TransAlta New Zealand Ltd, which is 67% owned by TransAlta Corporation of Canada, has approval to acquire the energy supply business of Southpower Ltd. Southpower is owned by Canterbury local councils, including 88% by the Christchurch City Council, through its company, Christchurch City Holdings Ltd. The price has been suppressed.

The sale was one of the first divestments by power companies of their electricity retailing operations, forced on them by the Electricity Industry Reform Act 1998. The Act banned any company from owning an "electricity lines business" (the physical network of electrical wires and cables) as well as more than 10% of an "electricity supply business" (and vice versa). An "electricity supply business" is defined as one that either sells or generates electricity. Most local "energy supply" businesses sell rather than generate electricity, so on the "supply" side it is these "electricity retailing" operations that have been the focus of most interest in the current round of takeovers. Most power companies chose, like Southpower, to retain their lines network, regarded as much easier territory, presumably because of its natural monopoly position. However, TransAlta, which owns Capital Power, and EnergyDirect, selling electricity in Wellington and the Hutt, instead opted to amass as many retail supply customers as possible.

In a particularly shabby touch, TransAlta also purchased the "Southpower" name, presumably to profit from the confusion of Southpower’s customers who still associate the name "Southpower" with the local government owned company. The local government owned lines company is now called "Orion". Interestingly, the wording of the OIC’s approval allowed TransAlta to also take over Southpower’s gas retail business (owned through Enerco New Zealand), though TransAlta publicly denied any such intention and it has since been sold to Contact Energy (Press, 24/10/98, "TransAlta denies gas bid", p.24). In fact TransAlta paid $2.6 million for Southpower’s relatively minor Port-a-Gas assets (statement by TransAlta to the New Zealand Stock Exchange 30/11/98).

The sale is expected to lead to redundancies amongst TransAlta’s Southpower staff, although those who retain their jobs will retain their conditions of employment for the time being. As with First Electric (see below), the new operation could be run from a call centre anywhere in Aotearoa – or Australia. According to the Press (24/10/98, "S’power lay-offs expected", p.2), "TransAlta has a history of large lay-offs with other New Zealand power companies it has bought into". In June 1995 Capital Power laid off 41 of its 184 staff when TransAlta bought a 49% share (now 100%). In late 1996 it merged Capital Power and EnergyDirect, resulting in almost 200 redundancies.

TransAlta is no model of service. In October, the Ministry of Consumer affairs described its contracts as "onerous and harsh on customers". The contracts limited the company’s liability (to $10,000 for an incident or $50,000 in a year) if negligent, which is in breach of industry standards. They also allowed the company to disconnect power for non-payment of bills, even if the power account is up to date. Its price list did not clearly specify the services covered by each charge. However, TransAlta rated sixth-best company in the survey (Evening Post, 30/10/98, "Harsh contracts earn rap for power firms").

This breach of standards is not just theory. "A Naenae, Lower Hutt, man got the shock of his life after receiving a power bill for nearly $12,000. To add insult to injury TransAlta then cut off Govind Susarla’s power even after acknowledging the bill was a mistake. Mr Susarla received a bill from TransAlta on November 16 for $11,780.44. TransAlta corrected the mistake on the same statement, leaving Mr Susarla with a more respectable bill of $46.69. Mr Susarla then received a letter from TransAlta on December 11 saying that if payment was not made for $46.69, the company would take action to recover the outstanding bill." He had already sent a cheque for $50, but they still turned the power off. TransAlta admitted its fault and agreed to pay for food spoilt in Mr Susarla’s fridge, but not for a $220 restaurant meal he had to shout friends whom he had intended to entertain at home (Press, 30/12/98, "Power cut follows shocking bill").

According to the Canadian Electricity Association (http://www.canelect.ca/media/industry_background.html), TransAlta is one of three major electric utilities in Alberta which together supply about 98 per cent of Alberta’s electrical energy requirements. All are linked by a transmission network largely owned by TransAlta. TransAlta is unusual in Canada in that it is one of only five private (the politically correct term in Canada appears to be "investor-owned") major electric utilities. In 1995, the five accounted for only 7.5 per cent of all Canadian electric utility capacity and produced about 9.4 per cent of total electricity.

Over 83 per cent of the electricity generated by Alberta utilities is produced by large coal-fired generating stations, and TransAlta is no exception: it has three coal-fired generating plants and 50% ownership of a fourth. It has 13 hydroelectric plants, and two coal mines in Canada. Only 5% of its production is hydro based; the other 95% is thermal (coal) based, and this is mirrored by its current power station interests in Aotearoa which are largely thermal (see below).

