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Foreign investment in Aotearoa/New Zealand

Overseas Investment Office - April 2012 Decisions

Crafar Farms Sold To Another Chinese Bidder

A busier month at the OIO. Firstly, the decision getting plenty of media coverage was Milk New Zealand Holding Limited Zhaobai Jiang, China, People's Republic of (99%), and Lei Jiang, China, People's Republic of (1%), receiving approval for the acquisition of 7,892.5 hectares of freehold land and an overseas investment in significant business assets, being the Applicant's acquisition of property in New Zealand used in carrying on business in New Zealand for consideration exceeding $100m.

The overseas investment is the Applicant's acquisition of farms at:

• Plateau Road, Reporoa (323.5ha),
• Rawhiti Road, Reporoa (128.6ha),
• Pine View, Short Road, Reporoa (398.2ha),
• Cirenester, Short Road, Reporoa (341.3ha),
• Broadlands Road, Reporoa (404.6ha),
• Lake View, Tia Street, Atiamuri (205.9ha),
• Forest Park, Forest Road, Bulls (250.3ha),
• Glyn Park, SH 3, Maxwell (647ha),
• Karahaki Road, Waverley (206.3ha),
• Karangahape Road, Kuratau (627.5ha),
• Benneydale 1, Barryville Road, Benneydale (895.9ha),
• Benneydale 2, Barryville Road, Benneydale (792.2ha),
• Collins Road, Hamilton (393.4ha),
• Tiwhaiti. Tiwhaiti Road , Hawera (148.2ha),
• Taharua Road, Rangitaiki (1750.8ha), and
• Ferry View, Parewanui Road, Bulls (379ha).

The vendor was Hillside Limited, Plateau Farms Limited, Ferry View Farms Limited and Taharua Limited (all in receivership and in liquidation) Frank Crafar, New Zealand (33.4%), Elizabeth Crafar, New Zealand (33.3%) and Alan Crafar, New Zealand (33.3%); Ferry View Farms (in receivership and in liquidation), Ian Ross Blackman and Robert Scott Crafar Frank Crafar, New Zealand (44.5%), Ian Blackman, New Zealand (33.3%), Elizabeth Crafar, New Zealand (11.1%) and Alan Crafar, New Zealand (11.1%); the consideration for the land and livestock was stated as confidential.

The OIO states: "The sensitive land is being sold by Kordamentha, the receivers of the vendor companies. The Applicant is seeking consent to acquire both sensitive land and significant business assets under the Act. The Applicant has entered into an Agreement for Sale and Purchase (conditional on obtaining consent under the Act) to purchase the 16 farms, together with the livestock, chattels and machinery on the farms and related Fonterra shares. The 16 farms are located in four main areas of the North Island. Three of the farms are currently drystock farms, the remaining 13 being operational dairy farms. Currently, due to the receivership, the farms do not have long term investment plans and the Applicant claims that productivity is below the potential of these farms.

"The Applicant will finance the acquisition by way of a shareholder advance from its parent company, Shanghai Pengxin Group Co. Limited. The Applicant intends to partner with Landcorp Farming Limited ("Landcorp"), a State-Owned Enterprise farming company. The Applicant will acquire the farms, and fund the management and development of them. A joint venture company to be owned 50/50 by the Applicant and Landcorp will develop and manage the Applicant's farm portfolio. The majority of the planning, budgeting and reporting relating to the farms will take place within the joint venture company. Landcorp will operate the farms on the Applicant's behalf, and provide operational services and advice. Landcorp will also manage the disposal and acquisition of properties for the Applicant's portfolio, and undertake capital expenditure on its behalf".

This successful application is the NZ holding company for Shanghai Pengxin, which has significant investments across China, mostly in commercial and residential real estate, infrastructure, mining, and sheep breeding. It has recently diversified into other markets, including agricultural operations in Bolivia, Argentina and Cambodia, and mining in the Congo. As we all know, the receiver for these farms had previously tried to sell them to another Chinese owned company Natural Dairy, but this was declined by the OIO - see our detailed December 2010 commentary for details of this and also background to this new successful applicant.

Legal Saga Comes To An End

The OIO approval was appealed several times, by a consortium led, ironically, by Michael Fay, infamous for his NZ asset selling escapades of the 1980s and 1990s. When that was exhausted, local iwi (who wanted to buy two of the King Country farms which contain wahi tapu or sacred sites but rejected Pengxin's previous offer to sell them for $66 million) unsuccessfully appealed the decision all the way to the Supreme Court. This was summarised by Adam Bennett in the New Zealand Herald (17/10/12):

"Chinese company Shanghai Pengxin's bid to buy the Crafar dairy farms passed its final legal hurdle today after an attempt to block the deal in the Supreme Court was dismissed. King Country iwi Ngati Rereahu last month initiated a Supreme Court challenge against the approval for the purchase of the 16 farms granted by the Overseas Investment Office, Associate Finance Minister Jonathan Coleman and Land Information Minister Maurice Williamson.

