February 2001 decisionsAllied Domecq of the U.K. gets approval to acquire 100% of Montana but… NRMA of Australia buys State Insurance from Norwich/CGNU of the U.K. Swift energy buys leasehold land for Rimu Prospect petroleum production Fishing lodge near Queenstown from Australian to U.S. owners
There are only nine decisions this month, but two very significant ones are amongst them: another entrant in the struggle for control of our biggest wine company, Montana, and the change of ownership of insurance market leader and formerly state-owned State Insurance. Allied Domecq of the U.K. gets approval to acquire 100% of Montana but…Allied Domecq Plc of the U.K. has approval to acquire 100% of Montana Group (NZ) Ltd (formerly Corporate Investments Ltd), the biggest winemaker in Aotearoa, for an amount “to be advised”.
This proved however to be no more than a declaration of war by another combatant in the struggle for control of Montana which began in mid 2000. In August 2000, Lion Nathan Ltd, headquartered in Australia but controlled by Kirin Breweries Ltd of Japan (46%), gained first OIC approval to acquire 28.2%, and then both OIC and Commerce Commission approval to acquire the full company. See our commentary on the September 2000 decisions of the OIC for details of this episode, in which the Commerce Commission appeared to ignore problems of market dominance. In December 2000, Lion gave notice that it intended to buy a controlling interest of 51%, and in response, Montana chairman Peter Masfen, controlling shareholder until Lion entered the scene, also indicated an intention to bid for 51% at the same range of prices. Both sat on their positions without buying, staring at the whites of each other’s eyes for some time. Lion’s actions were said at the time to be encouraged by rumours of other foreign interest in Montana, as a flow-on from takeover targeting of the Australian wine industry by transnationals Diageo and Allied Domecq (Press, 23/11/00, “Foreign interest spark Lion move on Montana”, p.17).
Allied Domecq’s bid on 7 February 2001 initially trumped Lion’s offer and was supported by Peter Masfen who agreed to sell his shares to the U.K. company. It was offering $4.40 per share for up to 100% of the company, valuing it at $994.5 million. The purchase was conditional on obtaining 50.01% of the shares by 15 February, and included an offer to pay all shareholders the highest price it paid to any shareholder. This compared to Lion’s bid of $3.20 to $3.80 (matched by Masfen), and its comments that offers like Allied Domecq’s were “over ambitious”. Lion stood to make a quick profit of $100-$110 million if it accepted Allied Domecq’s offer, which independent Montana directors recommended shareholders accept.
Lion hit back on the Thursday, just a day later, in the ruthless style that is typical of those who control Lion and has given the New Zealand sharemarket its “wild west” reputation. Lion offered $4.65 a share and up to $4.80 – but for only another 22%, to tip its ownership over the 50% mark needed for undisputed control. Despite calls from independent directors for Lion to accept shares on a pro-rata basis, rather than first-come, first-served, Lion gained an unusual and highly controversial waiver from the Stock Exchange to start buying immediately instead waiting the normal 48 hours to give shareholders at least a minimal time to consider the offer.
In the “very early hours of Friday morning”, its sharebrokers, Credit Suisse First Boston, phoned institutions, and large shareholders who happened to be its clients. By the time most shareholders had an opportunity to accept the offer (many thinking they had more time to consider the competing bids), Lion required only another 4.5%. On Friday, Montana’s independent directors sought and were granted a suspension of non-market trading until Monday, but by then the damage had been done. (See our commentary on the Kirin takeover of Lion in April 1998 for other examples of this behaviour by Lion and its chairman Douglas Myers.) Lion’s offer also contradicted its previous statements that it would not budge from its earlier $3.20 to $3.80 bid. Making it even more difficult for small shareholders, it would only accept parcels of at least 5,000 shares (Press, 9/2/01, “Allied sees red as Lion raises ante”, p.14; 10/2/01, “Lion bid highlights takeover code need”, p.22; 10/2/01, “Only few get Lion price for Montana”, p.21).
Allied Domecq was understandably furious. Lion had taken advantage of the expiring Business Roundtable-supported takeover rules which were due to be changed on 1 July. From then, a partial bid above 20% would be disallowed unless it was for the whole company, to protect minority shareholders. Allied had, in these terms, done the decent thing and lost its prize as a result. A few days after the decision, it asked the Stock Exchange’s market surveillance panel to overturn the waiver it had given Lion, and to release investors from the sale commitments they had made to Lion. The panel refused, although the New Zealand Stock Exchange itself was reported to by “unhappy” about the waiver. The credibility of the decision was not improved by the revelation that one of the three panel members who gave the waiver, Tower Asset Management’s managing director Paul Bevin, had a conflict of interest: his company sold about 900,000 Montana shares to Lion on the Friday.
