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Foreign investment in Aotearoa/New Zealand

Overseas Investment Office - October 2018 Decisions

Private Equity Funds Fight Over Matariki Forests

Stafford Capital Partners Ltd (as investment manager of Stafford International Timberland Funds) (UK Public 39.5%; Luxembourg Public 26.8%; various overseas 11.7%; Germany Public 9%; Switzerland Public 7.3%; US Public 5.7%) has consent from the Minister for Land Information and Associate Minister of Finance to acquire shares in Phaunos Timber Fund Ltd and an indirect control interest in forestry land owned by Matariki Forestry Group, which has approximately 160,000 hectares of forests around New Zealand.

Approximately 78,000 ha. of that is sensitive land and the remainder is held under Crown Forestry Licences. The vendors are the shareholders of Phaunos Timber Fund Ltd (various overseas 37.1%; UK Public 33.2%: Hong Kong Public 12.2%; Sweden Public 7.3%; Switzerland Public 6.1%; Norway Public 4.1%). The price is $268 million (part of $US259 million paid by Stafford International Timberland Funds for the shares in Phaunos Timber Fund Ltd).

The OIO states that Stafford Capital's acquisition of up to 100% of the shares in Phaunos was governed by the UK Takeovers Code. Stafford Capital is the investment manager for Stafford International Timberland Funds, which are widely held commingled investment funds investing in mostly forestry. Stafford Capital has previously held a role as investment manager of Phaunos and has experience and knowledge of the Investment. Phaunos has a 23.01% interest in Matariki Forestry Group, which holds various interests in sensitive land. Stafford required consent under the Overseas Investment Act because it will have the ability to appoint two out of four directors on the Matariki Forestry Group board.

This is a controlling interest which is greater than 25%. The acquisition is likely to result in:

• small efficiencies as a result of Stafford Capital's prior role as investment manager for Phaunos, which included a role on the Matariki Forestry Group board; and
• maintaining New Zealand's image overseas, because the underlying transaction triggering the consent requirement occurs due to the ability to appoint two out of four directors on the Matariki Forestry Board.

Offshore interests appointing directors to control 160,000 ha. of our forests may well diminish New Zealand's image in our own eyes, as we become a mere side-bet in casino capitalism. Here's the story that's not in the OIO summary - or the NZ media. Matariki Forestry Group, as described by Phaunos' Chairman, is the third largest forestry company in New Zealand, consisting of 67 forests in five separate forest management units across the country, with balanced age class plantations, a stable wood production profile and an experienced management team.

In August 2005 OIO consent was granted for 92,000 ha of forest to be purchased by Matariki Forests, an NZ company established by Rayonier NZ on behalf of a consortium led by US pulp and paper company Rayonier Inc as a low tax vehicle under US law ( see Edward Miller's "The Financialisation Of NZ Forestry" in Watchdog 136, September 2014).

In June 2006 AMP Capital Investors (Australia) got consent to buy into Matariki. In 2009, Matariki was put on the market for $1 billion, then withdrawn (capital was tight after the 2008 financial crisis). At that point Rayonier had 40%, AMP 35% and Deutsche Bank's REEF Infrastructure Fund had 25% ( Stuff, 4/8/09).

In February 2010 Phaunos Timber Fund bought up a 35% share for $167 million in shares and loans. NBR (8/1/10), reported that Phaunos is a publicly listed investment vehicle based in Guernsey, Channel Islands (tax haven), and this was its biggest investment so far (46% of the Fund), following forestry investments in Brazil and Uruguay.

In September 2011 Matariki added a substantial chunk of Canterbury forests to its portfolio. Then, in February 2013, Rayonier got consent to purchase up to 100% of Matariki Forests shares, following in 2015 by a capital infusion of $242 million from Rayonier. Together these moves increased Rayonier's share of "Rayonier Matariki Forests" from 24% to currently around 77%.

This application is about what happens to Phaunos' current 23% share of Matariki ownership. The Phaunos Timber Fund is managed by Stafford Capital Partners Ltd, a private markets investment and advisory group, which in 2016 managed $US4.2 billion in assets, specialising in timberland, agriculture and venture capital.

At Phaunos' Annual General Meeting in June 2017, a majority of Phaunos' shareholders were persuaded by shareholders, LIM Advisors, to vote against continuing the Fund i.e. vote to take their cash back. This reflected years of lower share prices and risks-related exchange rates, the illiquidity of forest assets, etc. Stafford Capital Partners immediately resigned as investment managers (effective February 2018) but, in July 2018, made Phaunos shareholders an offer of $US49 cents/share, from another Stafford-managed fund.

