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May 1998 decisions Liberty Oil, which has announced with much fanfare that it is entering the petrol retailing market in Aotearoa, but has yet to be seen in action, has approval to set up a joint venture company here. The joint venture company (JVC) is Liberty Oil (NZ) Ltd, which is owned by Liberty Oil Holdings Pty Ltd of Australia (through its subsidiary Liberty Oil Holdings (NZ) Ltd) and by Freedom Oil NZ Ltd “of New Zealand”, though its ownership is not noted by the OIC.
Liberty gives the value of its investment only as “in excess of $10 million” ($10 million being the lower limit at which an overseas investment must be reported to the OIC). However research by an Australian economic research company, ACiL estimated it would cost a new entrant to the petrol market about $100 million to have a viable market presence, though that could be reduced as low as $30 million if it made use of existing retail outlets such as supermarkets (Press, 23/10/97, “Oil firms get price warning”, p.6). It is about time petrol prices came down. “Falls in petrol prices from deregulation have been lost, with prices rising rather than falling” said the Institute for Economic Research in a report commissioned by the Ministry of Commerce, in February 1997. It estimated oil prices might be too high by $160 million, of which companies got $100 million, and “increasing margins suggest at least tacit collusion”. The Ministry itself estimated that since 1990, the gap between the prices in New Zealand and Singapore had widened by about 1.1 cents a litre each year. Not only were they using their power as importers and wholesalers, but according to the Consumers Institute, deregulation, which allowed them to own petrol stations, had allowed them to buy 20% of all stations selling no less than 80% of all petrol. The Institute’s Chief Executive, David Russell, said “there’s no genuine competition” (Press, 14/2/97, “Consumers ‘paying too much for petrol’”, p.2; 21/2/97, “Oil company revenue ‘too high’”, p.8; 26/2/97, “Petrol too expensive – claim”, p.6). CAFCA can say “we told you so”: in 1986, in an article published in the Sunday Times (7/9/86, “Deregulation debunked”, by Bill Rosenberg), we pointed out the international record of the transnational oil companies, Mobil, Shell, BP and Caltex (jointly owned by Chevron and Texaco), in forming cartels, and predicted that deregulation would not bring down petrol prices. Instead competition would be limited to advertising, give-aways, service, and price-cutting on the secondary products service stations sell. We said it would be an interesting test of the “free market” whether the other two of the “Seven Sisters” which dominate the international oil industry – Exxon and Gulf – took the opportunity to enter New Zealand. “The suspicion is that they have an agreement with the other five to stay out”. We said the only way to ensure real competition was to set up an independent oil, CNG and LPG distributor. Not a bad set of predictions if we say it ourselves. So at last, after a dozen years, and several hundred million dollars lost in higher prices, something is happening. Whether it has any long term benefits we should wait another decade to decide. Perhaps with this in mind, Energy Minister Max Bradford, warned the existing companies not to engage in “predatory pricing” to stifle competition from Liberty and Fletcher’s Challenge Energy (Press, 23/10/97, “Oil firms get price warning”, p.6). We are sure the companies are quaking in their boots, given the government’s fearless record to date against them, Telecom, and other predators. The old guard are indeed acting true to form, Automobile Association data indicates. In a survey reported in AA Directions, (July 1998, “Petrol Prices Tumble”, p.16), they showed that prices had fallen where Challenge offered competition, but not significantly elsewhere – notably in the South Island where Challenge has yet to begin selling. They also pointed out a down side to the competition: the loss of service in stations. A response to that is that many stations no longer offer service in any case, without the benefit to the consumer of lower prices. The fact that the existing oil companies’ prices have fallen so quickly and easily however, certainly lends support to the charge that they have been milking the market. The North Island/South Island price differential could actually worsen, David Russell pointed out, if the existing companies used higher South Island prices to subsidise price cuts where they were in competition, currently solely in the North Island. Liberty responded at that stage that it would enter the South Island within six months of “putting the North Island to bed” (Press, 23/10/97, “Cheap NI petrol may raise cost in south”, p.1). That might help main centres, but smaller centres and rural districts are likely to be major losers. There is unlikely to be room for competition in such areas, leaving the big four a free hand to raise prices to compensate for their lower margins elsewhere. In fact, Liberty (as did Challenge and another new entrant, Gull) met more problems than it bargained for in starting up. It announced its intention to sell petrol at a discount of ten cents a litre within six months, in October 1997. (David Russell thought the ten cents was “pre-launch hype” likely to turn out to be five or six cents.) By August 1998 its operation still was not under way. Instead, Challenge, which made its initial announcement a month later than Liberty, was up and running well ahead of it. Part of the problem lay over an insistence by the Tauranga District Council that Liberty share a pipeline with Gull which would run from the Port of Tauranga to storage tanks at Mt Maunganui. Both have applied for resource consents, but Liberty considered the condition put it “at the whim of a competitor” and threatened to move to Wellington (Press, 4/5/98, “Liberty told to share