September
2000 decisions
Montana takes Corbans, then Lion Nathan of Japan takes 28.2% of
Montana Major French wine producer
Henri Bourgeois buys land in Marlborough… … and Nobilo/BRL Hardy buys
another vineyard in Hawkes Bay Ceebay Holdings gets permission
to continue to hold fishing quota Commonwealth Bank of Australia
takes last 25% of ASB Bank WestpacTrust buys residential
mortgages and loans from National Mutual/AXA Hoyts back out of merger with
Village Force Italian firm buys dishwasher
manufacturer, Washtech Hertz Fleetlease buying vehicle
leasing business from Hertz New Zealand Change of Singapore owners to
prepare for Queenstown hotel development Pacific Steel buys land from
Manukau City Council U.S. golf course owner in
Kerikeri, Northland buys more land Montana takes Corbans, then Lion Nathan of Japan takes 28.2% of MontanaIn three decisions, the largest winemaker in Aotearoa, Montana, has first taken over the second biggest winemaker, Corbans, and then been subject to takeover attempt by the largest brewer, Japanese-owned, Lion Nathan. This is particularly significant given the rapidly increasing success of the wine industry as a new source of high value exports. That is emphasised by unrelated decisions this month in which a major French wine producer, Henri Bourgeois, has bought land to begin wine production in Marlborough, and a further vineyard acquisition by formerly New Zealand-owned Nobilo’s, now owned by BRL Hardy of Australia. In one decision, Montana Group (NZ) Ltd (formerly Corporate Investments Ltd) gained approval to acquire up to 100% of Corbans Wines Ltd for $151,000,000 from DB Group Ltd. Montana is recorded as being owned · 28.2% by Lion Nathan controlled in Japan (see below for details); · 20.69% by P. H. Masfen (chairman, Peter Masfen) of Aotearoa (though other reports give his ownership as 19.9%); ·
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; making it a total of 48.32% overseas owned, and an overseas company. The 28.2% shareholding by Lion Nathan was the result of another OIC decision, described below. Corbans Wines Ltd was owned by the DB Group Ltd, which is owned 74.98% by Asia Pacific Breweries Ltd, and 25.02% in small shareholdings in Aotearoa. Asia Pacific Breweries is in turn owned 40% each by Heineken NV of the Netherlands and Fraser, Neave Ltd of Singapore, and 20% in small shareholdings in Singapore. Corbans owns or leases 623 hectares of land in Gisborne, Hawkes Bay and Marlborough, comprising: ·
406
hectares freehold in Gisborne and Hawkes Bay at
·
130
hectares freehold in Marlborough at
and 87 hectares of leasehold at State Highway 63, Renwick, Marlborough. Montana owns or leases 1,158 hectares of freehold land in Gisborne, Hawkes Bay, Marlborough, Palmerston North and Northland comprising: ·
472
hectares freehold in Gisborne and Hawkes Bay at
·
636
hectares freehold in Marlborough at
·
3.6
hectares freehold at Milson Line
and Maiden Street, Palmerston North, ·
27
hectares freehold at 109 Monk
Street, Waioneke, near Wellsford, Northland; and 19 hectares of leasehold at 254 Eskdale Drive, Hawkes Bay.