Two weeks later, Allied Domecq formally requested an investigation by the Stock Exchange into whether Lion’s actions had breached listing rules. The Stock Exchange agreed to set up an investigation panel. There was not agreement on the possible consequences however: a Stock Exchange spokesman initially said Lion could be required to forfeit only the 22% it had acquired in the raid, but a lawyer for the investigating committee and Allied Domecq itself insisted that Lion’s full 50.96% was at stake. And the U.K. company was still interested in buying Montana, formally renewing its offer at $4.16 to $4.64 a share, to expire on 1 July. Lion responded with an offer for the remaining 49% of shares at $3.95 to $4.70, but both offers were really only positioning in anticipation of the outcome of the investigation (Press, 12/2/01, “Wine plea in vain”, p.15; 13/2/01, “‘Diabolical’ waiver helps Lion”, p.10; 14/2/01, “Exchange ‘unhappy’ with action”, p.21; 16/2/01, “Allied Domecq quiet about Montana”, p.12; 24/2/01, “Montana dispute flares again”, p.13; 3/3/01, “Allied wants another bite at Montana”, p.27; 21/4/01, “Liquor giant renews attack on Montana”, p.23; 25/4/01, “Lion tit-for-tat over Montana”, p.32; 27/4/01, “Lion stake in Montana not certain”, p.14).
Lion ended up with 50.96% of Montana. Executive chairman, Peter Masfen’s position was unclear for some time, given that he had agreed to sell to Allied Domecq and was critical of the Stock Exchange’s market surveillance panel. However he quickly came on-side with Lion and was left in his leading position in Montana (Press, 15/2/01, “Masfen looks set to retain Montana role”, p.10).
Montana has moved rapidly to integrate the assets it bought in its takeover of Corbans in 2000: by February 2001, it was reporting that the integration was largely complete. It put Corban’s Marlborough winery up for sale in December 2000, and installed piping between the Montana, Corbans and Penfolds wineries in Gisborne, all now owned by Montana (Press, 20/12/00, “Montana in winery sale”, p.22; 20/2/01, “Strong lift for Montana”, p.13).
Meanwhile the overseas takeover of the New Zealand wine industry continues, following Montana, Corbans, and Nobilo, with Fosters of Australia buying Matua Valley Wines for $11.2 million through its Beringer Blass subsidiary in April. Beringer Blass managing director, Terry Davis, speaking from Melbourne, said that he expected the deal to lead to “other premium New Zealand wineries asking to join his portfolio” (read: being taken over) and “for more landowners to become grape suppliers. New Zealand’s wine industry was likely to mimic the Australian consolidation pattern, which saw labels disappear as producers merged, and an increase in growers.” In other words, New Zealand wine-making is being brought to the end of its innovative promise, and will become largely grape-farmers supplying grapes to large overseas owned wine-makers. Those transnationals may well send the grapes to another of their wineries in Australia, France or the U.S., for blending. The experience of crop-farmers who have to take prices from a few large suppliers is destined to be repeated (Press, 4/04/01, “Aust beer giant moves into NZ premium wines”, p.19).
If anything good came out of the episode, it was proof of the wisdom of the government-mandated changes in the Stock Exchange’s takeover rules. The surveillance panel’s waiver was described as “diabolical” by commentator Brian Gaynor. The Christchurch Press described the episode as “the New Zealand sharemarket once again living up to its invidious reputation for cowboy behaviour” (Press, 13/2/01, “Leaving an acid taste”, p.4). Whether the changes will be sufficient has yet to be seen.
Allied Domecq is based in Bristol, U.K., and is the second largest spirits distiller in the world, after Diageo. It has been formed over a period since the 1960’s by a series of takeovers and mergers, its name being derived from a 1994 takeover by Allied Lyons (U.K.) of Pedro Domecq, the leading spirits company in Spain and Mexico. It had profits in the year to August 2000 of approximately NZ$1.6 billion on sales of NZ$8.7 billion. It boasts it has “12 of the top 100 international premium spirit brands together with a range of fine wines from all over the world. Our brand portfolio commands world No.1 or No.2 positions in six leading spirit categories”. Spirits brands include Ballantine’s and Teacher’s scotch whisky, Maker’s Mark bourbon, Beefeater gin, Courvoisier Cognac, Borzoi vodka, Cockburn’s port, Harvey’s Bristol Cream sherry, and Frangelico, Kahlua and Tia Maria liqueurs, and Sauza tequila. Its wines include Clos du Bois (California) and Marques de Arienzo (Rioja, Spain).