"However the court refused to hear the case saying the claim relied on an examination of the Overseas Investment Act's provisions around the buyers' required business acumen and experience. The Ministers' decision to approve the deal the involved 'matters of fact and degree rather than the true meaning of the statute', the judges who considered the application said in their decision. Shanghai Pengxin first indicated it wished to buy the farms in January 2011 after a previous Chinese-backed bid was rejected on the OIO's good character provisions. Shanghai Pengxin said it was delighted the court had removed the final obstacle to purchasing the farms by the end of the year after an 'unbelievably protracted process''.

"The company was looking forward to a positive relationship with the dairy industry and local communities. 'Over time, we hope we will demonstrate many benefits in New Zealand and China working together and maximising the opportunities available for New Zealand's largest industry in China.'. The farms will be bought by Shanghai Pengxin subsidiary Milk New Zealand Holding Ltd, and run by a joint venture with Government-owned Landcorp, which will be the managing partner.

"Landcorp Chief Executive Chris Kelly said the next step was to review the assets and herds before taking over the management and sharemilking contracts from the receiver. 'All going well, we expect to take over the running of all the farms early in December (2012),' he said. The company's priorities include upgrades to meet increased production targets, environmental upgrades, and the establishment of a dairy training school on one of the properties. The joint venture was looking to spend some $15.7 million on the properties in the first three years. It would continue to supply milk to Fonterra at first but would also work towards processing milk to create a range of high value consumer products for sale in China - either by contract or through a joint venture. The company would spend $100m on marketing its products in China in its first five years. Shanghai Pengxin spokesman Cedric Allan said directors an chairman would be announced shortly".

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James Cameron Adds To His Wairarapa Farms

In three separate decisions, Hollywood film magnate James Cameron has bought more land to add to the two farms he has previously bought in southern Wairarapa. Firstly, Europa Research, LLC James F Cameron, Canada (100%) received approval to acquire a freehold interest in 4.3 hectares of land at Western Lake Road, South Wairarapa. The vendor was Andrew Scott Miller United States of America (100%); consideration was stated as confidential. Secondly Europa Research, LLC James F Cameron, Canada (100%) received approval to acquire a freehold interest in 9.2 hectares of land at Western Lake Road, South Wairarapa. The vendor was Victoria Ann Shaw & Jeremy Richard Bennett New Zealand (100%); consideration was also confidential. Thirdly, Anglin Classics, LLC James F Cameron, Canada (100%) received approval for the acquisition of a freehold interest in 13.4 hectares of land at Western Lake Road, South Wairarapa. Both the vendor (NZ 100%) and consideration were kept confidential.

The OIO states with respect to all approvals: "James F Cameron and his family intend to reside indefinitely in New Zealand. They are acquiring the land as part of a larger acquisition of land in South Wairarapa which they will use as a residence and working farm". However unlike Cameron's previous much larger purchases, the Hollywood gloss seems to be wearing thin with locals. Seamus Boyer in the Dominion Post (1/6/12): "Hollywood film-maker James Cameron has added three more properties to his growing Kiwi empire, with the latest purchases providing a buffer from curious neighbours. Yesterday the Overseas Investment Office gave Cameron the green light to buy a total of 26 hectares in South Wairarapa, where the "Titanic" and "Avatar" director already owns more than 1,000ha of native bush and farmland. However, the purchases have failed to win over some locals, with one calling the buy-up an 'invasion'.

"The three properties, all bordering Cameron's land on Pounui Ridge, consist of a four ha bare block of land sold by American Andrew Miller, a former director of nearby luxury resort Wharekauhau Lodge; a nine ha block of native bush sold by Jeremy Bennett and Victoria Shaw; and a 13 ha developed site believed to be Pounui Homestead, a bed and breakfast and wedding venue. The prices of all three are listed as confidential. Ms Shaw, whose parents Bill and Annette Shaw sold Cameron their Pounui farm, said the land she sold was largely covered by native bush. 'It's a great spot. We were looking at building there at some stage but the baby has come along so we've decided it's probably the right time to sell'.