pipeline with Gull”, p.35). Liberty plans to import oil rather than use the Marsden Point Refinery, which even Fletcher found difficulty getting supply from, despite it being a significant shareholder. The other shareholders are the big four oil companies, with obvious implications. Before Challenge’s entry, BP held 29% of the market, Shell 27%, Mobil 25% and Caltex 19%. There were 1,890 service stations, of which about 1,000 were able to switch to Liberty in the next five years (Press, 15/11/97, “Fuel for a high-octane price war”, Weekend section, p.11). However Liberty is also talking to supermarket operators Progressive Enterprises (Australian owned, running Countdown, Supervalue, Foodtown and 3 Guys) and Woolworths NZ (Hong Kong owned, running Deka, Woolworths, Big Fresh and Price Chopper). Petrol bowsers would be set up in their car parks. Progressive reportedly had already had talks with Malaysia’s state-owned oil company, Petro-nas to the same purpose; Woolworths sells petrol in Australia; and on the other hand BP is trialling petrol sales from supermarkets in Canberra (Press, 1/12/97, “Liberty eyes supermarkets”, p.31). Liberty has eight per cent of the Australian petrol market, having gained it in three years, running 270 outlets. It found partners in Wellington businessmen Stephen Bryant (Liberty’s New Zealand managing director) and Simon Wallace, joint owners of commercial furniture maker, Corporate Interiors. They also control Damba Holdings (through Corporate Interior’s 57% shareholding) which, despite a loss in 1997, is looking at buying and operating a tank farm for Liberty at Mt Maunganui. Liberty Oil in Australia is owned by David Goldberger of the U.S.A., and David Wieland of Australia (Press, 15/11/97, “Fuel for a high-octane price war”, Weekend section, p.11; 28/2/98, “Damba in the red but confident on outlook”, p.23; 2/4/98, “Damba in oil deal”, p.30). Approval to both Emerald and AMP Asset Management to buy Direct Capital On 22/5/98, two companies with major shareholdings in the company received approval for a 100% take over of Direct Capital Partners Ltd. AMP Asset Management New Zealand Ltd, a subsidiary of AMP Ltd of Australia, gained approval to acquire Direct Capital Partners Ltd, of which it previously owned 18%. The OIC notes that Direct Capital owns 49% of Nobilo Vintners Ltd which has a total of 95 hectares of land:
The price is “to be advised”. On the same day, Emerald Capital Ltd, owned 90% by Gardiner Group Ltd of Canada and 10% by Mr G. A. Cumming of Aotearoa, gained approval to buy the 81% of Direct Capital it did not already own for $50-$55,000,000. Also that day, Gardiner Group Capital Ltd, owned by the estate of Mr George R. Gardiner, had gained approval to buy up to 90% of Emerald for $0. Gardiner Group Ltd had previously owned 87.5%. In fact, AMP used its approval to increase its shareholding to 29.74% (Press, 18/6/98, “AMP sells DCP stake”, p.25), before selling out to Emerald. AMP’s tactics were interesting: it presumably was considering (or threatening) a counteroffer as Emerald had announced its intentions to take over Direct Capital a month before the three approvals were given by the OIC on 22/5/98. Yet the OIC states:
Commitment obviously only goes so far. Emerald gained a controlling 48% of The New Zealand Experience Ltd in 1996 (see our commentary for June that year). This owns the Mount Cavendish Gondola on the Port Hills, Christchurch, and Rainbows End, Manukau, Auckland. Together they own four hectares of freehold land and seven hectares of leasehold land in Christchurch and Manukau respectively. Direct Capital is a venture capital investor, specialising in unlisted companies. Most of its success has been in its ability to sell them. According to Datex’s “New Zealand Investment year Book 1998”, the company was formed and listed in 1994 and had invested some $72m up to 1998. It lists its major investments as:
It sold its 20% holding in the Blue Star Group (see our commentary on the February 1996 decisions), and its 25% in PC Direct (see September 1996), both to U.S. Office Products, both at significant profits. Datex says “a smaller stake in Sky City (initially $12.1m) has also been sold in stages realising a total of $18.2m”. However profits have been falling in the last two years. Emerald Capital’s bid was at 83 cents a share, “some 32% in excess of previous price levels but well below underlying asset values of 92-96c per share as assessed by Price Waterhouse” says Datex. Emerald has now acquired all shares, giving a cost of $57.2 million, somewhat more than notified to the OIC. The low price is a disappointment for Direct Capital’s directors, who included Business Roundtable member and company chairman, John Fernyhough, and presumably the same Mr G. Cumming who owns 10% of Emerald. It also indicates the thinness of New Zealand’s capital markets. Critic Investments, U.S.A., buys ENZA’s Frucor Beverages (including Fresh Up) Critic Investments Ltd, majority owned by Bain Capital of the U.S.A., has approval to acquire Frucor Beverages Ltd from the Apple and Pear Marketing Board (ENZA) for $65,000,000. In August 1997, the Board “made a decision to divest its interest in Frucor Beverages and appointed a Wellington investment bank to promote the sale nationally and internationally”. Some growers were not happy however, accusing the Board of “selling the orchardists’ family silver”. It was justified as not being a “core” business (presumably apples and pears are “cores”). The juice processing plants were being retained. The sale includes the kiwi icon of Fresh Up, plus Just Juice, McCoy, NZ Natural, Citrus Tree, and V brands (Press, 5/6/98, “Frucor sale”, p.22; Otago Daily Times, 5/8/97, “Fruit juice firm to go on market” and “Apple and Pear Board subsidiary sale criticised”; and http://www.nzway.co.nz/Brand/brand_partners.html). The Board considered it had made a net gain of no less than $50 million from the sale (Press, ibid).