TransAlta is expanding rapidly outside Canada, particularly in Australia. TransAlta Energy has a joint venture with Gold Mines of Kalgoorlie in a 75-megawatt, gas-fired power plant, supplying power to Australia’s largest gold mine. In November 1997 it gained a $300 million contract with ABB Power Generation to build and operate the Oakajee power generating plant in Western Australia. They won a tender let by An Feng Kingstream Steel Limited which is building a mill that will produce 2.4 million tonnes of steel annually. To do this, the plant will need nearly 325 megawatts of power. Surplus power will be sold to nearby industrial customers. Construction of the plant was expected to begin in 1998 and to begin electricity production in early 2000 (http://www.electricityforum.com/news/novnews/trans.html). In October 1998 it took a share in the Goldfields Gas Transmission Pipeline, and in November 1998 it became the second-biggest generator in Western Australia when it formed a partnership with Australian Gas Light (one third owner of the Natural Gas Corporation in Aotearoa – see below) called Southern Cross Energy. The company, in which TransAlta has 85%, bought four gas-fired power stations, nearly 5,000 km of transmission lines and 15 diesel generators from WMC Resources Ltd, a mining company, which will continue to buy the plants’ output. The natural gas will be supplied by Goldfields (Globe and Mail, 28/11/98, "TransAlta takes No. 2 spot in Western Australian market").

It also has interests in Argentina, where it is part owner of a corporation that holds a 30-year concession for a 1,400-megawatt hydroelectric project on the Limay River providing 10% of the country’s energy needs. In the U.S.A., it has interests in wholesale energy marketing in the Pacific Northwest (see TransAlta’s website: http://www.transalta.com/Website/corpinfo.nsf).

TransAlta was one of the companies that complained most loudly about the electricity reforms. It threatened to withdraw from Aotearoa if the government forced it to split its business. In an unusually blatant piece of "capital flight" blackmail, Stephen Snyder, the Canadian TransAlta group president and chief executive, wrote to the Minister for Energy, Max Bradford. He said TransAlta

He said the Corporation was looking internationally to make investments.

Instead, they have rethought the benefit of the reforms to them. They are likely to end up one of two or three companies dominating electricity retailing in Aotearoa, and possibly an important position in electricity generation as well.

There was a strong irony – hypocrisy might be more accurate – to the government’s actions in passing the legislation. If the MAI had been agreed as proposed a year ago, its expropriation provisions would have made the industry restructuring impossible without expensive and drawn-out legal challenges, likely followed by compensation to the overseas companies affected. (Those challenges and compensation would not have been available as of right to the locally owned electricity companies.) The Minister of Energy expressly ruled out paying compensation, in an answer to a question in Parliament (15/5/98). Then when asked in Parliament whether the MAI would allow companies to claim compensation from the Crown in respect of losses of profit and/or asset value caused by government legislation or regulation, the Minister of International Trade, Lockwood Smith, was forced to fall back on the OECD Ministerial communique which began the backdown on the MAI negotiations (27-28 April 1998). That communique introduced the new concept that the MAI "must be consistent with the sovereign responsibility of governments to conduct domestic policies. The MAI would establish mutually beneficial international rules which would not inhibit the normal non-discriminatory exercise of regulatory powers by governments and such exercise of regulatory powers would not amount to expropriation." The government had previously ridiculed the need for such provisions (whose expression has yet to see the light of day).

In practice, while the transnationals would undoubtably have claimed loss of profits or asset values if compensation were available, the legislation has led to meteoric rises in asset values as speculation takes over. As Mark Reynolds in the New Zealand Herald commented (27/11/98, "Where to now for rationalised new-look electricity companies?", p. C2), "it is difficult to see enough expenses being stripped to justify the high prices paid for some of the line operations", and the same applies to electricity retailing.

In line operations, the government has recognised that the position may well lead to problems – after all, just one company has a monopoly over line networks in each area of the country. The Minister of Energy has threatened to introduce price controls if the companies breach three parameters: prices, profits and service quality. He proposes giving the Commerce Commission power to investigate breaches and impose controls over the 25% worst performers (Press, 17/12/98, "Price control threat for line companies", p.37). That implies either permanent price controls (by definition, there must always be a company in the bottom 25%) or ineffective ones – or so few companies that the rule becomes inoperable. None of these sounds like a well functioning "free market". Utilicorp (U.S.A.) is currently trying hard to achieve the last option. Its recently acquired Takapuna-based company, Power New Zealand, effectively swapped its retail operations for TransAlta’s Wellington lines network, and then paid $485 million (twice book value) for Tauranga-based TrustPower’s network (New Zealand Herald, op. cit.). That makes it the largest network operator in the country, and a company whose parent, Utilicorp United, had its charges cut by a regulator in Missouri, U.S.A., instead of granting increases it had applied for (Press, 11/3/98, "UtiliCorp charges cut", p.29).