"The purchase would give Cameron added privacy, reducing the number of possible neighbours, she said. She had not dealt personally with him, and would not reveal the purchase price. The largest property of the three, Pounui Homestead, contains several buildings including self-contained accommodation and a replica barn. A Website describes the property as the 'ultimate retreat location', containing a stream, olive grove and orchard. Despite a positive response from tourism operators and the South Wairarapa Mayor, not all locals are happy with Cameron's continued buy-up. One Western Lake resident said: 'Everything's all hush-hush and secretive at the moment; it's starting to feel like you're not a local any more'.

"Another said local buyers were being priced out of the market. 'I think a lot of people are buzzing out about it, having the likes of him next door, but it's just putting the land out of reach of the locals, who I'm sure would love to be able to buy that sort of land'. In January 2012, Cameron paid about $20 million for two large rural properties, one a 250 ha dairy farm, the other a much larger 817 ha hillside property overlooking Lake Pounui, which he also now owns. In March, he added a ten ha lifestyle block. OIO rules state that potential overseas investors have to make separate applications for each purchase. Cameron and wife Suzy Amis have said they want to raise their children, ten-year-old twins Claire and Quinn, and Elizabeth Rose, five, 'close to the land and with a strong work ethic'. There has been speculation that he was considering making an offer on a sheep station, Wharepapa, bu the 538ha property is still on the market".

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Aperio Gets New Aussi Owners

Amcor Limited Australia (100%) received approval for the acquisition of rights or interests in 100% of the shares of Aperio Group Pty Limited, the consideration of which exceeds $100m. The vendor was Aperio Group Pty Limited Australian Public (93.2%), New Zealand Public (3.7%) and Swedish Public (3.1%); consideration was $304,180,660. The OIO states: "Amcor considers the Investment will help it develop a stronger platform to meet the needs of its flexible packaging customers in the Asia Pacific region and will deliver significant benefits to consumers in terms of scale, efficiency, innovation and security of supply".

While we are unaware of the implications for Aperio's operation here in New Zealand, across the ditch, the deal came under considerable scrutiny. As reported by Neil Wilson in the Herald Sun (28/3/12): "Amcor is set to consolidate its hold on Australia's flexible packaging market after the competition watchdog today approved its $A238 million takeover of its biggest rival Aperio. It was approved by the Australian Competition and Consumer Commission (ACCC), which had previously expressed concern at the deal that would see Amcor generating yearly turnover of about $A1.2 billion in flexible packaging across the Asia Pacific.

"Of more direct concern to consumer goods companies is that the merged Amcor entity will control up to 95% of packaging for everyday household items, including baby care, personal grooming, food packaging including frozen foods. Overall, it is set to control about 30% of the overall flexible packaging market in Australia. The ACCC set aside its earlier concerns the deal would reduce the choice of supply of value-added flexible packaging, stating it would not result in substantial lessening of competition in any market. 'In making its decision, the ACCC considered that there will be a number of competitors to Amcor Limited, particularly overseas manufacturers of value-added flexible packaging, as this type of packaging is generally easy to transport and import levels are increasing', ACCC Chairman Rod Sims said. 'Some overseas suppliers offer Australian warehouse and distribution services to better compete with domestic suppliers. There are also Australian suppliers looking to expand'.

"The ACCC said that if the Amcor-Aperio business tried to use its market power to increase prices or to decrease services, existing suppliers and potential business entrants from overseas would be able to compete and win market share away from them. Amcor had also argued that fast-moving consumer goods companies had enough market strength in themselves to stop their packaging suppliers from substantially raising prices. The deal makes Amcor twice the size of its nearest competitor, Sealed Air.

"Amcor Managing Director Ken MacKenzie welcomed the outcome as 'pleasing', describing the purchase as 'an important strategic opportunity for our Asia-Pacific flexible packaging business'. He said the integrated business would deliver an improved product and service to customers, particularly through innovation. The company has said that net benefits of joining the operations would be $A25 million, with an overall return of more than 20% by the end of the third year. The sale of Aperio by private equity firm Catalyst Investment Managers will see Amcor add another 13 plants across Australia, New Zealand and Thailand to its 21 sites operating under its Flexible Asia Pacific Business group..." So how will net benefits of $25 million be achieved? According to the Australian Manufacturers Workers Union, it will be throuh the loss of hundreds of jobs.

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UK/Austrian Partnership Grabs 200 Hectares In Taranaki

In four separate decisions Kingheim Limited United Kingdom Public (50%) and Austrian Public (50%) has received approval for the acquisition of a freehold interest in:

• 428.5 hectares of land at Mangapapa Road, Stratford, for $1,350,000;
• 745.6 hectares of land at Tahora Road, Stratford, for $2,450,000;
• 676.8 hectares of land at 123 Prospect Road, Stratford, for $1,550,000; and
• 154.3 hectares of land at 7710 Ohura Road, Stratford, for $345,000.

