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Freightways breaks up: sells CHEP to Brambles and Armourguard to Tyco Freightways Ltd is being broken up by its owner, Tappenden Holdings, which is headed by Alan Gibbs and Trevor Farmer. The following three OIC decisions concern its pallet hiring and manufacturing business (CHEP and TCP) and Armourguard security. The remainder of Freightways, its express freight business, was put up for tender. New Zealand Post was interested in buying it, presumably to strengthen itself in preparation for the deregulation of our postal services, but was vetoed by Treasury. The tender was finally won by Ausdoc of Australia (see the August 1997 decisions of the OIC). (New Zealand Herald, 3/7/97, “Govt blocks bid by NZ post to expand”, p.D1.) Brambles Industries Ltd of Australia has approval to acquire a pallet manufacturing and hiring business from Owens Group Ltd and Freightways Ltd for a suppressed amount. The business structure is complex, consisting of two “special partnerships” (a tax and liability avoidance structure). The first special partnership is called CHEP Handling Systems Ltd and Company. This in turn is owned by a “general partner”, CHEP Handling Systems Ltd and two “special partners”, Union Airways Ltd and Freightways Equipment Ltd which are also the owners of CHEP Handling Systems Ltd. It is these last two companies that Brambles is acquiring. According to news media reports (see above), Freightways owned 66% of CHEP and Owens the other 34%. The second special partnership is TCP Partnership, with special partners Porter Square Ltd and TCP Holdings, which Brambles is acquiring. Brambles is the largest materials handling and industrial services company in Australia. It operates in Australia, Aotearoa, Europe and North America. Its existing operations include the CHEP pallet management system which it began in the U.S. in 1990 in partnership with GKN Plc, and which also operates in Europe and Australia. It also rents rail wagons in Europe and the U.K., waste management services, industrial and mining equipment rental, security services and transport and freight forwarding. It owns the largest private rail company in Europe via French subsidiary Group CIAB, and is also the largest private rail wagon operator in the U.K. (The New Zealand Company Register 1996-97, p.138). Tyco International Ltd, of the U.S.A., gained approval to acquire Armourguard Security Ltd for an initially suppressed amount, released after appeal in December 1997 as $32,999,999. “Tyco view the business operations of Armourguard as complementary to those of the Tyco Group. Tyco will provide Armourguard Security with technology which is currently not available in New Zealand.” Armourguard is the largest security firm in Aotearoa, and is estimated to be worth $30 million. Tyco was number 288 in the 1995 Fortune 500, its main business being metal products. It had 34,000 employees and revenues of US$4.5 billion on assets of US$3.4 billion that year. In Aotearoa, it owns Wormald and several manufacturing operations (Fortune; Press, 25/7/97, “Armourguard sold”, p.26). TransAlta restructures interests in Wellington, Stratford and Southdown TransAlta Energy Corporation (TEC) of Canada is restructuring its various interests in Aotearoa, resulting in an increase in the debt loading of its majority-owned local subsidiary. Listed company TransAlta New Zealand Ltd (TANZ), of which TEC owns 62.7%, is issuing a further 3.8% shares worth $44.1 million to TEC to pay the parent company for assets which TEC is selling to it. TEC will then own 65.5% of TANZ through Trans New Zealand Energy Ltd, in turn a subsidiary of TransAlta Energy Ltd, the holding company for TEC’s companies in Aotearoa. There are three assets involved: TEC Stratford Ltd, TEC Southdown Ltd, and TransAlta Operations NZ Ltd. The consideration for the three is 25.2 million fully paid TANZ shares at an issue price of $1.75, making the $44.1 million. TEC Stratford presumably owns TEC’s one-third interest in the Stratford, Taranaki, 350 Megawatt combined cycle gas turbine power station which it is building with Fletcher Challenge Ltd, and Auckland power distribution company Mercury Energy Ltd (see our commentary on the August 1995 decisions). According to the OIC, 9.4 hectares of land is involved, off East Road State Highway 43, abutting the Kahouri Stream. In 1995, 12.6 hectares were part of the power station decision. The Stratford power station was the centre of protests by Greenpeace in August, who objected to the annual 1.5 million tonnes of carbon dioxide emissions that will come from the station. The protests were aimed at disrupting the construction of the station (Press, 22/8/97, “Activists told to keep distance”, p.5). TEC Southdown presumably owns TEC’s 47% interest in the recently refurbished 114 megawatt co-generation gas-fired Southdown power station which TransAlta owns with Mercury Energy and Enerco (Press, 26/4/97, “Revamp for Southdown”, p.22). This includes three hectares of land in Hugo Johnston Drive, Southdown, South Auckland. It is not clear what assets TransAlta Operations NZ Ltd brings, but it is presumably part of the two power companies, EnergyDirect and Capital Power, TEC bought from privatising local bodies in Wellington and the Hutt Valley. The purchase was highly contentious locally, and the scars still bleed: a court battle was threatened in August