The Major Electricity Users’ Group, which includes companies like Comalco, and which saw the reforms as attaining "lowest possible power prices", acclaimed them. However, the group’s corporate bias prevented it from conceding that many residential consumers received lower prices by other means. In many cases people received rebates (in the case of community trust-owned companies) or benefited from dividends that allowed lower local body rates or improved community amenities (in the case of local government owned companies, such as Southpower). It may well be that the loss of these benefits outweighs any price savings.

The Consumers’ Institute, also a member of the group, joined in welcoming the reforms with "cautious optimism", particularly because the cost to consumers for changing supply companies was "likely to be removed". Its welcome was qualified. It was made "leaving aside questions about the wisdom of the reforms to the generation sector". The Institute warned that any falls in retail electricity prices would not impact greatly on the cost of living, so the main benefits may instead be in standards of service, and flexibility in billing options and methods. (Press, 10/6/98, "Power wars go to Parlt", p.9; Consumer Online, What’s News, 20/6/98, "A better deal for electricity consumers", http://www.consumer.org.nz/whatsnews/98apr20.html.)

Local government and consumer trusts also energetically opposed the reforms. The WEL Energy Trust (Waikato) – one that has long been battling for control of its own power company (see for example our commentary on the August 1998 OIC decisions) – commissioned an opinion poll on behalf of eight other trusts. It found 78% of the public believed power companies should be in community hands, in contrast to the expected outcomes of the reforms (Press, 30/3/98, "Public power ownership favoured – poll", p.6). Christchurch’s mayor, Vicki Buck described the reforms as "Stalinist", disallowing anyone but the government itself to own more than one element in the industry. She said that the changes would not harm the Council as owner of Southpower, but would lead to a few large nation-wide organisations taking ownership of electricity retailing (Press, 6/6/98, "Power plans 'Stalinist', says Buck", p.3). A group in Dunedin announced plans to take the Electricity Industry Reform Act to the World Court to prevent privatisation (Press, 26/8/98, "Electricity battle heads towards World Court", p.9).

The Chief Executive of TOP Energy, Roger de Bray, pointed out the consequences to families in remote areas, who would lose the cross-subsidisation of their line charges. Charges might rise by up to $1,000 he said. Others criticised the haste with which the legislation was pushed through, and the effect on low-income consumers. The Press quoted government officials’ advice that forced separation of ownership would result in higher costs because of loss of economies of scale (Press, 15/6/98, "Social costs of power reform", p.4). Electricity Analyst Hugh Barr agreed, saying it would continue the trend of the 1992 electricity "reforms", which had raised domestic prices by 17% (after inflation), but cut prices for most industrial users by 20% (Press, 22/6/98, Letter to the Editor: "Electricity prices", p.4).

Deregulation is occurring in TransAlta’s home, Alberta, too, but in a very different form. There, any power generator can sell into a "Power Pool" which is governed by an independent Council that has authority to monitor markets, investigate complaints and resolve disputes. The regime recognises the natural monopoly position of transmission and distribution systems, which remain regulated. An independent Transmission Administrator oversees the use of the transmission system. "Existing distribution utilities will continue to provide connections to customers and maintain the distribution wires. In addition, the Alberta government maintains ongoing responsibility for monitoring the market and ensuring that it is working fairly and efficiently." From 1999, large industrial customers will be able to choose retailers, and all other customers will be able to do so by 2001. A Market Surveillance Administrator will have powers to monitor electricity markets and to investigate complaints "to ensure efficient and fair operation of the markets and compliance with all rules, laws and regulations governing the behaviour of participants in those markets". (See "Backgrounder on the Electric Utilities Amendment Act, 1998", http://www.energy.gov.ab.ca/electric/restruct/euaa.htm.)

Nonetheless, deregulation was blamed for a fiasco this winter. Citizens of Calgary, Alberta’s largest city and TransAlta’s home town, were "scrambling" to buy their own generators according to the Winnipeg Free Press (2/11/98, "Albertans prepare for winter in dark Blackouts imminent in energy-rich province") after 15,000 homes and businesses had blackouts for 37 minutes. The newspaper asked

Southpower’s initial attempt to sell its retail business, after it became clear the electricity reforms were inevitable, was to sell it to a company which would be the country’s biggest energy retailer, and which would still be local government controlled. It announced in June 1998 that it was selling its electricity retail operations, plus the gas retail operations of its subsidiary, Enerco New Zealand (then 69% owned), to a company jointly owned by United Electricity, Southpower, and Enerco. United was owned by Dunedin City Council’s Dunedin Electricity, Invercargill City Council’s Electricity Invercargill, Alpine Energy (owned by a South Canterbury local authority and trust), and government-owned The Power Company. The new company would start with 400,000 customers, including 160,000 from Southpower, 130,000 from United, and 110,000 from Enerco in the North Island. It would immediately look for more electricity customers in the North Island (Otago Daily Times, 19/7/97, "Dunedin Electricity to raise stake in United", by Fiona Hill; Press, 25/6/98, "Lower power prices promised after merger", p.1, 3; 26/6/98, "Pledges of cheaper power welcomed", p.2).