The vendors were Bruce Beverley Pease, Geoffrey Ernest Campbell and John Morris Walsh as Trustees of the Moki Trust (New Zealand, 100%) ; Craig Russell McCartie and Barry Stuart King as trustees of the Tahora Farms Trust No 1 and Alison McCartie and Barry Stuart King as trustees of the Tahora Farms Trust No 2 (New Zealand, 100%); Springcreek Limited (New Zealand, 100%) and Paul Graham Gilbert and Bailey Ingham Trustees Limited as trustees of the Paul Gilbert Trust (New Zealand, 100%) respectively. The OIO states: "The Applicant is acquiring four neighbouring properties in the Stratford District. It intends to establish forestry on the land using a variety of different exotic species of trees including walnut and Californian redwood".

Matt Rilkoff in the Taranaki Daily News reported on the deal (1/6/12). "Four Taranaki sheep and beef farms totalling 2,005 hectares are now in foreign hands and work is already under way to convert them to forestry. The Overseas Investment Office yesterday released its decision on the application by Austrian and UK-registered company Kingheim Ltd to buy the farms around Whangamomona for $5.69 million. With consent officially granted for the sale six weeks ago contractors have already been engaged to clear tracks and undertake pre-plant spraying for a staged conversion to forestry.

"Rob Webster, of NZ Forestry Ltd, who has been facilitating the deal with the Austrian buyer, said the land would be converted to exotic forestry in stages with a significant number of trees planted this year. Mr Webster said his client would plant species such as Californian redwoods and walnuts. In between the trees it was planned to build horse and mountain bike tracks. Since the purchase last month Mr Webster said he had not heard anything from those farmers opposed to the sale. 'Any of the politicking has gone by the bye. Nobody at all seems to be perturbed about it. We always knew the vast majority have been for it', Mr Webster said. As well as tourist tracks the forestry boss said his client would engage conservation groups to protect and grow resident kiwi and kokako populations. He did not know when his Austrian client would be in Taranaki but said work was now under way on securing citizenship for the Austrian buyer and his family.

"Opposition to the sale had come mostly from farmers bordering on the four farms sold. In February 2012 the loss of the farms to forestry was compared to a small town losing a factory. Kohuratahi farmer Carolyn Couchman yesterday said they had only heard rumours about the sale but had assumed it had gone ahead. 'We are pretty disappointed. We did everything we could, now we just have to live with it', she said. While Mr Webster said it appeared no-one was against the conversion, Mrs Couchman said that was because he hadn't talked to anyone about it. She estimated 70% of people in the district were against it. The Overseas Investment Office said it was satisfied the deal would have a 'substantial and identifiable benefit to New Zealand'. The decision was released on the same day as those clearing the way for Hollywood director James Cameron to acquire 30ha of land in the Wairarapa to add to the ,000ha he already has".

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Go-Bus To Expand - Or Is It Now Gone-Bus?

Carriage New Zealand Limited, Carriage Holdings New Zealand Limited, Next Capital Fund IIA, Next Capital Fund IIB & Next Capital Pty Limited Australia (100%) received approval for an overseas investment in sensitive land, being Carriage New Zealand Limited's (one of the entities comprising the Applicant) acquisition of rights or interests in 100% of the shares of Go-Bus Holdings Limited which owns or controls:

• a leasehold interest in 0.5 hectares of land at 317 and 323 Lincoln Road, Christchurch; and
• a leasehold interest in 0.3 hectares of land at 17/19 Bernard Street, Christchurch.

The vendors were Shareholders of Go-Bus Holdings Limited New Zealand (100%); consideration was stated as confidential. The OIO states: "The Applicants intend to provide additional capital sufficient to support the expansion of Go-Bus Holdings Limited's bus services within existing and new regions of New Zealand". Next Capital, established in 2005, is an Australian private equity firm specialising in providing capital for later stage expansion and small-to-mid market buyouts. Next Capital originally acquired health food and supplements manufacturer Healtheries in October 2006 and Nutra-Life in December 2006, which was consolidated in Vitaco in 2007. See our March 2009 commentary regarding Next's approval to go to 100% of Vitaco. See July 2006 and February 2009 decisions for Next Capital's original entry into New Zealand's hire and rental car industries and October 2009 for the retrospective approval received when increasing this shareholding. Let's hope expansion of Go-Buss services is indeed next.