The Phaunos Chairman recommended against this offer, calling it disruptive and "not shareholder friendly"; an alternative offer from Catchmark Timber was in the wings (Quoted Data, 14/8/18). Meantime, back in Auckland, Rayonier took Phaunos to court over a breach of the Matariki shareholder agreement on confidentiality, related to a valuation report on Matariki that Phaunos sent to shareholders (as required by UK law).

Rayonier says this breach now gives it the right to acquire Phaunos' stake in Matariki for $225 million, equivalent to a 20.5% discount on the most recent valuation (Investment Trust Insider, 30/8/18). Back in the UK, Stafford upped its final offer, which by 8 October (2018) was accepted by over 82% of Phaunos' shareholders. Hence the OIO application from Stafford.

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Orion Health Hives Off Software To Global Private Equity Funds

InterOperability Bidco Inc, and Healthier Populations Holdco Ltd (European Public 43%; North American Public 40%; Middle Eastern Public 17%) have consent to acquire 100% of the InterOperability Business and assets, and 24.9% of the Healthier Populations Business of Orion Health Group Ltd(Orion), from Orchestral Developments Ltd and Orion (Grafton) Ltd (McCrae Ltd, NZ 49.8%; NZ Public 35.8%; GA Cumming, Canada 8.1% Pioneer Capital Nominees Ltd, NZ 6.3%) for $225 million.

The OIO states that Orion is a global company that develops software for healthcare applications. Orion and its subsidiaries operate the InterOperability Business and the Healthier Populations Business, which involve the development, production, sales, and support of software services designed to integrate healthcare environments through the acquisition and exchange of health data, and to connect, consolidate, and structure healthcare information to make it accessible.

The applicants are ultimately wholly owned by HgCapital Mercury 2 Nominees Ltd, which is a nominee company for the limited partnerships comprising the fund making the present investment. The fund is widely held and is managed by ( HgPooled Management Ltd), a wholly owned subsidiary of HgCapital LLP.

The InterOperability Business and the Healthier Populations Business intend to use their expertise and market position to grow their business and strengthening their positions as technology leaders. They have satisfied the OIO that the individuals who will control the investment have the relevant business experience and acumen and are of good character, and have also demonstrated financial commitment to the investment.

An InterOperability Health (NZ) Ltd was registered as an NZ company on 30 August 2018; there is no registration for Healthier Populations. Interoperability is about sharing information by multiple users across multiple technologies; for example, in e-prescribing of opioid drugs involving doctors, pharmacists, carers, patients, enforcement agencies.

Orion Health's Healthier Populations Suite is "a comprehensive set of interoperability and data aggregation tools that support critical population health initiatives and future proofs customers for Precision Medicine". Well, anyway, it's software packages for health care systems.

Orion began in 1993 when Clearfield Consulting put microwave communication dishes on Auckland hospitals, developing health record software products for district health boards (DHBs), including the national patient index, and for clients in the US, UK and Australia, then wider. It went public in 2014 on the NZ and Australian stock exchanges, but was a bit over-hyped. Then the shine went off information sharing, particularly in the US. In April 2017, the NZ Herald (Ryan, 29/6/18) reported that Orion was restructuring, cutting $30m in costs and staff in NZ and overseas from 1100 to 880, in order to return the business to profitability by 2020; and that sale or partial sale was also a possibility

Wikipedia reports that Hg is a private equity firm targeting middle-market buyouts, primarily in Europe. Hg focuses on investments in technology, services and industrial technology sectors. Hg began life as Mercury Private Equity, an arm of Mercury Asset Management Plc , a long-established UK-based asset management firm.

In 1997 Mercury Asset Management was acquired by Merrill Lynch but the Mercury executives negotiated independence in 2000, establishing HgCapital as an independent partnership owned by its Partners and employees. It has total assets of $US13 billion - including now the software that New Zealand's health care data is run on. For background and analysis of Orion, listen to Rod Oram on RNZ, 2/10/18.

