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Foreign investment in Aotearoa/New Zealand

Overseas Investment Office - September 2011 Decisions

Asahi Buys Independent Liquor

The most significant decision in September was that of Japanese interests taking over one of New Zealand's largest liquor companies. Namely, Asahi Group Holdings, Ltd. Japanese Public (74.1%), United States Public (12.4%), Various overseas persons (6%), United Kingdom Public (6%) and Australian Public (1.5%) received approval to acquire the rights or interests in up to 100% of the shares of Flavoured Beverages Group Holdings Limited, the consideration of which exceeds $100m. Consideration was actually $1,525,000,000. The vendors were Existing shareholders of Flavoured Beverages Group Holdings Limited Hong Kong Public (37.6%), Australia Public (30.6%), New Zealand Public (16.4%) and various overseas persons (15.4%).

The OIO states: "Asahi Group Holdings, Ltd. ('Asahi'), via a wholly owned subsidiary, wishes to purchase Flavoured Beverages Group Holdings Limited (together with its subsidiaries, the 'Independent Liquor Group') as it believes the acquisition is consistent with its current business strategy and that the Independent Liquor Group business will complement other businesses within Asahi". As we reported in July 2011, Asahi is a leading brewery and soft drink company based in Tokyo, Japan. The company has a 40% share of the Japanese beer market. It has been interested in expanding its operations in this part of the world for some time. In 2009, Asahi bought Cadbury's Schweppes Australia for £550 million ($1.06 billion), and recently bought the mineral water and juice business of Australia's P&N Beverages for A$188 million ($243 million), as well as Charlie's here in New Zealand. The vendor, Flavoured Beverages Group Holdings Limited, is actually a joint venture owned by Pacific Equity Partners Pty Limited and Capital Asia Pte Limited. This consortium bought Independent Liquor from the Erceg family trust in 2007 for approximately $1.3billion (see our January 2007 commentary).

(Independent Liquor was a 2007 Roger Award finalist. Ed.)

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US Interest In Mind Your Own Business (MYOB)

In another significant purchase of a well known business operating in New Zealand, Bain Capital Abacus Acquisition Pty. Ltd. United States Public (59.6%), United Kingdom Public (7.4%), Singapore Public (5.8%), and various overseas persons (27.2%) received approval for the acquisition of up to 100% of shares in MYOB Cayman Holdings Limited for consideration exceeding $100m. The vendor was MYOB Group Archer Capital 4C Pty Ltd, Australia (27.2%), HarbourVest Partners 2007, Netherlands (20.5%), Archer Capital 4B Pty Ltd, Australia (16.2%), Archer Capital 4A Pty Ltd, Australia (16.2%), Australian Public (13.3%), Squadron Asia Pacific II NV, Belgium (5.6%) and various overseas persons (1%). Consideration was $181,436,782 (attributable to the New Zealand business).The OIO states: "The Applicant intends to increase the overall efficiency and profitability of the MYOB business".

However a report in the Sydney Morning Herald (14/3/12) suggests Bain's purchase of MYOB is doing just the opposite: "The new private equity owner of Australian accounting software MYOB faces a wide-scale backlash after it released a hurried and bug-ridden upgrade that insiders now say has put the future of the popular platform at risk. Hundreds of MYOB's partner accountants are now refusing to recommend this year's AccountRight upgrade because, they say, it is too slow, contains a number of bugs and may break existing application integrations.

"The rollout follows the $A1.2 billion acquisition of MYOB by private equity raiders Bain Capital last year. MYOB has annual sales revenue of about $A200 million a year, of which AccountRight contributes less than half. 'It's been a frightful experience for a lot of people that have done the migration. Pretty much every consultant I know has told people not to upgrade', said a third-party developer who requested anonymity because he claimed MYOB was phoning outspoken partners and threatening to terminate their partner agreements if they talked to the media. 'A heavy majority (of consultants) are saying to their clients not to install the current release until it settles down', said Rod Collins, moderator of a private email list for 400 MYOB accounting consultants and developers.

"However, some accountants have also used the AccountRight 2011 software without problems. 'There will be some people who will wonder what all the fuss was about', he added. MYOB said bugs were expected in a major release and that it had released two service packs to patch the software since the November (2011) launch. "It would be fair to say the bulk of our partner community want the service packs to be released and to be comfortable with the performance of the product before they upgrade to the new platform," said Julian Smith, general manager for corporate affairs, MYOB Australia and New Zealand.

"MYOB partners have suggested that the damage to the software vendor's reputation may turn customers to rival accounting platforms. 'MYOB is going to have to pull a rabbit out of the hat to regain the customer support and loyalty that have been severely impacted by the poor quality of this release', said MYOB professional partner Cassandra Scott. MYOB has relied heavily on businesses upgrading their software each year to receive the latest payroll tax tables from the Australian Taxation Office, but it has for the first time provided FY2013 tax tables for last year's software as a free upgrade to those on the MYOB Cover maintenance contract.