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Aussies Sell Two Auckland Hotels

AAPC Properties Pty Limited Board members and founders of Accor SA, France (33.2%), United States Public (25.8%), French Public (19.1%), various overseas persons (16%) and United Kingdom Public (5.9%) has received approval for the acquisition of rights or interests in 100% of the shares in Mirvac Hotels Pty Limited which owns or controls an interest in:

• approximately 0.6 hectares of land at 85-89 Customs Street West in Auckland, being the location of the Sebel Suites Hotel; and
• approximately 0.6 hectares of land at 8 Albert Street in Auckland, being the location of the Quay West Suites Hotel.

The vendor was Mirvac Woolloomooloo Pty Limited Mirvac Hotels Pty Limited, Australia (100%); consideration was stated as confidential. The OIO states: "The Applicant is expanding its presence in New Zealand hotel management. The acquisition will provide the Applicant with the ability to add rooms to be serviced by its existing infrastructure in order to create greater cost efficiencies". See our January, August and September 1997 commentaries for details of other AAPC hotel purchases here.

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Japanese Buy Terrace Downs Resort

Hiroshi Hasegawa Japan (100%) received approval for the acquisition of rights or interests in 100% of the shares of Cathedral Square Investments Limited which owns or controls a freehold interest in 250 hectares of land at Terrace Downs Resort, Coleridge Road, South Canterbury. The vendor was Cathedral Square Investments Limited New Zealand (100%); consideration was stated as confidential. The OIO states: "The Applicant is exercising rights to acquire ownership of the shares in Cathedral Square Investments Limited, which owns Terrace Downs Resort ("the Resort"). The Applicant intends to work with current management to improve the Resort so that it becomes globally recognised as a leading luxury olf and adventure destination".

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Other April Decisions

Hancock Natural Resource Group, Inc Canadian Public (32.6%), United States Public (31.2%), Australian Public (22.1%) and Norwegian Public (14.1%) received approval to acquire a freehold interest in approximately 72 hectares of land located at Kinleith (South Auckland District), Motueka Valley Highway (Nelson District) and State Highway 12 (North Auckland District). The vendors were Carter Holt Harvey Group New Zealand (100%) and South Waikato District Council New Zealand (100%); consideration was stated as nominal.

The OIO states: "The relevant land adjoins part of the former Carter Holt Harvey (CHH) forestry estates purchased by the Applicant in 2006. As part of the original transaction, CHH and Hancock agreed that some stopped roads would be transferred to a subsidiary of Hancock as the subsidiary would acquire the land adjoining the stopped roads. Thirteen pieces of stopped road are now ready for transfer. The total area of these stopped roads is just over 72 hectares. Acquisition of the relevant land will allow the subsidiary to continue to effectively manage the forestry estates as an integrated forestry operation".

Hancock Natural Resource Group is based in Boston, with approximately $US10 billion of forestry and farmland assets under management in the United States, Canada, Australia, NZ and Brazil. Hancock is owned by Manulife Financial Corporation, the world's fifth largest insurance company and one of the 100 largest companies on the Forbes 500 list, making it the second largest Canadian company. See our previous commentaries for May 2004, September 2005, March and September 2009 regarding Hancock's other purchases of forests and/or cutting rights here.

Francois Mandy Belgium (100%) received approval for the acquisition of a freehold interest in one hectare of land at Apartment 1201, 45 Stanley Point Road, Stanley Point. The vendor was Bruce Robert Bathurst & Robyn Joy Bathurst as trustees of the Stoneleigh Family Trust New Zealand (100%); consideration was stated as confidential. The OIO states: "The Applicant invested significant funds in New Zealand forestry ventures in the 1990s. Consent is sought for the acquisition of one residential unit and related car parks and storage units in the apartment complex situated at Stanley Point, Auckland.

"The Applicant and his wife plan to retire in the next few years, in particular to Auckland. The proposed purchase of the apartment is for that purpose. It is intended to be a permanent New Zealand residence for the Applicant and will be used in the future as the base from which to manage his New Zealand investments". As for significant forestry investments in New Zealand, all we could find was a 43% interest in a 96 hectare block near Gisborne; see our January 2000 commentary for details.

Richard James Pittard & Carol Jane Barnard United Kingdom (100%) received approval to acquire a freehold interest in 66.2 hectares of land at 155 Wairakau Road, Te Aroha. Consideration was $1,350,000. The vendor was Normac Farms Limited New Zealand (100%). According top the OIO, the Applicants intend to reside indefinitely in New Zealand. They are acquiring the property to reside on and operate as a working farm.

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