DB Group had for some time been keen to sell Corbans. Lion Nathan’s rival in Australia, Foster’s Brewing (which owns Milbara Blass wines in Australia) was also reported to be interested (Press, 15/8/00, “Montana has its eyes on Corbans”, p.13). Montana applied for clearance from the Commerce Commission for the purchase of Corbans on 11/8/00. The Commerce Commission made its decision on 6/9/00, approving the takeover. This was despite noting that “Montana Wines is the largest supplier of wine in New Zealand with turnover of $205 million for the 1999 financial year” and “Corbans is the second largest supplier of wine in New Zealand with turnover of $120 million for the 1999 financial year” (p.2 of the Commerce Commission decision – Decision No. 401). In terms of supply of grapes, “the merged entity would produce or have produced for it under contract approximately 39,000 tonnes of wine producing grapes. It would have a market share of about 50%. However 62% of this production would be contract production…” The next biggest producer would be Villa Maria (p.19-20). Almost all other market shares are suppressed from the Commerce Commission report. But news media reports state that Montana will control about 60% of the domestic wine market industry after the takeover and the bulk of the $169 million export market (Press, 22/9/00, “New wine giant expected to sparkle on world markets”, p.11). And, as we will see, when PriceWaterHouseCoopers valued Montana in December, it stated that “the purchase of Corbans Wines has increased Montana Wines’ scale to a point where it will be virtually impossible for any competitor to match its domestic or export market position”. The company now had 57% of the domestic wines market by volume, and 49% of the export market. It also gives the following shares of supermarket sales as estimated by Montana management:
A significant effect may also be on prices paid to contract growers, who provide a sizeable share of the companies’ grapes. Montana will have over 2,700 hectares of viticultural land under its control, producing 40,000 tonnes of grapes and rising to 50,000 when all existing planted vineyards reach maturity (Press, 13/11/00, “Montana finalises Corbans deal”, p.19) Montana, as its former name of Corporate Investments indicates, is more than a wine company, though it has steadily sold down its non-wine interests as its success in wines and problems with its other investments have grown. During the 2000 financial year, it sold Truck Investments (which it originally acquired as part of the Newman’s Group) and travel firm Go International, for a profit of $24.3 million. It closed Game Meats (NZ), causing redundancies and sold a 50% share in Frater Williams sharebrokers. It had sold the tourism assets of Newman’s, and a share of Nelson Pine Industries Ltd, in 1992. In 1997 it sold substantial property interests in Australia (ref PriceWaterhouseCoopers Independent Appraisal Report on Montana, 10/12/00). Corporate Investments had a minority stake in Montana when the conglomerate first listed in 1985. It bought out a 40% interest from Seagrams in 1986, and gained 100% the following year. The vineyards themselves date back to the nineteenth century as the Church Road winery, Montana Wines being established in 1961 by the Yukich brothers. It was listed in 1973, when Seagrams took its 40% shareholding. In the second OIC decision, Lion Nathan Ltd, headquartered in Australia but controlled by Kirin Breweries Ltd of Japan (46%), has approval to acquire 28.2% of Montana Group (NZ) Ltd (formerly Corporate Investments Ltd). The price is given as $18,393,523, but that is not for the full 28.2%. The shares were purchased from Ron Brierley’s Guinness Peat Group, through its subsidiary, Ithaca (Custodians) Ltd at $2.60 each, according to a company announcement (“Lion Nathan completes purchase of Guinness Peat Group’s (GPG) 15.7 million shares in Montana”, 11/9/00). The $18.4 million figure given by the OIC is for just the 7.1 million shares (3.3%) that took Lion Nathan over the 24.9% limit, above which OIC approval is required. Lion acquired just under 25% earlier in the year, and its chief executive, Gordon Cairns, joined the Montana board in September 2000 (Press, 7/8/00, “Lion chief to join Montana board”, p.25). This is not the limit of Lion Nathan’s ambitions however. On 21 November, the Commerce Commission announced that Lion Nathan had applied for permission to take over 100% of Montana (Commerce Commission media release 2000/122, “Lion applies for clearance to extend ownership of Montana to 100 percent”, 21/11/00). On 27 November, in a company announcement, Lion Nathan said it had “filed a Restricted Transfer Notice (RTN) with respect to Montana Group (NZ) Limited. The primary purpose of the RTN is to give Lion the flexibility, over the next seven months, to acquire further shares in Montana up to a maximum of 51 per cent of Montana’s ordinary shares.” One investment analyst suggested that Lion had done this in order to avoid changes to the takeover rules which will take effect in 2001 (Press, 23/11/00, “Foreign interest spark Lion move on Montana”, p.17). That would be consistent with its chairman’s, Douglas Myer’s, cavalier attitude to such niceties, as amply demonstrated in the tactics used in Kirin’s takeover of Lion itself (see our commentary on the takeover in April 1998). Interest in Montana from further afield may also have spurred Lion. The same company announcement from Lion stated that “approval from the Overseas Investment Commission to buy up to 100% of Montana was granted at the time Lion increased its stake to 28%.” That OIC approval must be in a decision that has