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APN Outdoor Advertisers Part Of French/Aussie Takeover

JCDecaux ANZ Pty Ltd, (French Public 69.8%; North American Public 14.1%; European Public 9.7%; UK Public 5.4%; Asian/Pacific Public 1%) has consent to acquire 100% of the shares of APN Outdoor Group Ltd, an Australian company listed on the Australian Stock Exchange, thereby acquiring 100% ownership of APN Outdoor Holdings (NZ) Ltd and APN Outdoor Ltd from APN Outdoor Group Ltd, (Australian Public 99.1%; various Public 0.85%; NZ Public 0.04%; Hong Kong Public 0.01%). Price withheld under s.9(2)(b)(ii) of the Official Information Act.

The OIO states that JCDecaux operates an outdoor advertising business in Australia. APN Outdoor Group also operates an outdoor advertising business in Australia, as well as in New Zealand via its subsidiaries. The acquisition of shares in APN Outdoor Group, which is subject to a scheme of arrangement under the Australian Corporations Act 2001, means it will obtain indirect ownership of the two New Zealand companies. JCDecaux satisfied the OIO that the individuals who will control the investment have the relevant business experience and acumen and are of good character, and JCDecaux has demonstrated financial commitment to the investment.

Wikipedia says that JCDecaux Group is a transnational corporation based in Neuilly-sur-Seine, near Paris, known for its bus-stop advertising systems, billboards, public bicycle rental systems, and street furniture. It is the largest outdoor advertising corporation in the world. Founded in 1964 it has expanded aggressively, partly through acquisitions of smaller advertising companies in several countries. JCDecaux employs more than 13,000 people worldwide and has a presence in over 75 countries, including now New Zealand.

Wikipedia describes APN Outdoor (originally Australian Provincial Newspapers) is an Australian outdoor advertising company based in Sydney. It was founded in 2004 by APN News & Media when it consolidated its operations with those of outdoor ad firms Cody, Australian Posters and Buspak. In 2017, APN Outdoor dropped plans to merge with rival company oOh!media, following preliminary concerns from the Australian Competition and Consumer Commission. Wikipedia says JCDecaux's June 2018 takeover bid was worth $A1.1 billion.

See Bill Rosenberg's 2008 analysis of media ownership for background on APN in New Zealand. It was part of Independent News & Media, the O'Reilly company that took over the NZ Herald and community papers.

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Pan Pac Buys More Hawkes Bay Forestry Land

Pan Pac Forest Products Ltd (Japan 75.4%; US 10.6%; UK 5.9%; various overseas 5.6%; Belgium 2.5%) has consent to acquire approximately 321 hectares at Kakariki Farm Road, Kotemaori, Hawke’s Bay, from Taypier Forestry No 2 Ltd (NZ 100%), for $1.1 million. The OIO states that Pan Pac Forest Products is a fully integrated forestry and timber products company established to operate in the forestry and wood processing industries to acquire and operate forestry assets.

Pan Pac intends to operate as a forestry plantation, to harvest the current commercial crop of Pinus radiata trees pursuant to an existing forestry right (expected harvest 2022 to 2025), and then efficiently replant the land with a new commercial crop of Pinus radiata trees. The benefits to New Zealand include:

• increased processing of harvested trees;
• advancement of the Government’s One Billion Trees programme; and
• greater efficiency and productivity, in relation to the integrated harvesting and replanting of the land and the value obtained from the future harvest of the new commercial tree crop.

Taypier Forestry No 2 Ltd is a Christchurch company registered in 1992. Pan Pac Forest Products' Website says it owns and manages 33,500 ha of forest as the supply chain for lumber for domestic and international markets and, since 2012, for its Napier thermo-mechanical pulp mill for bleaching, cleaning and converting raw radiata fibre into pulp for board and paper manufacturing.

The ultimate holding company for Pan Pac (registered1991) is Oji Green Resources Co Ltd, Tokyo. In August 2007 Oji Paper Company Ltd got consent to acquire the last 13.5% of Pan Pac Forest Products shares from Nippon Paper. See Oji Oceania Management (NZ) Ltd's consent to purchase 3,000 ha of forests from Carter Holt Harvey in November 2014, and Pan Pac's consents to buy forestry land in December 2014, April 2011, January 2006, February and August 2005, November 2004, July and August 2001.

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Banks Sell Their Card Transaction Company

Ingenico Group SA (Australian Public 76.1%; various overseas persons 21.9%; NZ Public 2%), ANZ Bank NZ Ltd Australian Public 72.9%; US Investors 12.1%; various overseas 8.7%; UK Investors 4.5%; Singapore Investors 1.7%), ASB Bank Ltd (Australian Public 98.7%; various overseas 0.8%; NZ investors 0.4%) and BNZ Investments Ltd (Australian Public 29.3%; various overseas persons 69.2%; NZ Investors (1.5%). The price was $190 million.

