Foreign investment in Aotearoa/New Zealand
Overseas Investment Office – January 2012 Decisions
Creditors Take Control Of Metroglass
A quiet month at the OIO, but nevertheless it still includes a couple of significant Decisions. Firstly, MF (Finco) Limited Crescent Capital Partners Trust IIIA, Australia (15.3%), Crescent Capital Partners Trust IIIB, Australia (15.3%), Crescent Capital Partners III (Belgium) BVBA, Australia (9.3%), AIO Finance (Ireland) Limited, Ireland (15.7%), JP Morgan Special Opportunities (Delaware) II LLC, United States of America (12.4%), WestLB AG, Germany (11.9%), AIO II Finance (Ireland) Limited, Australia (5.2%), Sankaty Credit Opportunities (Offshore Master) IV, LP, United States of America (4.4%), Sankaty Credit Opportunities IV, LP, United States of America (4.2%), Sankaty Credit Opportunities III, LP, United States of America (3.4%) and various overseas persons (2.9%) received approval to acquire the rights or interests in up to 100% of the shares of Metropolitan Glass & Glazing Limited, the consideration of which exceeds $100m.. Consideration was $181,504,474. The vendors were NZ Glass Investment Company Limited Catalyst Buyout Fund 1B Pty Limited, Australia (32.2%), Catalyst Buyout Fund 1A Pty Limited, Australia (32.2%), Macquarie Investment Management Limited, Australia (15.3%) and various overseas persons (14.1%).
The OIO states “Metropolitan Glass & Glazing Limited (Metroglass) processes and distributes a wide range of value-added glass products. In 2011 NZ Glass Investment Company Limited (NZGIC) breached financial covenants giving rise to certain rights for the company’s creditors. The creditors have decided to enforce the security held over the assets of NZGIC and Metroglass and restructure the equity and debt of the Metroglass business such that the ultimate ownership and control of the business is transferred to them (via the Applicant). The restructuring transaction will result in the debt burden on the Metroglass business being reduced to a sustainable level”. Metro GlassTech, formerly Metropolitan Glass, was bought by Australia’s Catalyst Investment Managers for $NZ366.2 million in 2006 from Aucklanders Andrew Smith, John Bedogni and Cameron Gregory who had founded the business in 1987.
Japanese-Owned Cerebos To Buy Comvita?
In a significant potential purchase of a well known business operating in New Zealand, Cerebos New Zealand Limited Suntory Beverage & Food Limited, Japan (83%), Singapore Public (16.6%), Malaysian Public (0.2%) and various Public (0.2%) received approval for the acquisition of rights or interests in up to 100% of the shares of Comvita Limited which owns or controls a freehold interest in 7.6 hectares of land at Wilson Road, Paengaroa, Bay of Plenty. Approval was also received for an overseas investment in significant business assets, being the Applicant’s acquisition of rights or interests in up to 100% of the shares of Comvita Limited, the value of the assets of Comvita Limited and its 25% or more subsidiaries being greater than $100m. The vendor was Comvita Limited New Zealand (100%). Asset value was $109,000,000.
The OIO states: “The Applicant intends to provide strategic assistance in sales and marketing in Asia to Comvita where its brands are not yet well established”. Despite OIO approval, it appears existing shareholders of Comvita were not so keen to sell and the attempted takeover eventually failed. Tim Hunter reported (25/5/12) at Stuff.co.nz. “Neil Craig’s bran flakes will taste especially good this morning, as they always do after a convincing victory. The Comvita Chairman had the satisfying experience on Wednesday of a huge ‘I told you so’ moment, when the company simultaneously nailed an ambitious profit target and thumbed its nose at failed takeover bidder Cerebos Pacific.
“His shareholders can also bask in the glow, having had the fortitude to ignore the blandishments of the $2.50 takeover offer in November 2011 and hold on for better things to come. When Comvita announced a record net profit last week of $8.2 million, its shares leapt 25 cents to $3.15. For investors, there is an important lesson here about value. Before Cerebos, a Singapore-listed subsidiary of Japanese food and drinks giant Suntory, made its takeover offer, Comvita shares were trading at about $2.10. That was already close to the highest price the shares had held for more than a year. The implication was that the market was discounting Comvita’s prospects and didn’t see convincing signs of growth.
“After all, Comvita had previously been about as reliable as an amnesiac with attention deficit hyperactivity disorder and a hash habit. Cerebos made much of this in its takeover with scornful references to Comvita’s record of’ ‘unreliable forecasts and erratic earnings history’. Hence, when Comvita mounted its defence with forecast profits of $7.4m, up from $0.5m in the year to March 2011, there was, shall we say, a credibility gap. Craig concedes that before the bid, the company had reached the stage where its public statements didn’t carry much weight. While there were some distractions, such as litigation over a British patent, ‘we had also been guilty of over-promising and under-delivering, so we were very reluctant to trumpet success before we had it’.