Southpower’s logic was that, firstly, energy companies not selling quickly "were losing value by the week", and secondly, that "the lion’s share of every energy company’s profit comes from its network". Retailing represented less than 5% of Southpower’s and Enerco’s assets, according to their chairman, John Gray. The lines might in future carry phone and data traffic (Press, 8/7/98, "Money in line ownership, says Southpower", p.28). As will be seen, Southpower was emphatically proved wrong on the first rationale: prices rose rapidly in the auction for retail customers.

But almost as quickly as the sale announcement was made, it was mysteriously shelved. Instead it was announced that Southpower’s retail operation was open to offers.

What happened to prevent what apparently was a marriage made in heaven? On the public record, Southpower’s John Gray blamed delays arising from the Dunedin City Council's public consultation over the sale (Otago Daily Times, 15/8/98, "Minister angry at failed deal"). But greed seems a more likely explanation. Large profits were made from the change in plan. Last minute advice of the price they could get certainly swayed Dunedin City Councillors, according to Dunedin Mayor, Sukhi Turner (Otago Daily Times, 29/8/98, "Councillors fell for sales pitch: Mayor"). Perhaps Southpower received offers that made it want to take any excuse to back out.

In Dunedin’s case, it was revealed that Eric Watson, wheeler-dealer chairman of the U.S.-owned Blue Star group, and Evan Christian of the Advantage Group, bought 55% of United for $23 million in September 1998 through their company Fernhill Power Ltd. That put a valuation of $42 million on the whole company – which would have appeared like mana from heaven to Dunedin City Councillors who had put on a reserve of $6.5 million after consultants’ advice (Otago Daily Times, 28/8/98, "Waipori, United, Citigas to be sold"). To make matters worse (at least for Dunedin City and its citizens) Fernhill built up its shareholding to 100% over the next three months – at a yet to be revealed price – and then resold it three months later to soon-to-be-privatised Contact Energy, taking most of a reported $25 million capital gain. Sukhi Turner called the forced split of Dunedin’s electricity assets "draconian" and said the "accounting, legal and banking industries had done very well out of the changes" (Press, 25/9/98, "Watson seeks Sthpower arm", p.35; Dow Jones Newswires, 3/12/98, "Contact Energy to buy Fernhill Stake in United Electricity", http://www.nbr.co.nz; Press, 4/12/98, "Alp Energy stake goes to Contact", p.15; 16/12/98, "Watson firm reaps quick $25m", p.30; 17/12/98, "Turner: local bodies advised to sell", p.35).

In the meantime, Watson was cheeky enough to put in a bid for Southpower’s retail business. Another bid reportedly came from Contact Energy (which purchased Enerco’s retail business for $100.5 million in October: Press, 28/10/98, "Enerco selling retail business to Contact", p.27).

Though the OIC does not reveal the price paid by TransAlta, reportedly because TransAlta was simultaneously bidding for other companies and did not want to reveal its hand, TransAlta revealed it a month after the OIC’s approval was given (and before the decisions were released by the OIC). It paid an astonishing $171 million, for an operation valued in 1997 by independent consultants at about $13 million. That was $770 for each of the 160,000 customers, compared to $347.50 paid by Contact Energy for each of United’s 130,000 customers. It left Southpower (now Orion) and its owners bathing in cash (Press, 18/8/98, "Trading arm under offer", p.7; 28/11/98, "Power sale brings $70m", p.1; Dow Jones Newswires, 23/12/98, "Electricity Sector Ends Year of Crisis, Reform, Takeover", by Tracy Withers, http://www.nbr.co.nz).

Settlement date for the TransAlta takeover was 1/12/98. Yet another bidder for electricity retail dominance seized the hiatus: First Electric, owned by the Electricity Corporation of New Zealand. Completely new to the game, but with the backing of the largest electricity generator in the country (shortly to be split into three by the government), First Electric launched an offer to TransAlta’s new customers in TV and full-page newspaper advertisements. It promised price reductions of at least 15%. Within a few weeks it had gained a thousand customers, signed up through an 0800 number which was answered by a call centre in Melbourne. In a situation likely to be a signature tune of the new structure of the industry, it bogged down in the changeover of its customers when Orion refused to offer the lower line rentals First Electric demanded, though it acknowledged Orion’s charges to be among the lowest in the country. The old Southpower was also a pioneer in allowing competitors (including United and TransAlta) to offer electricity sales over its network, and claimed it had settled its charges amicably with eight other retailers. While First Electric naturally played to the gallery, accusing Orion of anti-competitive behaviour, First Electric was hardly blameless in making promises it could not fulfil, as Orion pointed out.