In a decision originally almost completely suppressed but released on appeal in October 1998, Alsco Linen Service Pty Ltd, the New South Wales incorporated subsidiary of Steiner Corporation of the U.S.A., has approval to acquire Young Nick Investments Ltd, a holding company for the Endeavour Group. The Steiner Corporation is a private company 80% owned by the George A. Steiner Trust, whose beneficiaries are the descendants of George A. Steiner (see a related July 1998 decision by the OIC). The price has been suppressed, but according to NZPA (Press, 19/5/98, “Plowman reward in Endeavour”, p.18), the Steiner Group offered around $200 million for Endeavour. Young Nick Investments is owned in trust for the family of Neal Hutton Plowman. The company owns 100% of Endeavour Services Corporation Ltd which runs New Zealand Towel Services (the largest towel supply business in Aotearoa), Deane Apparel and Endeavour Properties, among other operations. Plowman appears to be getting out of many of his businesses: in February 1998, Hoyts of Australia bought out his cinema operation, Endeavour Multiplex Ltd (see our commentary for that month). However, according to the National Business Review (17/7/98, “The Rich List 98”, p.43), he has a significant investment in Tranz Rail. NBR included Plowman in their “rich list”, putting his worth at $100 million. He was number ten amongst their “top 10 individuals”. Amtrust (formerly Gulf Pacific) buys Telecom Tower and Karangahape Plaza Amtrust Pacific, owned by Michael and George Karfunkel of the U.S.A., has approval to acquire ST CI Ltd and Equal Assets Ltd for $38,000,000. The companies own a total of 0.7991 hectares known as “The Telecom Tower” and “Karangahape Plaza“, on Hopetown, Hereford and Howe Streets and Karangahape Rd, Auckland. Amtrust was formerly known as Gulf Pacific Ltd, which was previously City Realties Ltd, which were highly controversial companies due to their flight from environmental responsibilities in the U.S.A., and their business practices in Aotearoa (see for example our commentaries on the October 1991 and January 1996 OIC decisions). In September 1997, Amtrust bought the Price Waterhouse Centre in Auckland for $82,750,000. At that time they stated that “Amtrust intend to embark on an expansion programme with the intent to grow the company’s current asset base to between NZ$500 million to NZ$600 million over the next year”. The identical phrasing appears in the present decision. Telecom buys last cell phone company, Cellnet – shows competition sham Telecom New Zealand Ltd, a subsidiary of Telecom Corporation of New Zealand Ltd, has approval to acquire the business of Cellnet Mobile Services Ltd, its only remaining independent Telecom Accredited Service Provider. The business “relates to the resale of airtime by Cellnet as a Telecom sales agent on the Telecom cellular network”. The price has been suppressed. This acquisition was the subject of an investigation by the Commerce Commission. Its report of 15/5/98 (p.6) gives Cellnet’s parentage and its relationship to Telecom:
The Commerce Commission’s investigation reveals the phoney (no pun intended) nature of the distribution outlets Telecom has set up, seemingly competing to provide telecommunications services based on Telecom’s network. The “TASPs”, in this case, were a marketing device set up by Telecom. They existed at its whim. The Commerce Commission quotes Telecom itself as saying (p.17):
And
though an angry competitor opposing the Cellnet buyout, BellSouth, disagreed:
Commerce Commission staff recognised that Cellnet does have “some competitive influence on Telecom” (p.20) but that Telecom had competition from BellSouth, and Telstra as from May 1998, although “Telstra has reached an agreement with BellSouth whereby it will offer its own cellular service using BellSouth’s network”.