“This naturally played into the hands of Cerebos, but it’s no wonder Craig and Comvita’s management were so anxious to repel the takeover. For them, the business could be much more than a few products in the Cerebos portfolio. Comvita is best known as a purveyor of manuka honey products, from the stuff you spread on toast to wound dressings used in hospitals. Manuka honey’s proven anti-bacterial properties for wound care give the brand a healthcare halo that Comvita has harnessed effectively into a retail format for a range of related products, such as olive leaf extract, propolis, skincare, bee pollen, broccoli extract and nut bars.
“The market for this stuff is huge, particularly in Asia, and Comvita has been busy opening branded retail outlets to make the most of the opportunity – there are about 500 across Asia, mainly in China. The advantage of this approach is the pricing power. ‘There’s a whole range of natural products right at the top end of the market’, says Craig. ‘The reason we can continue to grow with other natural products with efficacy and science around them is the strength of the brand, particularly in the Asian market. It’s a very high-end, highly regarded brand’.
“So it is, even if there is something wacky about a market in which people will pay more than $100 for a 250g jar of honey. Indeed, Comvita’s marketing treads a fine line – promoting its products as healthy, while avoiding making any specific claims about what they do. For example, it promotes manuka honey as ‘gaining worldwide recognition for its unique properties’. Sounds good but what does it do when you eat it? And does ‘unique manuka factor’ 20 do any more than UMF10?
“Propolis, a sort of gapfiller for beehives, is apparently ‘nature’s powerful defence system’. But never mind. Demand is there in spades and Comvita has positioned itself well to meet it. Compared with a future with Cerebos, it is now clear the company is much more valuable under the current management led by Chief Executive Brett Hewlett. For investors, who have had their faith rewarded thus far, the question now is whether Comvita can attain the valuations implied by the independent report on the takeover. In November 2011 valuer Grant Samuel said the company was worth $3.40 to $4 a share, and Craig suggested the value was higher still. Last week, he was convinced those figures were realistic.
“To put it in perspective, our earnings were 29c a share. Even today, at $3.15, there’s a price/ earnings ratio of about 10.5 historical earnings. The average historical p/e in New Zealand is about 14 for a lot of modestly growing companies. ‘This is a much higher growth company in terms of potential and you don’t value companies on historical multiples. You do it on forward looking multiples, so by any standards it is cheap’. Maybe, although the market may apply a discount for a while yet, given past experience. Still, more than that, for me the episode shows how a New Zealand business can have more vision and potential as a locally listed company than as a piece of multinational pie”. In June 2012, Comvita rewarded loyal shareholding beekeepers with a bonus issue after buying the stock on market.
Other January Decisions
Ding Furu Singapore (100%) received approval to acquire a freehold interest in 28 hectares of land at 150 Forest Hill Road, Waitakere. The vendor was Sapich Brothers Limited Stephen Sapich, New Zealand (40%), Craig Sapich, New Zealand (30%) and Darren Sapich, New Zealand (30%); consideration was $5,000,000. Ding intends to reside in New Zealand indefinitely. Ding Furu is founder and Chairman of New Development Group, a large Chinese-based transnational with interests in real estate development, hotels, wood, storage, and trade and investment. See our January 2010 commentary for details of other land purchases by Ding Furu.
ANZCO Foods Limited Itoham Foods Inc, Japan (48.3%), Nippon Suisan Kaisha Limited, Japan (25.2%) and New Zealand Public (26.5%) received approval for the acquisition of a leasehold interest in approximately 210 hectares of land at Mossy Creek Road, Ikamatua, West Coast. The vendor was Brian O’Malley, Merryn Anne O’Malley and Leigh Anthony Bamfield as trustees of the O’Malley Property Trust New Zealand (100%); consideration was $530,265. The OIO states: “ANZCO has been leasing the land at Mossy Creek Road, Ikamatua for sheep and beef farming operations and research since October 2008. ANZCO now intends to continue to lease the land for this purpose until 2017”. See our September 2011 commentary for details of ANZCO’s other leasehold interests here.
And finally for January, a new Bunnings store for New Plymouth. Bunnings Limited Wesfarmers Limited, Australia (100%) received approval to acquire a freehold interest in 0.7 hectares of land at 57-63 Molesworth Street, New Plymouth. The vendor was Thomas Constellation Enterprises Limited Christopher Bruce, New Zealand (50%) and Nyall Colin Simkin, New Zealand (50%); consideration was $4,265,000.
Campaign Against Foreign Control of Aotearoa,
P.O. Box 2258
Christchurch.