July 1996 decisions

July 1996 decisions

Blue Star takes Whitcoulls

In an otherwise quiet month, by far the biggest news is the purchase by Blue Star Group Ltd of Whitcoulls Group Ltd, one of its main competitors in the office supplies business. Blue Star, a subsidiary of US Office Products Company Inc (USOP) of the U.S.A., is on an aggressive acquisition binge: see our commentaries on the February, March and June OIC decisions. It paid US$220 million for Whitcoulls (approximately $320 million).

The purchase brought a warning from the Commerce Commission that although it would not take any action in the Whitcoulls takeover, Blue Star should carefully consider the provisions of the Commerce Act before any future acquisitions. The Commerce Commission would closely monitor the relevant markets. Its chairman, Alan Bollard said:

“If the Commission’s continued monitoring suggests dominance may be a concern then the Commission has two years within which to ask a court to order divestment of assets or shares. It has three years within which to ask a court to impose other penalties.”

Taking the typically weak approach of the Commission, Bollard said that “Blue Star’s market share is high, but it appears that existing competition and the possibility of new entrants will constrain it”. (Press, 2/8/96, “Yellow card for Blue Star”, p.33). In defence, Blue Star financial director Maurice Kidd said that only 25% of Blue Star’s turnover came from stationery and office supplies (Press, 31/7/96, “Probe into Whitcoulls sale”, p.25).

Eric Watson, Blue Star’s owner until he sold it to USOP, leaving him its biggest shareholder and its international business manager, got his first job at the Peterborough Street office products store of Whitcoulls. He bought Whitcoulls from Graeme Hart who had just completed its privatisation, valuing it at $282 million. Hart bought a controlling interest in it from Brierleys in 1991 as part of the rapidly growing empire he built from his bargain basement purchase of the Government Printing Office at its inept privatisation.

Whitcoulls had revenue of $610 million and profits before interest and tax of $31.5 million in the year to 30/6/96. It has 338 outlets, 180 of them in Australia including the Angus and Robertson chain, and employs 2,500 staff. Blue Star says it will allow Whitcoulls to trade as a separate entity. With the purchase, the Blue Star Group within USOP will reach sales of $1 billion a year.

However, Blue Star and USOP are not stopping there. Watson says that USOP is expanding in Australia as well as New Zealand, and is looking at purchases in Britain. He sees the company as a “formidable launching pad” for Pacific Rim expansion. (Ref: Press, 25/7/96, “From Whitcoulls salesman to boss”, p.29.)

An interesting sidelight to the OIC approval is that Whitcoulls owned at least two pieces of land that make the transaction subject to the national interest provisions of the Overseas Investment Act. These are six hectares of freehold land at 43-45 Ngamutawa Road, Masterton (qualifies because it is greater than 5 hectares), and three hectares of freehold land in Queen Street in Auckland’s central business district and worth $19 million (which qualifies because it is worth over $10 million). Two hectares of leased land is also mentioned, at 460 Rosebank Road, Avondale, Auckland. It is not clear why only these are mentioned as Whitcoulls almost certainly owns or leases more land throughout Aotearoa. The OIC makes only a minimal attempt to justify its approval in terms of the national interest criteria. Its rationale states only that:

“It is stated that the acquisition will provide greater efficiency in the support structure and access to the latest technology and business skills available to USOP. Furthermore , purchasing power will be enhanced and Whitcoulls will have access to significant cash and other resources from the acquisition.”

Power New Zealand takes controlling interest in BOP Electricity

Power New Zealand Ltd, which the OIC records as being 27.68% owned by UtiliCorp NZ Inc, has approval to acquire Bay of Plenty Electricity Ltd for “approximately” $83,900,000. The sale includes seven parcels of land either over five hectares and/or over 0.4 hectares and adjacent to a lake, totalling 110 hectares.