It concluded that “Telecom is not currently dominant in the market for the distribution of cellular services in New Zealand” and that
It therefore allowed the acquisition. Interestingly, the major shareholders of Telecom are still cited as Ameritech Holdings Ltd and Bell Atlantic Holdings Ltd, both with 28.82% ownership and both of the U.S.A. despite Ameritech having sold all its shares in April 1998 for US$2.1 billion, making a $US1 billion (NZ$1.84 billion) after-tax profit (Press, 17/4/98, “Ameritech makes $1.84b”, p.13). Capital Properties New Zealand Ltd formed to buy privatised GPS group Capital Properties New Zealand Ltd, a newly formed company to be publicly floated on the New Zealand and Australian Stock Exchanges, has approval to acquire the Government Property Services group which the government has announced will be privatised. It has approval to acquire GPS Investments Ltd, GPS Kingsway Ltd and GPS St Pauls No. 1 Ltd for $190-200 million. It is unusual for such a decision to be released in full at this early stage of a transaction. It is also remarkable that the OIC can predict that the persons controlling the company will have business experience and acumen, demonstrate financial commitment towards the proposal, and be of good character (the criteria under the Overseas Investment regulations) before the company has found its shareholders. Glenburn Station (5,899 ha.), Wairarapa, sold to GMO, U.S.A., amid controversy
The place has an aristocratic (not to mention Tory) history:
The Riddifords also owned the Lagoon Hill station at Tuturumuri near Martinborough which they sold in December 1993 (Wairarapa Times Age, 20/12/97, “$4.4m bid for station fails”). GMO plans to develop a significant part of Glenburn in forestry and introduce approximately $9 million in development capital. Tourism is also being considered, and higher density sheep farming over 2,000 hectares. Regarding the conservation values:
GMO bought the property by private negotiation after it was passed in at auction in November 1997, with a top bid of $4.4 million from a local farming syndicate. The top bidders reportedly matched GMO’s price of $4.6 million in the negotiations, but the American offer was accepted because they were able to complete final settlement earlier (Wairarapa Times-Age, 26/2/98, “Glenburn sale to America could be test case”, p.1). GMO
It is a subsidiary of Grantham, Mayo, Van Otterloo and Co., LLC, which is a major shareholder in Tasman Properties Ltd (Rural News, 20/7/98, “New Zealand for sale!”, by Ross Annabell). The sale attracted huge controversy in the Wairarapa, fanned by the sale of a second big coastal station, the 2,954 hectare Castlepoint Station which includes a holiday park and 12 km of coastline. Though knowledge of it was denied by the auctioneers, the station was the subject of “at least four claims” yet to be heard by the Waitangi Tribunal, according to Ngati Kahungunu ki Wairarapa Maori Executive Taiwhenua Iwi Authority. A major concern was the alienation of the foreshore with “profound effects” on fishing rights and access to traditional fishing sites. “It will also have an effect on the protection of burial grounds and any place that is, or was, of cultural or spiritual significance to a whanau, a hapu, or an iwi” said Tom Paku, resource planner for the Authority (Wairarapa Times Age, 10/12/97, “Maori claims on coast land”). The land is also subject to another claim, by Rangitaane O Wairarapa (Wairarapa News, 26/11/97, “Sale unaffected by land claims”). Other locals, including a Councillor, Chris Peterson, feared that large parts of the Wairarapa coastline would become overseas owned. The length of time for the OIC decision to be made is an indication of the pressure on the Ministers involved in the decision: it was sold in February but not approved until May. The OIC prides itself on the speed of its decisions – usually days at most. This decision, and the next, show that the government will not prevent even the most sensitive land being sold overseas. Scenic reserve, wahi tapu land in Onemana, Coromandel sold A joint venture consisting of Mr Fred Kingery of the U.S.A. (35%) and The Hillbrook Family Trust of Aotearoa (65%) has approval to acquire 70 hectares of land at Peninsula Road, Onemana, Coromandel, for $3,100,000 from U & P Nielsen (1988) Ltd. Mr Kingery (who says he has applied, via Malcolm Pacific Ltd for permanent residency and plans to live permanently in Aotearoa) has been given 25 hectares of the block for a “nominal” sum. The land could scarcely be more sensitive in terms of the Overseas Investment Regulations. It adjoins the foreshore and “contains a scenic reserve and several registered archaeological sites, and wahi tapu areas held under the Historic Places Act 1993”. As a consequence, they propose
The proposal also has Mr Kingery leasing the pasture section of his land back to the joint venture. “It is advised the pastoral land contained on the property will initially continue to be farmed as a drystock and dairy run-off unit. The joint venture parties’ ultimate intention is to establish an olive plantation on the property.” Havelock North land to U.S. trust for organic farming for Annie’s Home-grown Heather Trust, whose beneficiaries are Mr Andrew McGovern Martin and Heather Smith Martin, both citizens of the U.S.A., has approval to acquire 302 hectares of land in Mantangi Road, Havelock North, Hawkes Bay for $2,000,000.
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