The OIO states that Paymark Ltd is a provider of card present electronic transaction infrastructure and services in New Zealand. Ingenico Group advises that it has over 35 years of experience providing payment solutions and provides one of the world's largest payment acceptance networks (with over 30 million terminals installed globally). As a global payment systems operator, the services and solutions it provides includes those of the type provided by Paymark. Ingenico has satisfied the OIO that the individuals who will control the investment have the relevant business experience and acumen, and are of good character, and has also demonstrated financial commitment to the investment.

Scoop (2/11/18) reported that the Commerce Commission, despite expressing concern in July 2018, granted consent after considering the effect on competition in payment terminals. Ingenico is a member of the Ingenico Group based in France, a global provider of payment terminals and digital payment services.

Paymark is a New Zealand company owned by the four Australian banks, whose primary business is to provide processing services that route eftpos, e-commerce, and debit and credit card payment transactions to the appropriate financial institution (a "payment switch"). It does not supply payment terminals. In 2017 New Zealanders made 1.7 billion electronic card transactions with a total value of $83 billion

Paymark has agreements with around 50 card issuers and merchant acquirers, while the other main NZ company Verifone does not currently have the same capability for either insert or swipe transactions or for other contactless transaction or for credit cards (Reseller News, 12/7/18).

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BOC Gas In Global Gas Merger

Linde Plc (Enceladus Holding Ltd, Ireland 50%; Cumberland Corporate Services Ltd, Ireland 50%) has consent to acquire sensitive land and significant business interests, being 100% of the shares of Linde AG which has 3.9161 hectares at 970-992 Great South Road, Auckland. The vendors are the shareholders of Linde AG and Praxair, Inc. (US Public 53.7%; various overseas 25.1%; UK Public 9.3%; Germany Public 5.2%; Canada Public 2.2%; French Public 2.2%; Swiss Public 1.7%; Japanese Public (0.6%). The price was $650.6 million.

The OIO states that the newly created company Linde Plc sought consent to merge and combine the businesses of Linde AG and Praxair Inc., two transnational industrial gas companies, into Linde Plc. Once the merger is complete, Linde Plc will have assets of $NZ64.6 billion and will be one of the four largest industrial gas companies in the world.

This upstream transaction changes the ultimate ownership of the Linde Group, which owns industrial land in Auckland. It does not affect the day-to-day operations of the Linde Group, which trades in New Zealand as BOC. Linde Plc has satisfied the OIO that the transaction is likely to be of benefit to New Zealand. The Linde Group entered the New Zealand market in 2006 and has undertaken a number of previous investments that are of benefit to New Zealand.

It employs 265 staff and has engaged in several projects that address New Zealand's industrial gas production, purification and storage needs. Furthermore, refusing consent for the application would adversely affect New Zealand's trade and image overseas. Linde Plc has satisfied the OIO that the individuals who will control the investment have the relevant business experience and acumen and are of good character, and has demonstrated financial commitment to the investment

Threat to New Zealand's image overseas is not a criterion in the Act, amending legislation or Ministerial Directive. The OIO summary does not indicate if or how this offshore amalgamation will benefit NZ more than current ownership. The Linde Group (Linde AG) is a Munich-based transnational chemical company founded in 1879. It is the world's largest industrial gas company by market share as well as revenue. Praxair, Inc. the largest industrial gases company in North and South America, and the third-largest worldwide by revenue. BOC Industrial Gases NZ is a member of The Linde Group that supplies compressed and bulk gases, chemicals and equipment through 100+ retailers in New Zealand.

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NZ Lifestyles

Sunshine Glory NZ Ltd (Xiao Li, China 99%; Qiming Sheng, China 1%) has consent to acquire ten hectares at Downs Road, Geraldine, from William Paul Fitzsimons and Angela Mary Veale (NZ 100%) for $425,000. The OIO states that Xiao Li and Qiming Sheng are current resident visa holders and they have satisfied the OIO that they intend to reside in New Zealand indefinitely. Overseas persons intending to reside in New Zealand indefinitely are not required to show that their investment in sensitive land is likely to benefit New Zealand. This supports migrants in the process of moving to New Zealand to make New Zealand their home.

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