been suppressed almost in its entirety, which shows only the same date as the present decision, the next decision number, and identical business activities and regions involved. It shows the “proposed” overseas ownership as 67.5%, which corresponds to Lion Nathan’s overseas ownership. The Commerce Commission predictably announced its approval of a full Lion Nathan takeover on 8 December. It said in a media release that “Lion Nathan operates in various wine, beer and spirits markets, while Montana operates in several wine markets. The only markets in which there would be aggregation of market share would be the national markets for: · production or importation of white wine for distribution · production or importation of red wine for distribution · production or importation of sparkling wine for distribution, and · distribution of wine.” It said that “Lion Nathan has low market share in each of these markets and there would be very little aggregation. It is not likely, therefore, that dominance would be acquired in any markets through aggregation alone. Some businesses told the Commission that they were concerned about the bringing together of Lion Nathan’s significant interests in beer and spirits markets, with Montana’s significant interests in wine markets. The Commission took these concerns into account but concluded that the extent of competition that would remain in each market, the wide range of outlets available and the strong buying power of supermarkets would constrain a merged Lion Nathan/Montana.” The Commerce Commission does not take into account dominance through sheer size, which was presumably the basis of concern of those businesses. Lion gave notice that it intended to buy a controlling interest of 51%. It offered between $3.20 and $3.80 a share. 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. He had already made clear he would not sell his shareholding, and one investment analyst said “you could almost say it is a declaration of war” (Press, 5/12/00, “Masfen takes Montana fight to Lion Nathan”, p.14). Neither Lion nor Masfen were making any actual commitment to buy. An independent valuation by PriceWaterhouseCoopers (PWC) commissioned by independent Montana directors released on 13/12/00 put the value of the shares well above these offers: between $4.16 and $4.64, based on the acquisition of Corbans. It cited the “unique and virtually unassailable market position” of Montana as a major factor in its valuation (see details above). PWC’s judgement was therefore that the offers from Lion and from Masfen were not fair to other shareholders. The independent directors advised shareholders not to sell, while Lion, unsurprisingly, dismissed the valuation, refusing to budge from its offer. At its annual meeting in Sydney in December, Chairman Douglas Myers said the company believed it had “established an excellent foundation for a significant new business for Lion Nathan” but chief executive Gordon Cairns attacked the PWC valuation saying it “did not have credibility in the market place”. Nevertheless, Lion had clearly done very well in its purchase from GPG at just $2.60 per share (Press, 13/12/00, “Montana bids corked”, p.33; 16/12/00, “Lion digs claws in on Montana price”, p.24; 20/12/00, “Lion earnings up as beer sales fall”, p.25). That PWC was also Montana’s auditor, which might be a conflict of interest in making the valuation, was dismissed by the independent directors (Press, 2/12/00, “Auditor doubles as sale advisor”, p.24) Lion Nathan is in total 67.5% overseas owned. GPG (through Ithaca) is 33.14% according to the OIC, so the share purchase increases the overseas ownership of Montana to 39.16%. Other than the controlling ownership of 46% by Kirin, Lion is owned 15.3% in Australia, 5.9% by Morgan Stanley Asset Management Ltd of the U.S.A., 0.14% in the U.K., a further 0.04% in the U.S.A., 0.12% by others “who may be overseas persons”, and the remaining 32.5% in small shareholdings in Aotearoa. GPG is owned 19.61% in Australia, 11.23% in the U.K., 1.3% in France, and 1% in the U.S.A. However this counts Brierley himself among the New Zealand shareholders, even though he no longer lives here. Major French wine producer Henri Bourgeois buys land in Marlborough…Sarl Domaine Henri Bourgeois, owned 95% by SA Henri Bourgeois and 5% by J.M., R. and R. Bourgeois and R. Padoy of France, has approval to acquire 91 hectares of land in at Mooney Valley, State Highway 63, Renwick, Marlborough for $2,417,850 from The Moonee [sic] Valley Family Trust of Aotearoa. The OIC says that the company, “who is a major French wine producer, intends to become an active and productive member of the wine industry in New Zealand” to meet increasing demand for its wines. “This need has led them to focus on other premium wine producing areas, hence the search for premium level vineyards in other areas of the world…”. The company “intends to construct a winery to be ready to process its first harvest in 2004, and is likely to have the potential to process 500-600 tonnes of fruit”. It will not blend the wine in order to preserve the “unique character” that “each vineyard’s soil gives the resulting wine”. Henri Bourgeois believes that “the property offers the right location for the Sauvignon Blanc and Pinot Noir vines to thrive”. According to NZPA, Henri Bourgeois is based in the French wine-making region, the Sancerre Valley, and produces almost two million bottles of wine a year for export to 55 countries. It quoted company president, Jean-Marie Bourgeois, saying that the company had been searching for 12 years for land outside France to expand its operations, and had considered South