The takeover is part of the battle taking place for control of the North Island’s electricity distribution. Both Auckland electricity distributor Mercury Energy and UtiliCorp New Zealand (owned by UtiliCorp of the U.S.A. and Todd Corporation) are offering ever-rising stakes to take control of Power New Zealand. This has included High Court findings that UtiliCorp had broken the Securities Amendment Act by failing to disclose deals it had done with the Thames-Coromandel, Hauraki, Matamata-Piako and South Waikato district councils. They had promised to get UtiliCorp’s permission before selling their Power New Zealand shares. The judge “found it hard to believe” that Power New Zealand had no knowledge of the deals, leading to a Stock Exchange investigation. A subsequent disclosure showed UtiliCorp had done a similar deal with Hamilton-based WEL Energy (of which it owns a third). UtiliCorp then accused Mercury of paying higher prices for large parcels of shares than its public offers. These district council agreements resulted in UtiliCorp NZ having a “relevant interest” in Power New Zealand of 45.03% by the end of November 1996. (Press, 10/9/96, “Mercury battles UtiliCorp in court”, p.16; 18/9/96, “UtiliCorp discloses new verbal agreement for Power NZ shares”, p.40; 24/9/96, “UtiliCorp bid backed despite no appraisal”, p.32; 8/10/96, “Mercury back to court”, p.40; 20/11/96, “Power New Zealand releases hold on councils”, p.37; 30/11/96, “Power New Zealand holding”, p.27.)

In response to the Power New Zealand offer for BOP Electricity, Fletcher Challenge, a 37.5% shareholder, made a full takeover bid. However Power New Zealand made a shareholder agreement with the Bay of Plenty Electricity Trust which owns 25% of BOP Electricity. Another agreement between Fletchers and the Trust prevented Fletchers increasing its shareholding without the Trust’s permission and gave the Trust first refusal on its shares. In the end, Power New Zealand obtained 52.5% of BOP Electricity, including Fletcher’s 37.5% (on which it made a $32 million profit), at a price between 800 and 820 cents a share – costing about $90 million. Yet another bid, an attempted merger by neighbouring TrustPower, based in Tauranga, was pushed aside by the deal between the Trust and Power New Zealand. Power New Zealand says it does not expect a merger between the two companies. (Press, 13/7/96, “Power NZ sets its sights on BOP Electricity”, p.33; 16/7/96, “BOP Electricity premium”, p.23; 19/7/96, “Power New Zealand buy ‘kills’ merger”, p.16.)

This decision was initially suppressed almost in its entirety. It was released on appeal only in February 1997. Given the high level of publicity surrounding the sale, that seems absurd.

Rockgas takes over Liquigas from BP

In May we reported:

Rockgas Ltd, which is ultimately 50% owned by the Boral “Group” of Australia and 50% by Caltex Petroleum Corporation of the U.S.A. has approval to “acquire property comprising part of the commercial LPG supply business and assets of BP Oil New Zealand Ltd“. The price paid has been suppressed. According to the Press (1/6/96, “Rockgas purchase”, p.28) Rockgas was one of several bidders for BP’s LPG assets.

This month, Rockgas is given approval to acquire up to 28% of the specified securities and/or control the board of directors of Liquigas Ltd, from BP.

Universal Homes of Singapore buys SBSA Mortgages for $100

Universal Homes Ltd, owned by HTP Holdings Ltd of Singapore, is acquiring SBSA Mortgage Investments Ltd, which is engaged in mortgage financing, for $100. The decision was originally almost completely suppressed and released only after appeal to the OIC, in February 1997.

In September 1996, Universal Homes bought three hectares of land in Guys Road, East Tamaki, South Auckland for residential subdivision and construction. The land adjoined 15 hectares the company already owned. It was described as “a predominant player in the Auckland housing market and is continually searching for land for residential development”. In March 1996, the same company was given approval to buy nine hectares of land at Weymouth, Manurewa, Auckland, creating 100 sections. HTP was then described as “HIP Holdings Ltd, a Singapore public listed company which is 27% owned by The Peoples Republic of China”.