"MYOB partners were concerned about the vendor's ability to service a $A575 million loan that formed part of the $A1.2 billion buyout by Bain Capital. If the loan were charged at the market rate of 7% the annual interest would be $A40 million, said Michael McCarthy, chief market strategist at CNC Markets. 'The question is, how much excess cash flow do they have to service the debt?' he said. MYOB's Smith said the vendor was highly profitable with a diverse income base and that AccountRight belonged to the business software division which brought in a little more than half the vendor's income. AccountRight was but a fraction of the total, he said. The fact that many of MYOB's small business customers were struggling in a tough economy was more concerning, he said. 'The health of the Australian economy has a far bigger impact on MYOB's revenue than the take-up of AccountRight 2011', Smith said.

"The software, which was rewritten on a different code base to allow for future cloud migration, was also released without the ability to connect to other business software. MYOB's add-on developers who had connected earlier versions of MYOB to customer databases were telling their clients that the upgrade would break those connections. 'I have had to go to all my existing clients and specifically say to them you shouldn't install AccountRight 2011 otherwise your system may no longer work. So consequently I've lost development revenue and MYOB has lost upgrade revenue', said David Ballantyne, a financial systems developer with over ten years' experience...". See our October 2007 commentary for details of Bain's purchase of media interests here.

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More Canterbury Forests Sold

In another significant sale of Canterbury forests Matariki Forests Matariki Forests Australia Pty Limited, Australia (39%), Rayonier Inc, United States of America (26%) and Phaunos Timber Fund Limited, United Kingdom and Other Public (35%) received approval to acquire a freehold interest in 4,795.6 hectares of land at Dalethorpe, Homebush, Kellaways, Lowmount, High Peak, Newton and Wyndale Forests and Lowmount Extension, Canterbury Foothills; and a leasehold interest in 12.7 hectares of land at Dalethorpe, Homebush, Kellaways, Lowmount, High Peak, Newton and Wyndale Forests and Lowmount Extension, Canterbury Foothills. The vendor was Selwyn Plantation Board Limited Selwyn District Council (60.7%) and Christchurch City Council, New Zealand (39.3%) i.e. local ratepayers. Consideration was stated as confidential.

The OIO states: "The Applicant is New Zealand's third largest forestry company and owns approximately 27% of the commercial plantation forests in the Canterbury region. The land is currently used for forestry, planted predominantly in Radiata Pine and Douglas Fir. The proposed transaction is consistent with the Applicant's continuing investment strategy involving forestry in New Zealand" . Matariki has been a significant purchaser of forests in New Zealand over the past few years. See our August 2005 commentary for details of Matariki's original purchase of 92,000 ha, and AMP's buy into Matariki in June 2006, as well as our February 2010 commentary of Phaunos' purchase of 35% of Matariki. Matariki now owns 130,000 hectares of plantations across the country. The vendors of course have been struggling to deal with magnitude and costs of recent devastating earthquakes. While the sale price was kept confidential, it is unlikely to make much of a dent in a multi-billion dollar earthquake repair bill.

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Aussie Owned Rest Home To Be Built In Nelson

Summerset Villages (Nelson) Limited and Summerset Properties Limited Australia (98%) and New Zealand (2%) received approval to acquire a freehold interest in eight hectares of land at 16 Sargeson Street, Stoke, Nelson. The vendor was Gracefield Resort Limited New Zealand (100%); consideration was $7,000,000.The OIO states: "The Applicants are part of the Summerset Group which owns and operates retirement villages throughout New Zealand as well as care centres comprising hospitals, rest homes and/or clinics. They are acquiring the land in order to establish a Summerset retirement village in Nelson. The Applicants intend to significantly expand the vendor's existing retirement village development".

Summerset (owned by AMP) is New Zealand's third largest retirement village operator with 1,200 retirement village units (villas and apartments), 300 rest home and hospital beds and 450 staff. See our February 2006 commentary regarding AMP's original purchase of Summerset and our March 2007 and August 2009 commentaries regarding Summerset's purchase of other retirement villages here, as well as our March 2009 commentary concerning AMP's establishment of a joint venture with QPE Funds Management Pty Limited.

As Summerset continues to expand across New Zealand, the Sun continues to set on New Zealand owned involvement in the sector.

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Confidential Changes At Prime South Island Resorts

In a decision which has been kept largely confidential, an applicant was given approval for the acquisition of rights or interests in 27.19% of the units of CONFIDENTIAL which owns or controls:

• a freehold interest in 202.2 hectares of land at Maori Jacks Road, Jacks Point, Queenstown and Outlet & Aubrey Roads, East Wanaka; and
• a mortgage over 18.1 hectares of land at Jacks Point, Queenstown.