The changeover of customers would also be a test case (see the Consumers’ Institute’s comments above) of the practicality of the whole complex structure. If customers could not change suppliers easily and at no cost, then the theory of competition between electricity retailers would be a fantasy.

In December, ECNZ/First Electric bought the retail operations of Mercury Energy, the largest in the country, and Wairarapa Electricity. It paid between $900 and $1,300 for each of the 343,000 customers it bought in this modern type of trade in people (Press, 23/11/98, "Power move patience plea", p.3; 25/11/98, "Complaint from energy trader", p.3; 3/12/98, "ECNZ buys Mercury retail", p.30).

This frenetic auction saw TransAlta shares rise to $2.51 from a low of $1.32 in early October; Power New Zealand to $6.25 from $4.10 in early July; and Trustpower to $2.72 from $1.55 in late August. It resulted in the following position at the end of 1998:

According to a KPMG survey, about 90% of electricity companies have decided to sell their energy retailing operations (Press, 19/10/98, "Electric firms opt to sell", p.22). The retailing sector is divided approximately as follows:

TransAlta 530,000 customers (approximately one third of the market)

ECNZ 470,000 customers

Contact Energy 430,000 customers

Trustpower 114,000 customers

In addition, the Natural Gas Corporation (which is one third owned by Australian Gas Light and one third by Fletcher Challenge) has bid for WEL Energy in Hamilton, which would bring its electricity and gas customers to 132,000.

"Virtually all New Zealand’s approximately 1.9 million electricity and natural gas consumers are being supplied from seven companies as opposed to 39 at the start of the year" according to Dow Jones Newswires (23/12/98, "Electricity Sector Ends Year of Crisis, Reform, Takeover", by Tracy Withers, http://www.nbr.co.nz, which is also the source for the above share prices and market shares, except for TransAlta’s customer tally, which comes from the Press, 14/11/98, "TransAlta NZ powers ahead", p.23).

However, questions remain over Contact and ECNZ. The National Government has announced the sale of Contact Energy. TransAlta is almost certain to be a contender, as, according to a TransAlta news release on 22/10/98 ("TransAlta Becomes Largest Electricity Retailer in New Zealand", http://192.139.81.46/scripts/ccn-release.pl?1998/10/22/1022011n), it has a goal "of being the largest private generator" as well as the largest retailer in Aotearoa. The two combined would have 960,000 customers or over half the market. The government has also announced the split of ECNZ into three smaller power generators. If ECNZ’s retail operation is split with them, it may become uneconomic (TransAlta reckons 400,000 customers is the minimum needed to compete – Press, 12/11/98, "TransAlta to lift wrap on Southpower deal price", p.31) and lead to its sale and further coagulation of the retail sector.

Most local electricity companies have retained their lines networks for reasons stated above, Orion being one of the largest. However, one company has made an aggressive play to become dominant in this sector. Power New Zealand, now owned by Utilicorp of the U.S.A., has added to its own network that of TransAlta’s in the Wellington region, and Trustpower’s in Tauranga, giving it about 30% of the national market (Press, 9/12/98, "Power NZ earnings may double", p.28).

The TransAlta sale is opposed by the Hutt Mana Energy Trust which represents 83,000 people in the Hutt Mana region and "an obligation to" 200,000 Wellington residents, and has 12% ownership of TransAlta New Zealand. It says there has been inadequate consultation over the sale. The Trust wants a local regional lines business established in the Hutt Mana and Wellington region, in which it would have a 26% share to give it some influence to protect consumers. It had been "pushed by TransAlta into bidding for the lines business with a partner suggested by them", but had been unsuccessful (Press, 10/12/98, "Energy trust seeks help to block sale", p.28). The original sale of local body owned power companies to TransAlta roused bitter local opposition and a series of broken promises from the local authorities. The Trust was a last remnant of local influence, but one that seems to have been outmanoeuvred once more.

Around 90% of power generation is still in the hands of ECNZ (66% in 1997 according to the New Zealand Official Yearbook 1998) and Contact (24% in 1997, though it now claims 27%). If the trisection of ECNZ goes ahead as announced, the South Island unit will have about 30%, being the largest of the three.

However TransAlta claims 12% of generation, with an offer late in November for Power New Zealand’s stake in the Rotokawa power station (Globe and Mail, 28/11/98, "TransAlta takes No. 2 spot in Western Australian market"). It has one third of the 350 megawatt Stratford Combined Cycle power station in Taranaki, and 47% of the 115 megawatt Southdown plant in Auckland, with a pre-emptive right to buy Mercury’s generation assets (another third of Stratford and its share of Southdown). That pre-emptive right is significant: Mercury has decided to retain its lines network and therefore must sell its generation assets (New Zealand Herald, 16/11/98, "Mercury write-off to cost trust $500m", p.D1; and our commentary on an OIC decision in July 1997, "TransAlta restructures interests in Wellington, Stratford and Southdown").