between the Wellington City Council and TransAlta over the establishment of a customer advisory board, whose establishment was one of the conditions of the sale. Wellington mayor, Mark Blumksy, was insisting on more explicit terms of reference than TransAlta was offering, but settlement out of court seemed possible (Press, 13/8/97, “TransAlta lawsuit may not proceed”, p.29). The Natural Gas Corporation also has a High Court claim against TransAlta, for $5.7 million, over a take-or-pay gas agreement. TransAlta, the sixth largest power company with 8.5% of the national electricity market, is making rapidly rising profits ($7.2 million in the year to 31/3/97, considerably higher than the $4.2 million forecast at listing in October) but laying off 200 staff from its workforce, leaving 330 (New Zealand Herald, 22/5/97, “Power NZ deal raises distribution ownership issues”, p.C2; Press, 29/5/97, “Merger benefits drive TransAlta profit higher”, p.31). The acquisition of the assets, which included $148.7 million in non-recourse debt, raised TANZ’s debt ratios to high levels. Just under 60% of its assets are now funded by debt, as opposed to 51% before the purchase. A gearing of 50% is generally considered prudent and the two local body-owned power companies had virtually no debt before privatisation. This has led to credit rating agency, Standard and Poor’s, putting the company on credit watch with negative implications (Press, 20/6/97, “TransAlta placed on credit watch”, p.16; 28/8/97, “TransAlta set to lift debt”, p.38). Conveniently in the circumstance, TANZ shortly after revalued its distribution assets by $20 million, using new Ministry of Commerce guidelines (Press, 6/9/97, “TransAlta assets”, p.26). SaskTel of Canada takes 35% of Saturn Communications SaskTel Holding (New Zealand) Inc, a subsidiary of Saskatchewan Telecommunications Holding Corporation of Canada, has approval to take up to 35% of Saturn Communications Ltd for $29,615,000. Saturn is owned by UIH New Zealand Holdings Inc, a subsidiary of UIH Australia Pacific Inc, itself a subsidiary of UIH Holdings Inc of the U.S.A. Saturn (formerly Kiwi Cable) is laying fibre optic and coaxial cable and offering 21 cable TV channels on the Kapiti Coast and in the Hutt Valley and also hopes to offer telephone, on-demand movies, Internet and data services. It plans to add 15 pay channels and eventually connect 500,000 homes of the 1.2 million in Aotearoa. It has a $600 million plan over ten years, part of UIH’s entry into the Asia-Pacific market. After complaining about unfair competition at the prospect of Murdoch-controlled INL taking a controlling interest in Sky TV, it signed an interconnect agreement with Telecom in June (Press, 23/6/97, “Saturn has big plans for multi-media in NZ”, p.25; 16/8/96, “Cable TV draws viewers”, p.30; 22/10/96, “Saturn may fight INL’s move on Sky”, p.31; see also the June 1994 OIC decisions). United International Holdings owns an Australian television and programming company in conjunction with News Ltd subsidiary, Foxtel, together with Telstra, the Australian (part government owned) equivalent of Telecom (Press, 7/12/96, “Sky TV looms over Saturn’s future”, p.31; 1/3/97, “INL scraps bid to own Sky; investors left pondering”, p.25). SaskTel Holding Corporation is the umbrella organisation for a number of subsidiaries, including SaskTel Mobility, SaskTel International, and most recently, DirectWest Publishers (a telephone directory publisher in Saskatchewan). SaskTel is a provincially owned and regulated crown corporation. The telephone company portion is the only remaining Canadian telephone company not under federal regulation. The corporation is run by a provincial government appointed board which includes two elected Union positions. All of the 3,500 non-management employees of SaskTel are members of the Communications, Energy and Paperworkers Union of Canada. In addition, there are about 600 managers. SaskTel International has extensive experience in the Philippines, Mexico, Tanzania and Great Britain. It recently sold its share of a cable TV company, LCL Cable, in Leicester, U.K., at a respectable profit. Its main area of expertise is fibre optics (ref: Communications, Energy and Paperworkers Union of Canada). Utilicorp gets retrospective consent for a further 0.16% of WEL Energy Utilicorp United Inc, which owns 39.5% of WEL Energy Group Ltd, has approval to acquire a further 0.16% for $474,135. The 0.16% had already been acquired without approval, and the OIC’s consent is retrospective to legalise the purchase. As the OIC says:
The OIC’s blithe acceptance of this and previous share acquisitions, contrast with vociferous public debate on Utilicorp’s behaviour. Utilicorp and Auckland power company, Mercury Energy, have been competing manicly for control of the other main Auckland power company, Power New Zealand. Recently they agreed to a cease fire, taking joint control of the company with their 76% ownership. Independent Power New Zealand directors tried to prevent the move by utilising an existing “cornerstone” agreement with Utilicorp, but Mercury and Utilicorp took them to court, and succeed in having the agreement overturned. At a meeting of shareholders to seek approval of the move, the two companies forced through the votes despite the opposition of the one thousand small shareholders present, some of whom walked out calling the meeting a farce.
