of ownership or control of a strategic asset.
That decision was made by the QAC, which is a separate company and therefore it was not in any event a sale by the QLDC, so there was no requirement to enter into a competitive tendering process. The QAC says the statement of intent did not prohibit the issue of shares to AIAL.
The plaintiffs are claiming relief, which is at the discretion of the court to grant. A document filed by the defendants says that even if there were breaches (which are denied), the court should not exercise its discretionary powers to grant a remedy.”
In approving the deal, the OIO simply said it was satisfied in terms of section 16 of the Overseas Investment Act 2005 (Criteria for consent for overseas investments in sensitive land). I wonder if they considered section 17 – Factors for assessing benefit of overseas investments in sensitive land? Specifically, this includes: whether the overseas investment will, or is likely to, result in –
(i) the creation of new job opportunities in New Zealand or the retention of existing jobs in New Zealand that would or might otherwise be lost; or…
(iv) added market competition, greater efficiency or productivity, or enhanced domestic services, in New Zealand?
I can’t see how this deal meets either of these two criteria, and neither I suspect do those taking the matter to the High Court.
Carlyle Group gains control of Airwork Holdings
In another significant airline related decision, Contract Aviation Group NZ Limited The Carlyle Group, United States of America (68.4%), Hugh Ross Jones, New Zealand (30%), Scott Alexander McMillan, Australia (0.8%), and other reinvesting shareholders (Condor Holdings Limited), New Zealand (0.8%) received approval to acquire rights or interests in 100.0% of the ordinary shares of Airwork Holdings Limited which owns or controls a leasehold interest in 0.66 hectares of land at 1 Solent Street, Mechanics Bay, Auckland. Approval was also received for an overseas investment in significant business assets, being the Applicant’s acquisition of rights or interests in 100.0% of the ordinary shares of Airwork Holdings Limited, the value of the assets of Airwork Holdings Limited and its 25% or more subsidiaries being greater than $100m. The vendors were existing shareholders of Airwork Holdings Limited Airlift Holdings Limited, New Zealand (77.3%),
Hornchurch Limited, New Zealand (9.7%), various, Various (8.3%), and Wayne John Collins, New Zealand (4.7%). Consideration was $130,791,000.
The OIO states; “Airwork Holdings Limited (Airwork) is a group of companies forming part of the Alliance Airlines group of companies that are involved in the aviation industry. The Investment is part of a wider transaction also involving the purchase of other companies based in Australia that form part of the Alliance Airlines group of companies. As part of the Investment, Hugh Jones (a present shareholder in Airwork) and interests associated with Scott McMillan, a shareholder in the Alliance Airlines group, will reinvest in the merged operation.
The Investment will create a larger and more efficient combined group of Australian and New Zealand aviation operators.”
A summary of the deal was reported in The Australian on 01/06/2010:
“US-based private equity firm Carlyle Group has signed a deal to buy Contract Aviation that values the company at up to $350 million.
Contract Aviation was expected to lodge an initial public offering prospectus in late March or early April, but pulled that plan after entering into talks with the Carlyle Group.
The creation of Contract Aviation Industries involves the merging of two companies, Alliance Airlines and Airwork Helicopters, both of which have independent investor Hugh Jones as a major shareholder. The companies provide helicopter and aviation services to the government, military and resources sectors.
This deal comes as activity in the Australian private equity sector has been hotting up. Several US-based private equity players have bid for hospital operator Healthscope and South African private equity Aspen Pharmacare has been allowed to conduct due diligence for its bid for Sigma Pharmaceuticals.
International private equity investors are awaiting a critical decision from the Australian Tax Office about how private equity investments will be taxed here after the ATO issued a draft ruling saying private equity exits should be subject to income tax, rather than being treated as capital gains, which are not taxed for foreign investors if they come from countries that have tax treaties with Australia.
The ATO last week delayed its final ruling.”
The Carlyle Group is one of the worlds largest and most politically connected private equity firms with around $US90 billion globally in managed assets. In 2009 it paid $20 million in a settlement with the New York attorney general, Andrew Cuomo as a result of a pension corruption inquiry. According to the New York Times, the inquiry uncovered what investigators described as a wide network of corruption from California to New York, in which billions of dollars of investments from public pension funds were handed out in exchange for kickbacks or other questionable payments.
Carlyle has been profiled in two notable documentaries, Michael Moore’s Fahrenheit 911 and William Karel’s The World According to Bush.
In the documentary film Fahrenheit 911, Michael Moore makes nine allegations concerning the Carlyle Group, including: That the Bin Laden and Bush families were both connected to the Group; that following the attacks on September 11, the bin Laden family’s investments in the Carlyle Group became an embarrassment to the Carlyle Group and the family was forced to liquidate their assets with the firm; that the Carlyle group was, in essence, the 11th largest defense contractor in the United States. Moore focused on Carlyle’s connections with George H. W. Bush and his Secretary of State James A. Baker III, both of whom had at times served as advisors to the firm.
A Carlyle spokesman noted in 2003 that its 7% interest in defense industries was far less than several other Private equity firms. Carlyle also has provided detail on its links with the Bin Laden family, specifically the relatively minor investments by an estranged half brother.
In his documentary The World According to Bush (May 2004), William Karel interviewed Frank Carlucci to discuss the presence of Shafiq bin Laden, Osama bin Laden’s estranged brother, at Carlyle’s annual investor conference while the September 11 attacks were occurring.
Let’s pray Carlyle’s interest in Airwork holdings does not have the sinister implications suggested by the fore mentioned documentaries!
See my predecessor Bill Rosenberg’s excellent article, “International Pressures to Privatise” for further details as to how Carlyle and other private equity firms plan to take over the world.
Other May Decisions
Stanley Vester Simpson United States of America (100%) received approval to acquire; a freehold interest in 427.5 hectares of land at Waitaria Bay, Kenepuru Sound, Marlborough Sounds. The vendor was Bayview Farms Vineyard and Winery Limited Melanie Ayling, New Zealand (100%), the purchase price was $7,749,711. According to the OIO, “The land is currently operated as a deer farm and vineyard. The Applicant intends to continue to operate the deer farm and vineyard. However, the Applicant will also explore new ways to generate revenue from the land through further diversification of the existing operations. The Investment will benefit New Zealand by creating employment for a farm manager, protecting an area of existing significant indigenous vegetation, and creating walking access over the land to a scenic reserve of national significance.”
Wither Hills Vineyards Marlborough Limited Japanese Public (79.1%), United States Public (11.1%), United Kingdom Public (4.7%), and various overseas (5.1) received approval to acquire a freehold interest in 8.1 hectares of land at 239 New Renwick Rd, Blenheim. The vendor was Brendan John Lynsky, as executor of the estate of Raymond William Lynsky: the consideration was $1,200,000. This purchase gives Wither Hills an additional 6.5 hectares of grapes to add to an already significant vineyard. According to the OIO application, Wither Hills plans to double their wine production over the next 5 years.
Wither Hills was originally purchased from private Kiwi owners by Lion Nathan in September 2002 (see that commentary as well as November 2003).
And finally for May, RHL NZ Limited United States of America (100%) received approval to acquire a freehold interest in 303 hectares of land at Wairoa Valley, Left Branch, Nelson, for $550,000 from Anthony Mark Irvine and Brett Steven Irvine as trustees of the Left Branch Trust New Zealand (100%). According to the application, RHL proposes to acquire and develop the land into a mountain bike park with trails and a lodge for accommodation purposes.
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Campaign Against Foreign Control of Aotearoa,
P.O. Box 2258
Christchurch.