Contact also has substantial gas interests, owning three gas fields and rights to 43% of Maui output (Press, 1/12/98, "Govt floats Contact", p.23).

The government’s role in this astonishing lolly scramble must be seen as devious. There can be no doubt that without its explicit consent Contact and ECNZ could not have bid huge, possibly ruinous, sums for retail customers: when New Zealand Post wanted to expand into far more familiar territory to defend itself against deregulation, the government refused it permission. Yet the government also has a policy to privatise Contact and split ECNZ. Privatising Contact will privatise almost a quarter of the retail market. Splitting ECNZ will split another quarter into non-viable portions which are then likely to be sold – most likely to one of the big retailers and hence privatised. If they are not sold, they will likely be albatrosses around the necks of their owners. The purchase by the generators of retail market share must therefore be seen both as a means to speed the privatisation of the electricity market and to discredit the remaining state-owned generators to provide an excuse for their privatisation.

Even putting these politics aside, the prices the government is allowing its SOEs and others to pay for retail customers must inevitably lead to power price rises or bankruptcies.

Zealhoff Holdings Ltd, a subsidiary of Holderbank Financiere Glaris Ltd, of Switzerland, has approval to acquire the 27% of Milburn New Zealand Ltd it does not already own, for a price "to be advised". Holderbank is 54.62% owned by the Schmidheiny Family of Switzerland.

According to the OIC:

Milburn "is predominantly engaged in the production and marketing of cement, concrete and other related products within New Zealand". It exports in a limited way from Aotearoa, mainly industrial lime and cement to the Pacific region, and Holderbank claims its full takeover will enable the development of export opportunities.

The buyout was a matter of considerable dispute amongst minority shareholders. The offer was made in August 1998 at 190 cents a share (costing Holderbank $70.4 million if it succeeded) – at that time 16% above the current share price and 27% above the average of the last two months. Nevertheless, it had the smell of an opportunist move in the depressed share market and low New Zealand dollar due to the economic downturn. Sharebroker J. B. Were and Son, AMP Asset Management (5.5%), and National Mutual (3.1%) all criticised the offer. J. B. Were pointed out that the low New Zealand dollar relative to the Swiss franc (18% lower than at the beginning of the year, and 29% lower than June 1997) meant the cost to Holderbank was 45% less than the shares’ 30/6/97 market value. They, National Mutual, and AMP put the shares’ worth at between 215 and 230 cents. Independent directors commissioned a report from merchant banker, Grant Samuels, which valued the shares at between 194 cents and 215 cents and suggested the mid-point (204.5 cents). Eventually, in November, Milburn upped their offer to 210 cents, by which time AMP and National Mutual had increased their expectations even further (up to 240 cents), though acceptances of the offer were nearing 90%. AMP and National Mutual’s bluff was called. Between them they probably had enough (along with smaller shareholders) to prevent sales reaching the magic 90% shareholding level Milburn required to compulsorily acquire the remaining shares (it’s called sanctity of private property). Fearing they might lose out on what was now an attractive (if not optimal) price, and be left isolated as minority shareholders with the shares difficult to sell, the two institutions hedged their bets. They sold some shares to cash in on the offer – enough that the 90% level would be reached – but also retained some shares (7.7%) to be compulsorily acquired. That gave them the right to challenge the valuation, and require a new valuation that must be accepted by both parties. This they did at the end of December 1998. It was announced in February 1999 and at 250 cents made Holderbank’s offer look somewhat miserly. The new valuation is paid only to the shareholders who are subject to compulsory acquisition, but the challengers pay the costs of the valuation if it comes out the same or lower. Holderbank had got its company. (Ref: Press, 22/8/98, "Swiss owner buys rest of Milburn", p.21; 11/9/98, "Questions on Milburn", p.29; 14/9/98, "Criticism mounts at Milburn bid", p.30; 15/9/98, "Milburn shareholders advised to hold tight", p.29; 24/9/98, "Milburn directors repeat stand", p.29; 2/10/98, "Stand-off in takeover bid for Milburn", p.16; 3/10/98, "Milburn share sale adds mystery to bid", p.23; 23/10/98, "Stand-off on Milburn", p.32; 27/11/98, "Crunch time on Milburn, p.26; 28/11/98, "Holderbank takes Milburn", p.21; 23/12/98, "Offer for Milburn shares ‘reasonable’", p.31; 31/12/98, "AMP objects to Milburn offer", p.32; "Price set for Milburn", 23/2/99, p.28.)

The full takeover also is symbolic not only for the overseas ownership of companies formerly on the share market, but also for the increased centralisation of ownership of large companies. It was the last large (top 40 index) listed company based in the South Island (Press, 22/8/98, "Swiss owner buys rest of Milburn", p.21).