Power New Zealand’s chairman, Don Stanley, deputy chairman, Barry Brill, and its chief executive, Doug Heffernan, were all sacked by the two big shareholders. Brill, a former National Government minister, attacked Utilicorp’s behaviour, suggesting the company should withdraw from New Zealand’s electricity sector (Press, 12/09/97, “Power play companies compared to alligators”, p.25). WEL Energy Trust, the community trust with a 43% shareholding in WEL Energy, tried to prevent the two companies, which will have a 50% shareholding in WEL, taking control of WEL too, by offering $38 million for the ten per cent held by Power New Zealand. However the deal may prevent Utilicorp taking control of WEL because Mercury has stated it does not wish to expand beyond the Auckland area. The community trust had been concerned that it would lose control of its power company because of Utilicorp’s empire-building plans for merging WEL with Power New Zealand’s Bay of Plenty Electricity (Press, 22/8/97, “Delay sought on WEL Energy offer”; New Zealand Herald, 22/5/97, “Power NZ deal raises distribution ownership issues”, p.C2). Ironically, in 1995 WEL was used by Utilicorp to try to get control of Power New Zealand by WEL buying up to 15% of Power New Zealand shares, effectively giving UtiliCorp 35% control (Press, “WEL makes bid for Power New Zealand”, 28/1/95, p.28). In 1996, the High Court found 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 WEL Energy. Utilicorp then accused Mercury of paying higher prices for large parcels of shares than its public offers. (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.) Mercury Energy (18.0%), Power New Zealand (13.0%), and WEL Energy (3.2%) together have over a third (34.2%) of the electricity distribution market, and Bay of Plenty Electricity (owned by Power New Zealand) has a further 2.0% (New Zealand Herald, 22/5/97, “Power NZ deal raises distribution ownership issues”, p.C2). Brierley Investments buys Harrah’s 12.5% share in Sky City casino Brierley Investments Ltd, approximately 20% owned by Camerlin Group Bhd of Malaysia and approximately 6.4% by “interests associated with the Singaporean Government”, has approval to acquire 12.5% of Sky City Ltd, Auckland’s Sky City Casino and Sky Tower owner, from Harrah’s Entertainment Inc via its subsidiary, Harrah’s Operating Company, Inc. Harrah’s, of the U.S.A., is a casino owner and operator. The price was $84,375,000 and included the seven pieces of land totalling approximately 2.2557 hectares which constitute the “Sky City and Sky Tower” sites in the Auckland central business district. Brierley Investments owned its previous 50.6% interest through subsidiary Betony Properties Ltd. It now has 63.1%. Harrah’s had the management contract for the Casino, which Sky City has bought out for about $13.5 million after tax. The casino was paying between $9 million and $10 million annually to Harrah’s as a management fee. The changeover will not be immediate as Sky will take some months to complete legal requirements for the casino operator’s licence (Press, 27/6/97, “BIL lifts casino stake to 63%”, p.19). Management of the casino has been strongly criticised for its “appalling record” in industrial relations, to the extent that Labour and Alliance MPs boycotted the opening of the Sky City Tower in August (Press, 1/8/97, “MPs to boycott Sky City opening”, p.5). In July an employee had been sacked for using the wrong toilet. The Service Workers’ Union said more than 1,000 staff had left the casino in the 18 months since its opening. Union officials had attended more disciplinary meetings for Sky City staff than with any other company or organisation in Auckland, and described it as having an “upstairs, downstairs-style mentality” (Press, 24/7/97, “Sky City under cloud”, p.2). Financially the casino was up to expectations, the profit to June 1997 being $36.088 million, up 133% on the 1996 figure which represented only five months trading. However, earnings from restaurants, bars, theatre and the hotel had been disappointing. Sky City paid out 90% of its tax-paid earnings in dividends. This did