Africa, California, Chile, Argentina and Australia (Press, 29/9/00, “French latest to snap up soaring Marlborough land”, p.15). … and Nobilo/BRL Hardy buys another vineyard in Hawkes BayNobilo Vintners Ltd, owned 100% by BRL Hardy Ltd of Australia, has approval to acquire 47 hectares of land at Fernhill, Hawkes Bay for a suppressed amount. It consists of 3.2 hectares at Moteo Pa Road, and 44 hectares at Moteo Pa which is an existing vineyard. Nobilo’s has “plans to expand its grape supply in the Hawkes Bay region”. The company previously owned 167 hectares of land (142 hectares in Marlborough, including four hectares at Hammericks Road, Blenheim; and 25 hectares at Hapai, west of Auckland) and leases 38 hectares at Mohaka, Waihua, Hawkes Bay. Ceebay Holdings gets permission to continue to hold fishing quotaIn a decision that has a number of unusual aspects, Ceebay Holdings Ltd, which is 75.1% owned by Amaltal Corporation Ltd of Aotearoa and 24.9% owned by Maruha Corporation of Japan, has been given permission to “continue to hold or acquire fishing quota, interests in quota, annual catch entitlement and provisional catch history” which covers 10,637.7 tonnes of Hoki, 425.4 tonnes of Squid, and 187.1 tonnes of other species. It has owned and managed the quota since 1992. The quota is about 4% of the Hoki quota available, and about 1.8% of New Zealand’s Total Allowable Commercial Catch, but it “is a ‘strategic’ stake in the sense that it is the largest block of quota available for fishing against that is independent of the larger fishing companies and the Treaty of Waitangi Fisheries Commission”, according to the OIC. Ceebay does not fish the quota itself, but leases it to New Zealand fishing companies. Amaltal is a 50/50 joint venture between Talley’s Fisheries Ltd and Amalgamated Marketing Ltd, a subsidiary of the Amalgamated Dairy Group. The first unusual aspect of this decision is why it was required at all. On the face of it, Ceebay is less than 25% overseas owned, and is therefore entitled to own quota without permission from the OIC, the Treasurer and the Minister of Fisheries. However the ownership structure of Ceebay is considerably more complicated than the shareholding percentages portray. Firstly, the Japanese partner, Maruha, has two of the four directors on the Board, with the chair having no casting vote, and therefore has a much higher degree of control than its shareholding suggests. It apparently asked for a ruling from the OIC because of this. Underlying this is a suggestion that the company’s structure was designed to circumvent the law. Secondly, not only is the representation on the board of directors unusual, but the company also has a special share structure that pays Maruha 99% of the dividends and gives it “enhanced liquidation rights”. Amaltal holds 751 “A” shares, and 75.1% of the voting power, while Maruha holds 249 “B” shares which give it those additional rights (source: Ceebay Constitution). It justifies this position by its “substantially larger capital investment in Ceebay”. This suggests that Maruha all but bought the quota from Amaltal, but since it was not permitted to own it, the two companies agreed to set up this structure to allow Maruha to benefit from the quota while complying with the letter of the law. Maruha holds its shares through a subsidiary which was originally called Tafico Holdings (1992) Ltd, but has changed its name to Maruha (N.Z.) Corporation Ltd. The Fisheries Act 1996, as amended in 1999, gives two criteria for overseas control: i) The right to exercise or control the exercise of 25% or more of the voting power at any meeting of the company (which is true of the Board of Directors); or ii) 25% or more of any class of shares in the company (which is true of the B shares: Maruha owns 100% of the B shares). The second unusual aspect is the background to this legislation, which involved some strong words from Japanese fishing companies, including Maruha. In October 1998, both Maruha in its own right, and the Japan Deep Sea Trawlers Association (based in Japan) made submissions on the Fisheries (Retention of New Zealand Control) Bill. This private member’s bill of Labour MP Jim Sutton was intended to bring into effect the overseas ownership provisions of the 1996 legislation. That legislation defined an overseas company as being one that is 25% or more overseas owned, but also put an absolute limit on overseas control of quota at 40%. It was absolute in the sense that no exceptions could be granted beyond that point, unlike the provisions and practice under the previous (1983) legislation. Breaches of these provisions could lead to forfeiture of the fishing quota, without compensation. The more stringent ownership aspects of the 1996 legislation, brought in under the influence of New Zealand First which was then in coalition with National, were never brought into force despite having been passed by Parliament. Sutton made clear his view why the provisions were not brought into force in his speech during the debate on the second reading of his bill in Parliament: “The Japanese corporates brought pressure to bear on our Government not to implement those sections of the Fisheries Act 1996, and I have a great sheaf of cable traffic from the Ministry of Foreign Affairs and Trade to prove it. Our Ministry of Foreign Affairs and Trade advocated on behalf of Japanese corporates, so our Government agreed to defer until at least October 1999 the implementation of those provisions. I have asked for the updated cable traffic, under the Official Information Act, but I still have not received it. The last lot I got showed the Japanese demanding an input into our policy