Milburn is one of only two cement producers in Aotearoa, with a cement works at Cape Foulwind, Westport. The other is Golden Bay Cement, owned by Fletcher Challenge. Golden Bay makes its cement at Portland near Whangarei, claiming a 52% share of the domestic market in 1997 (according to Fletcher Challenge’s Security and Exchange Commission filing for the year ended 30/6/97, p.123). In September 1997, a newcomer’s attempt to import cement from China through the Port of Napier was challenged by Golden Bay in the High Court on the grounds that its packaging misled customers into thinking it was a local product. It sought an injunction against the TONS Group of Hastings importing the product, but the judge only insisted they stamp "Made in China" on the packaging. The group had at that stage reportedly imported only 8,000 tonnes of the cement, which the big two tested. Milburn claimed it met local standards but was below the quality of their product (New Zealand Herald, 24/9/97, "Golden Bay stymies newcomer"; New Zealand Herald, 8/10/97, "Labelling hitch for cement").

Milburn owns surprisingly large areas of land: 3,576 hectares freehold, 158 hectares leasehold, and mining licences and easements over a further 258 hectares.

It also owns 72% of McDonald’s Lime and has a shareholding in Fiji’s concrete and cement industry through Fiji Industries and Basic Industries. Its biggest overseas investment is in China, where it has a 50% interest in Yangtze Cement Holdings Pte Ltd, which in turn owns 50% of the Golden Cat cement works at Suzhou, 100km inland from Shanghai. It has management control of the Suzhou works, which is one of the top five producers in China, but has made losses since it was acquired in 1995 (Datex New Zealand Investment Year Book 1998, p.71).

Milburn owns two coastal freighters to carry its cement, the Milburn Carrier 2 and the Westport. It makes heavy use of the port of Westport, one of its two wharves being devoted to cement. A Milburn subsidiary, Buller Port Services Ltd, manages the port for the local authorities that own it (Press, 31/12/98, "Big barge bound for Lyttelton", p.32).

Other subsidiaries include Wellington ready mixed concrete manufacturer Speirs Concrete Ltd; Quikcrete Ltd; Owhiro Bay Quarries Ltd; and Ries Coalmines Ltd (through McDonald’s Lime); and Allied Milburn Ltd (50% owned by Milburn) owns 50% of Amberley Sand (1966) Ltd which has a lease over 12 hectares of land at Amberley for mining sand, gravel, and shingle. Milburn has absorbed subsidiaries Fraser Shingle Ltd, Guardian Environmental Ltd, Ready Mixed Concrete Ltd, Scott Quarries Ltd, Taylors Lime Company Ltd, Western Coal Mining Ltd, and Specialised Paving Ltd. It has a number of quarries including ones at Bombay, Manukau, and East Tamaki (depleted) in the Auckland area, and Dunback, South Canterbury.

In March 1991, the OIC appeared to approve Milburn avoiding tax. Milburn borrowed $40 million from Westpac Banking Corporation. It did this by setting up a Unit Trust (called Milburn Unit Trust) to buy preference shares in a Westpac subsidiary. The OIC in approving the transaction said: "The Unit Trust is created for technical company law and taxation reasons." The Unit Trust used subsidiaries Taylors Lime Company and Alstone Holdings (NZ) Ltd as nominal shareholders.

AMP Ltd, 89% owned in Australia, has approval to acquire "certain assets and liabilities of former retail operations" of Citibank N.A. New Zealand Branch, owned by Citibank N.A. of the U.S.A. The price has been suppressed.

Citibank (or Citicorp), the major Rockerfeller-descended bank, recently merged with the huge Travelers financial services group to become Citigroup – and promptly sacked 10,400 or 6% of its 160,000 international workforce (Press, 17/12/98, "Citigroup to axe 6% of workforce; cost $1.7b", p.37).

Drof 2 Pty Ltd, part of the Linfox Group owned by Lindsy and Paula Fox of Australia, has approval to acquire the former Ford vehicle assembly plant at Plunket Ave, Wiri, Auckland, for a suppressed amount. ("Drof" is "Ford" spelt backwards.) The plant covers ten hectares and is being sold by the Ford Motor Company of New Zealand Ltd, owned by the Ford Motor Company of the U.S.A., following the closure of all motor vehicle assembly plants in Aotearoa. Linfox "is involved in the business of supply chain management. This is the management of products through the various supply chain links for local and overseas manufacturers as well as local retail chains. The Linfox Group is experienced in the development, upgrading and management of warehouses and the conversion of former motor vehicle plants to warehouse use."

Brocker Investments (NZ) Ltd, a subsidiary of Brocker Investments Ltd of Canada, has approval to acquire two hectares of land at 17-19 Kahika Road, Beachhaven, Auckland from Television New Zealand Ltd for $3,400,000. The approval is required because the land adjoins the foreshore and part of it is designated as a proposed reserve and coastal conservation area under the North Shore City Council Proposed District Plan. The land was acquired on 30/6/98 to be the head office and provide warehouse space for Brocker NZ and Sealcorp Computer Products Ltd, a Brocker subsidiary. The OIC has dutifully given its consent retrospectively.