While 89% of its sales come from liquor, Allied Domecq also owns three fast food chains (which they would rather call “Quick Service Restaurants”). They are Dunkin’ Donuts, “the world’s largest coffee and baked goods chain with 5,200 stores in 40 countries selling over 6.4 million donuts daily” (purchased in 1989 from billionaire Bill Rosenberg, sadly no relation of CAFCA’s namesake), Baskin-Robbins, “the world’s largest ice cream franchise with 4,500 outlets in 40 countries”, and Togo’s, a chain of sandwich bars “serving 60,000 sandwiches every day”. (The above information largely comes from Allied Domecq’s web site, http://www.allieddomecqplc.com.)
The purchase of Montana (for whoever wins the prize) includes 2,048 hectares of freehold land in Gisborne and Hawkes Bay (943 hectares), and Marlborough (1,074 hectares), including a 3.6 hectare site at Milson Line and Malden Street, Palmerston North, Manawatu, and 27 hectares at 109 Monk Street, Waioneke, near Wellsford, Northland. In addition, Montana has 106 hectares of leasehold land comprising 19 hectares at 254 Eskdale Drive, Hawkes Bay and 87 hectares at State Highway 63, Renwick, Marlborough. This is a substantial increase since Montana bought Corbans in September 2000 (see our commentary for that month).
It appears, from what can be made of the figures given by the OIC, that Montana before the increase in Lion’s shareholding was owned as follows:
· 28.2% by Lion Nathan controlled in Japan; · 20.69% by P. H. Masfen (chairman, Peter Masfen) of Aotearoa; · 13.04% by Australian Mutual Provident Society (AMP) of Australia; · 7.08% by The Capital Group Companies Inc of the U.S.A.; and · 30.99% in minority shareholdings in Aotearoa; NRMA of Australia buys State Insurance from Norwich/CGNU of the U.K.NRMA Insurance Group Ltd of Australia has approval to acquire Norwich Union Holdings (NZ) Ltd, the owner of State Insurance Ltd, from Norwich Union Overseas Holdings BV, part of the U.K. owned CGNU Group for $405,000,000.
Norwich Union bought State when it was privatised in May 1990 for $735 million. Despite the fact that State describes itself as “the largest fire and general insurer in New Zealand” with a market share of 20% including 35% of motor insurance, 28% of contents insurance, and 16% of fire insurance, it appears Norwich has not made a success of this market leader and suffered a considerable loss on its sale, despite the price being at the “upper end of market expectations”.
CGNU, the largest insurer in the U.K., recently merged with Norwich Union. Norwich has been withdrawing from the New Zealand market. In July 1998, the Royal & Sun Alliance group of the U.K. received OIC approval to acquire Norwich Union Life Insurance (NZ) Ltd and Norwich Union Investment Management (NZ) Ltd from Norwich Union Plc of the U.K. for $153,621,466. Royal and Sun Alliance was also a bidder for State (Press, 6/2/01, “NRMA front-runner for State Insurance”, p.18; 10/2/01, “NRMA buys State Insurance”, p.24).
The sale left State’s 1,400 staff worried. Immediately after the sale, then NRMA chairman Nicholas Whitlam “signalled big changes”, expecting at least $10 million a year in cost reductions through “efficiencies”. In sordid management double-speak he announced that “retention strategies were being devised for key State staff”, leaving the remaining staff with no guarantees on redundancies (Press, 10/2/01, “NRMA buys State Insurance”, p.24; NRMA presentation 8/2/01).