not stop the share price falling: share analysts had expected even higher earnings. Sky City has applied for a casino premises licence in Queenstown, in a joint venture with Skyline Enterprises. It is also interested in a Wellington licence (Press, 26/8/97, “Sky City deals forecast hand”, p.31; 27/8/97, “Sky City in a spin”, p.30). Clariant and Hoechst pharmaceutical and chemical groups merge In two decisions, the world-wide merger of the Clariant and the Hoechst groups is reflected in Aotearoa. Both companies are “active in the field of specialty chemicals”, including pharmaceuticals. Clariant AG of Switzerland has approval to acquire Hoechst Masterbatch New Zealand Ltd, from Hoechst AG of Germany, and Clariant (New Zealand) Ltd “(formerly Hoechst New Zealand Ltd)”, for a price “yet to be determined”. The transactions were initially suppressed and released only after appeal, in December 1997. Itochu buys remaining 49% of South Wood Export, with 2,307 ha. land, for $4m The Aotearoa subsidiary of the Itochu Corporation of Japan, Itochu New Zealand Ltd, has approval to acquire the remaining 49% of South Wood Export Ltd that it does not already own, for approximately $4,000,000. The land involved is approximately 2,307 hectares forming part of a commercial forestry operation in Southland, “held by direct ownership or through related associated entities, including joint venture parties and subsidiary companies”. South Wood has appeared most frequently in OIC decisions as the contractor running forestry operations on land purchased by the Southland Plantation Forest Company of New Zealand Ltd, which is ultimately owned by New Oji Paper Company Ltd and Itochu Ltd of Japan. Until a decision reported in September 1996, the shareholding in South Wood was reported by the OIC to be 66.6% by MK Hunt Foundation Ltd of Aotearoa and 33.3% by C Itoh and Company of Japan (another name for Itochu). Also until September 1996, virtually all reported purchases involving South Wood were in Southland. That month, however, Atadair Forests Ltd, owned by Carter Holt Harvey Ltd of the U.S.A. (78%), South Wood Exports Ltd (19.9%) and Itochu New Zealand Ltd (2.1%), took over the lease of 813 hectares of land from Parengarenga A Incorporation for a “nominal amount”. It was “part of the Parengarenga B3C Block created by partition order of the Maori Land Court on 5 May 1977”. The transaction was another result of the bankruptcy of Northern Pulp Ltd which had established a Triboard mill in Kaitaia, Northland, with associated forestry rights. This land is not mentioned in the present decision. According to the New Zealand Press Association (e.g. Press, 16/10/97, “Itochu drops TAB action”, p.29), the shares were sold by the chairman of South Wood, Keith Hunt. South Wood had been in the midst of legal action against the TAB after a former employee was convicted of defrauding the company to gamble on the horses. Itochu dropped the action and installed an Itochu consultant, Dick Perham, as chairman.
More refusals: German refused land in Northland, Venezuelan in Bay of Plenty The OIC has made its third and fourth refusal of an application in 1997. In one, the OIC has refused consent to Mr Martin Josef Pohl, a resident of Germany, to acquire a piece of land “which exceeds five hectares in area” in Northland. The land was to be used for “forestry/lifestyle”, but the price and details of the land involved have been suppressed. In the second, the OIC refused to allow Alberto Finol of Caracas, Venezuela, to buy over five hectares of land in Bay of Plenty for dairy farming. The sellers, details of land, and price were suppressed. Unusually, the OIC in December 1997 released these details: normally it does not release details of transactions that do not proceed. The reason is that it in fact did get approval in September. He had previously purchased land in December 1996. The case is interesting because it is apparently brokered by the New Zealand Dairy Board to smooth trade with Venezuela. For details, see our commentary on the September 1997 decision.
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