considerations and extracting a promise that there would be a complete review of all New Zealand laws covering overseas investment.” (Hansard, 23/9/98) He also cited an ownership structure very similar to Ceebay’s as a reason for needing the tighter legislation: “The Parliament never had in its mind that this would be other than a New Zealand resource. However, we found that lurking around this world there are some crafty lawyers and they devise company structures whereby there are two classes of shares. For example, a company might have 100 class A shares, which trade for 1c; 24 percent are owned by a foreign corporation and 76 percent are owned by lawyers, who happen to represent the corporation on other matters here in New Zealand. But the lawyers do not mind casting their votes in a cooperative way because those class A shares pay no dividends. There might be 10 million class B shares that have no voting rights but which attract all the benefits of ownership---all the dividends---but which ostensibly exercise no control. Thus the benefits of the resource may fall into the hands of overseas people. Of course, in reality the control has gone there too. But on paper legally the control is still in our hands.” National opposed the bill, on the grounds that it was about to conduct a review of the overseas ownership provisions of the legislation, and asked “why foreign control is necessarily a bad outcome for the fisheries sector”. It supported foreign ownership on the grounds that it enabled New Zealand fish to evade Japanese tariffs: “When fish are caught by a vessel from another flag State, for customs purposes those fish are deemed to be a product of that flag State. For example, when squid is caught in New Zealand waters by a Japanese-flag vessel that squid is a product of Japan. As the squid is a product of Japan, there is no tariff to pay and there are no quantitative restrictions.” (David Carter, Associate Minister for Food, Fibre, Biosecurity and Border Control, Hansard, 23/9/98.) Other National speakers used arguments whose significance will become apparent. In a bizarre twist, the bill passed its second reading with the support of ACT, whose relish for the free market apparently broke down without a blush at its glaring inconsistency. In its October 1998 submission, Maruha took strong objection to the suggestion that the 1996 ownership clauses be brought into force because they did not allow existing companies, if they became classed as overseas controlled under the legislation, to gain an exemption from the government, even up to the 40% limit. Ceebay would no longer be entitled to hold quota if the law came into force. This objection had been voiced by National speakers in the above debate. Exemptions were allowed only for new entrants to the industry. Maruha compared it to the Overseas Investment Act, where any degree of exemption is allowed (and almost always given), and submitted that the same should hold for fishing quota. They also sought under the 1998 Bill a “grandparenting clause” which would allow existing quota owners to continue to hold their quota. Otherwise, their submission said, “Maruha considers that this will amount to a statutory deprivation of property rights, without compensation”. That wording suggests that they were positioning themselves for an action against the government. The wording is also significant in that it would trigger expropriation clauses such as the highly controversial ones in NAFTA and the proposed Multilateral Agreement on Investment, which give investors compensation rights, or even the ability to force law changes, in such circumstances. Similar clauses are in Investment Promotion and Protection Agreements in force between New Zealand and both China and Hong Kong, and which have been signed but not yet brought into force with Chile and Argentina. The significance of these words was underlined by a supporting submission by the Japan Deep Sea Trawlers Association. It wrote that it “humbly wishes to submit that the proposed bill is ill-conceived based on prejudices and distortion of facts, contrary to the principle of free trade and investment, discriminatory, and grossly unfair to the past and current contributions to New Zealand fisheries”. The reference to “the principle of free trade and investment” is very significant in this regard. The less than humble series of pejoratives are sketching a case that any “expropriation” or “deprivation of rights” or “confiscation” would not be in the public interest, and would not be non-discriminatory. The expropriation clauses mentioned above allow “expropriation” as long as it has those ingredients – in the public interest, and non-discriminatory – and is accompanied by full compensation. If those ingredients are not present, then an international tribunal could rule that the law itself is in breach of international agreements and the government could be forced to change it, as happened with the Canadian government, under the NAFTA provisions, earlier in 1998. For example, an Investment Promotion and Protection Agreement between New Zealand and Hong Kong, which came into force in 1995, provides as follows (Article 6): “Investors of either Contracting Party shall not be deprived of their investments nor subjected to measures having effect equivalent to such deprivation in the area of the other Contracting Party except lawfully, for a public purpose related to the internal needs of that Party, on a non-discriminatory basis, and against compensation….” (our emphasis) If Maruha had simply used a Hong Kong subsidiary to own its share in Ceebay, it would have been able to take action under this agreement – potential |