Approval was also received for an overseas investment in significant business assets, being the Applicant's acquisition of rights or interests in 27.19% of the units of CONFIDENTIAL, the value of the assets of CONFIDENTIAL and its 25% or more subsidiaries being greater than $100m. Consideration and vendor were also kept confidential. The OIO states:" The overseas investment transaction will provide additional capital for the ongoing residential developments at Maori Jacks Road, Jacks Point, Queenstown and Outlet & Aubrey Roads, East Wanaka".

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Privately Owned Wharves Change Hands

Stolt-Nielsen Australasia Holdings Pty Limited Bermuda Interests (37%), Catley (GS and AE), New Zealand (30%), Norwegian Interests (22.5%), United States Interests (8%), United Kingdom Interests (1.5%) and various other overseas persons (1%) received approval to acquire the rights or interests in 70% of the shares of Marstel Holdings Pty Limited which owns or controls:

• a leasehold interest in 2.35 hectares of land at 25 Gabador Pl, Mt Wellington, Auckland; and
• a leasehold interest in 2.5 hectares of land at Cnr Brigham & Hamer Streets, Freemans Bay, Auckland; and
• a leasehold interest in 0.6 hectares of land at 251 Foreshore Road, Island Harbour, Bluff.

The vendor was Marstel Holdings Limited, SAS Trustee Corporation & Oleate Pty Limited Catley (GS and AE), New Zealand (50%), State Authorities Superannuation Scheme, Australia (45%) and TR Gunning, Australia (5%); consideration was stated as confidential. The OIO states: "Stolt-Nielsen Limited is expanding its global network of terminals and is seeking to grow the capacity of its existing terminals. It considers that the acquisition of the Marstel Group terminals by the Applicant fits this strategy and will further complement its other shipping activities. The original founders of the Marstel group will remain involved to encourage and provide direction for the business acquired and to enable the further growth and expansion of its activities. The acquisition may also provide a platform for further development of Stolt-Nielsen Limited's gas and bitumen services as well as being able to provide support for its tank container business". See our May 2002 commentary for details of Graham Catley's previous unsuccessful attempt to sell these wharves.

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Other September Decisions

Best Choice Trustee Limited as trustee of the Best Choice Development Trust Yong Yang, China, People's Republic of (100%) received approval to acquire a freehold interest in 5.4 hectares of land at 55 Hayfield Way, Hingaia, Karaka. The vendor was Emerald Trust, Karaka Views Trust & Karaka Acres Trust New Zealand (100%); consideration was $4,000,000. The OIO states: "The Applicant is looking to carry out further residential development in New Zealand following the success of a prior residential development in Feilding and is acquiring the land in order to develop and subdivide the land for residential purposes". See our October 2005 commentary for details of the applicant's other purchase here in Fielding.

Michel Andre Salomon and Josyane Odette Filippini as trustees of the Salomon Family Trust France (100%) received approval to acquire a freehold interest in 5.1 hectares of land at 151 Vaughans Road, Okura. The vendor was Ian Lindsay Gunthorp, Susan Jane Gunthorp, Barry John Davidson and Newmarket Trustees Limited as trustees of the Carlton Trust New Zealand (100%); consideration was $3,500,000. The Applicants intend to reside in New Zealand indefinitely. They are acquiring the property to use as a personal residence and as a farm stay.

Antipodean Lands Limited Phillip Maxwell Colebatch, Australia (100%) received approval to acquire a freehold interest in 234.5055 hectares of land at 1108 Whatatutu Road, Whatatutu, Gisborne. The vendor was Thomas Jack Oswald Fraser New Zealand (100%); consideration was $3,270,000. The Applicant intends to acquire the land and certain stock and plant equipment as a further investment in the New Zealand farming industry. The land will be used for general farming and also as a finishing and breeding unit. See our May 2008 commentary for details of Colebatch's acquisition of Moanui Station and Te Hau Station, a total of 3,100 hectares.

ANZCO Foods Limited Itoham Foods Inc, Japan (48.3%), New Zealand Public (26.5%), Nippon Suisan Kaisha Limited ("Nissui"), Japan (25.27%) and Toyotsugu Matsuzawa, Japan (0.03%) received approval to acquire a five year leasehold interest in 363 hectares of land at Forest Road, Bulls. The vendor was Agresearch Limited New Zealand Government, New Zealand (100%); consideration was $1,340,042 (over five years). The OIO states: "ANZCO intends to continue to lease the land for use as a farm to develop new farming systems and techniques to provide continuity of livestock availability. This will provide year round supply of meat products to global customers. ANZCO has been using the land for the purposes of sheep and beef farming operations and research since September 2009 and will continue to do so until September 2014".

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