Yet NRMA has its own big problems at home. The former mutual company demutualised and listed on the share market in August 2000. Since then the company’s board has been wracked by public squabbles, including ones over the acquisition of State Insurance. Whitlam resigned from the board and chief executive Eric Dodd was sacked just two months after the purchase. This led to a warning from Australia’s corporate insurance regulator, the Australian Securities and Investment Commission (ASIC), that NRMA had to quickly settle its leadership issues (Press, 10/4/01, “NRMA told to resolve problems”, p.15). In March, ASIC had announced that it “has commenced investigations into certain issues of market disclosure and governance by NRMA Insurance Group Limited and NRMA Limited respectively” (ASIC media release 01/092, 16/3/01, “ASIC commences investigations of NRMA”). Swift energy buys leasehold land for Rimu Prospect petroleum productionSwift Energy New Zealand Ltd, a subsidiary of Swift Energy Company of the U.S.A., has approval to acquire 15.5 hectares of leasehold land at Mokoia Road, South Taranaki, for $128,800. The land is part of a 337 hectare dairy farm next to the “discovery” site within the Rimu Prospect, which “has shown commercial production potential”. Swift “now wishes to establish a petroleum production facility for processing and distributing the petroleum … to process oil and gas recovered from successfully drilled sites”. Swift “estimates that the total reserve potential for this site is between 10 and 100 million barrels of oil equivalent”.
According to the Commerce Commission, in the first of its two decisions on Shell’s application to buy Fletcher Challenge Energy (see our commentary on the corresponding October 2000 OIC decision, and Commerce Commission Decision 408, 12/10/00),
The Rimu field is an on-shore field situated in South Taranaki. It was discovered in 1999 by Swift, a North American oil and gas producer. The field is now 90% owned by Swift, 2.5% by a Bligh subsidiary, and 2.5% by Antrim Oil and Gas Ltd.
The Commerce Commission considered that it was possible that Rimu would be producing around 10 PJ (petajoules) per annum in 2010 if the field proved to be around the size suggested by FCE, but emphasised the uncertainties in this. It commented that “Swift considers Rimu an oil discovery. However, Swift’s application for resource consent includes condensate, gas and LPG processing plants.” It thought that Swift was likely to produce LPG for the New Zealand market.
In its second decision (Decision 411, 17/11/00), the Commerce Commission noted that
the owner of the field, Swift, has announced plans to build a processing plant in South Taranaki so it can bring up to four Rimu oil wells into commercial production by the middle of next year [2001], and that up to $25 million could be spent on the project in the next year or two. Land for forestry· Southland Plantation Forest Company of New Zealand Ltd, ultimately 51% owned by New Oji Paper Company Ltd, 30% by Itochu Ltd, and 19% by Fuji Xerox Co. Ltd, all of Japan, has approval to buy 289 hectares of freehold situated at 82 Cathcart Road, Otapiri Gorge, RD 2, Winton, Southland for $532,250 (including GST) for forestry. It is currently used for sheep, beef and cattle grazing.
“It is SPFL’s longterm plan to establish 14,400 hectares of Eucalyptus Niten plantation for the production of hardwood fibre, with a 12 to 15 year rotation, with replanting to occur after harvesting. Since 1992, SPFL has developed 7,600 hectares of Eucalyptus Niten plantation, with an annual planting of 1,200 hectares.”
As usual with its purchases, all forestry activities will be conducted under contract by South Wood Export Ltd of Japan. The last such purchase was in August 2000. Fishing lodge near Queenstown from Australian to U.S. ownersForest and Deborah Danson of the U.S.A. have approval to acquire a fishing lodge at the corner of State Highway 6 and McMillan Road, Garston, Queenstown, Otago for $170,000 from Taseko Enterprises Ltd owned by Robert Gilbody of Australia.
“The property was, in the past, utilised as a fishing lodge, taking advantage of its natural setting (next to the Mataura River and an hours drive to Lake Wakatipu, Lake Te Anau and Lake Manapouri). However, over recent times the lodge has fallen into disrepair. The Applicant intends to re-establish the fishing lodge, with the aim of attracting international tourists. The Applicant proposes to operate the fishing lodge during the period from 1 October until 30 April each year (the summer fishing season). The target market for the operation is fishermen from the United States, United Kingdom and Australia.” Other rural land sales· The Glavish Family Trust of the U.S.A. has been given approval to acquire ten hectares of land including the Glen Aros homestead and gardens, at 1549 Raukawa Road, Hastings, Hawkes Bay for $600,000 as a holiday home and for olive growing and casual grazing. The homestead will be restored to its original California Bungalow style. The beneficiaries of the trust are Hilton F. Glavish and his wife, Barbara R. Glavish and their two children. Mrs Glavish and their children were born in New Zealand, so she could have acquired the property in her own name without OIC approval. “However, for financial planning reasons it has been decided to use the Trust to purchase the property.” · J.A. and S.L. Vyborny of the U.S.A. have approval to acquire ten hectares of land at Kennedys Road, Renwick, Blenheim, Marlborough for $781,875, which they will develop as extension of their adjoining 19 hectare vineyard, purchased in October 1998 and August 1999.
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