British Telecom sets up shop

In a decision initially almost completely suppressed and released on appeal only in February 1997, British Telecommunications Plc and its subsidiary, BT Netley Ltd have approval “to establish a telecommunications business in New Zealand, including but not limited to the construction and operation of a land earth station in New Zealand and the provision of related telecommunication services.” The value is still suppressed. In February 1996, a British Telecommunications Plc subsidiary, Newgate (NZ) Holdings Ltd, gained approval to acquire the 25% of Clear Communications Ltd previously owned by Bell Canada International Inc.

Wanganui District Council sells leasehold land to U.S. NDG Pine for timber mill

The Wanganui District Council is selling 14 hectares of leasehold land known as “Westbourne Industrial Estate” in Wanganui to NDG Pine Ltd on which it intends to establish a timber mill. The price is a total of $872,690 comprising $351,680 lease payments and $521,010 ultimate purchase price. NDG Pine is owned by J.S. and C.R. Crane. The decision was initially almost completely suppressed, but was released on appeal to the OIC in February 1997.

MRGC restructures its ownership

MRGC of the U.S.A., a general partnership which owns 2,738 hectares of forest in Marlborough, and 153 hectares of forestry cutting rights in Marlborough, Wairarapa and Manawatu, is reorganising its own ownership. Partners M & R Trust Company Ltd, RDMCo International, and Ring Management Company Inc of the U.S.A. are being bought out by other partner Green Crow Corporation. The original decision was almost completely suppressed (difficult to understand given it was only an “internal reorganisation”) until released on appeal to the OIC in February 1997; even then the consideration was still suppressed and released only in June 1997 on appeal to the Ombudsman: $94,500.

Our records of OIC decisions show MRGC’s first land purchase being in May 1993 when Scollay Forests Ltd and Scollay Forests (Blenheim) Ltd sold a half share of 2,901 hectares of forestry land in Marlborough to MRGC. This half share has either since been sold, or has been overlooked in the present decision. Many of MRGC’s subsequent acquisitions were subject to suppression by the OIC, either temporarily or (in the case of details of price and hectares) permanently, so this decision gives some idea of MRGC’s full forest ownership in Aotearoa – albeit possibly an inaccurate one.

A decision in February 1994 gave the greatest detail of MRGC’s ownership. “MRGC and Associated parties” were described as: Judy Trust for David S. Quinn (1.54%), for John V. Quinn (3.07%), and for Rebecca B. Quinn (3.07%); J.D. Children’s Trust for William C Crow, John T. Crow, Michael T. Crow and Colin C. Crow (each 3.07%); David Quinn Trust (1.54%), Yakovich Corporation (2.5%), Johnson Family Northwest Investment Corporation (21.5%), Reid Inc (1.0%), Green Crow Pacific Ltd (3.5%), Ring Management Company Incorporated (25.0%) and RDMCO International Incorporated (25.0%). Previously we had been told the MRGC was a 50/50 joint venture between Merrill and Ring Inc, and Green Crow Corporation.

Other land for forestry

• Carter Holt Harvey Ltd, 51% owned by International Papers of the U.S.A. has approval to acquire a further 553 hectares of land in Kaitieke Road, Taumarunui, King Country for an initially suppressed price. That price was revealed in February 1997, after appeal, as $620,000. “The acquisition is part of Carter Holt’s purchasing programme to enable it to establish new forest areas to expand its renewable resource and raw materials for the wood processing industry in the future… the land being acquired is the steeper and hilly part of a larger farm property which is only marginal for agricultural purposes.”
• Two Australians have approval to acquire 178 hectares of land for forestry in Onga Road, Hunterville, Wanganui/Taranaki, for $265,000.
• Deborah Miller of Brookfields, Auckland is hard at work again, selling off blocks of land for forestry development in Wanganui. All are being sold by New Zealand Forestry Group Ltd which will manage the development of the land. All are to residents of Taiwan.
• • Four are part of Mahuri Forest, Mangamahu, Wanganui. They are of 20 hectares being sold for $82,000, seven hectares for $28,700, 14 hectares for $54,600, and 19 hectares for $77,900.
  • Two are part of Paparangi Station, Wanganui. A 16 hectare block is being sold for $62,400 and a 32 hectare block for $124,800.
  • The details of one application which appears to be another Miller special has been withheld because it did not proceed.

Other rural land sales

• Two residents of the U.S.A. have approval to buy approximately six hectares of land at Tokerau Beach Road, Doubtless Bay, Kerikeri, Northland for $315,000 from Foster Olives Ltd. They intend to develop an olive orchard “for which a consultancy agreement, for a period of ten years has been entered into.” The decision was initially almost completely suppressed and released only in February 1997 after appeal.
• A resident of Brunei has approval to acquire 72 hectares of land in Wayby Valley Road, Wellsford, Auckland for $790,000 for “various farm development activities” including the set up of a farm resort, production of organic fruits and meats, and an eel farm. “The applicant also wishes to set up a trading firm for export and import using her offshore connections”.
• Two residents of Taiwan who have been granted New Zealand permanent residency, have approval to buy a ten hectare kiwifruit orchard at Coatsville and Riverhead Highway, Riverhead, Auckland for $1,280,000. The land is currently managed on contract by Manukau Horticulture Ltd and this will continue.
• Neal Kunimura and/or the Neal Lane Trust of U.S.A. have approval to acquire five hectares of land in Donald Bruce Road, Waiheke Island for $582,500. “The applicant wishes to establish grapevines for wine-making, to construct a home on the property and to establish a ‘home stay’ – ‘bed and breakfast’ from a house to be constructed on the property.” The land is currently used for grazing sheep.
• In a second Waiheke Island land sale this month, a resident of Germany has approval to acquire four hectares of land at 28 Seaview Rd for $390,720. She intends to reside in Aotearoa permanently and sees this as a South Seas paradise:

“The applicant wishes to set up a farmlet to lead to a niche cottage industry on a minor scale. The applicant wishes to lead a productive farming lifestyle on a scale she can manage and afford. The principle [sic] activity is to be bee keeping, in conjunction with other activities including the production of fruit, pottery, organic vegetables, wool for spinning, etc. The applicant will be producing fresh produce for sale daily.”

Very nice, but where does the national interest come in?

• Winthrop Holdings Ltd or nominee of Germany has approval to acquire Puka Park Lodge Ltd which includes seven hectares of land near Pauanui, Coromandel, for $2,025,000. The land, which is “adjacent to land held for conservation purposes“, will be used for “tourist related ventures”. Puka Park Holdings Ltd of Germany also has approval to acquire 0.7 hectares of land at Pauanui from Crestmore Holdings Ltd, for $315,000, as a “reorganisation of land ownership for financial reasons and to simplify the ownership structure of Puka Park Lodge.”
• Further land adjacent to a reserve is being sold, this time four hectares in Te Waerenga Rd, Hamurana, Rotorua, Bay of Plenty, for $260,500. It is being sold to Hamurana Gardens Ltd of Taiwan for “proposed development of a tourism complex and upgrading and enhancement of the reserve”. The reserve is managed by the Department of Conservation.
• The ownership of 20 hectares of land in Blanket Bay on Lake Wakatipu, Queenstown, Glenorchy District, Otago, is being transferred for $200,000 from its current owner to a family trust whose beneficiaries are in the U.S.A. The current owner is T.W. Tusher who is an “advisory trustee” to the Blanket Bay Trust. The trust, incorporated in Aotearoa, has trustees Charter Hall Trustees Ltd and discretionary beneficiaries W.T., P.B., G.M. and M.S. Tusher of the U.S.A. The transfer is “with the intention of building a fishing lodge on the land in question, with visitor accommodation for in excess of ten people.”