Retrospective approval is given to Westpac Banking Corporation Ltd of Australia or its subsidiary, Home Mortgage Company Ltd, to acquire mortgages and other securities from the state-owned Housing Corporation of New Zealand, and from the Mortgage Corporation of New Zealand Ltd (or the Mortgage Corporation of New Zealand No. 2 Ltd). The price in both cases has been suppressed.

The Stryker Corporation of the U.S.A. has approval to acquire the business and assets of the Howmedica business of Pfizer Laboratories Ltd, a subsidiary of Pfizer Inc of the U.S.A. for $10,260,169.

According to CNN Financial Network, the deal was announced several months before the OIC gave its approval: on 14/8/98, CNN reported that

Quayside Properties Ltd, a subsidiary of Heng Holdings S.E.A. (Pte) Ltd of Singapore, has approval to acquire "various stratum estate units" in a commercial property at 300 Queen Street Auckland, and 24 stratum units in the Heritage Hotel, Christchurch, from Symphony Group Ltd for a suppressed amount.

The purchase is under duress due to the financial crisis in South East Asia.

In March 1997, Heng Holdings received OIC consent to buy two and a quarter hectares of Viaduct Basin land in the Central Business District of Auckland from Turners and Growers Ltd for "approximately $17 million". It includes the Old Market Buildings, the New Market Building, and the Jaybell car park. It was stated that "it is proposed to undertake a multi purpose development on the land, which will include tourism, leisure and entertainment, commercial and residential facets." In 1994, Guinness Peat Group of the U.K., controlled by Ron Brierley, bought the Turner family’s 25% shareholding in Turners and Growers, and later raised its holding to 28%. GPG’s main interest in Turners was the five hectares of land it owned in Viaduct Basin, which are next to the proposed America’s Cup headquarters, and were expected to rocket in value for the cup challenge. Turners, under GPG’s control, sold the five hectares for $24.1 million, compared to a value of about $30 million for the whole company implied by GPG’s purchase price. (See our commentary on the March 1997 decision.)

Heng either paid too much or bit off more than it could chew. It said at that time that it planned a $350 million development using overseas loans (mainly from Singapore) including a 300-room five-star hotel, leisure and entertainment centre, housing and shops. To raise the loan, in September 1997, the OIC gave Mancon Berhad of Malaysia approval to take 51% of Quercus Investments Ltd, owned by Heng Holdings, which has a perpetual lease over the Viaduct Basin land. The purchase was in fact a loan: the consideration for the acquisition was $51 plus shareholder loans of "approximately $6.6 million". The OIC reported that

Now however,

which says as much about difficulties Symphony has in selling its units as Heng’s financial state.

Heng Holdings is a subsidiary of Tong Nam Contractors Pte Ltd which is 90% owned by Heng Hiang Boon and Heng Boon Heng and 10% by Mrs Tan Leng Cheng, all of Singapore.

Etsumei Sun, a resident of Japan, has approval to acquire 88% of Emmons Developments New Zealand Ltd for $1. The company owns Noahs Hotel, the AMP Centre, and an adjoining parking building in Cathedral Square, Christchurch. Four of the current six shareholders are selling up due to "pressure being brought to bear on the outgoing shareholders to realise their assets by banks in Japan and is a direct result of the ‘Asian Meltdown’". The new shareholding will give complete control to the Sun family. The four selling are Tetsuzo Ota, Joji Otomo, and Shiro Otomo, all residents of Japan, and Chung Li Sun, a resident of Singapore, and the father of Etsumei Sun. It is not stated who owns the remaining 12%, other than the implication that it belongs to the Sun family, who wish to "concentrate on considering opportunities for growing their investment interests in New Zealand".

Sale of the well known Walter Peak Station on Lake Wakatipu, Queenstown, Otago, by J.L. and G.R. Hargest of Aotearoa, has been approved for a suppressed amount. The station, in Mt Nicholas Beach Bay Road, has 375 hectares of freehold land, and 25,758 hectares of land under a perpetually renewable Crown Lease (known as a "Special Lease"). The land is currently used for sheep farming, and the new owners intend to develop the agricultural activities, but also investigate developing the tourism potential of the huge station.

The purchasers are Ian Koblick and Tonya Koblick of the U.S.A., Morris Kahn of Monaco, Benjamin Kahn of the U.S.A., and David Kahn of Israel. Oddly, the percentage each of them holds in the station has been suppressed, along with the price.

According to the Southland Times (14/11/98, "American couple among new Walter Peak owners", by Sue Fea), the vendors, John and Jill Hargest, farmed Walter Peak for 20 years. The new owners "would continue to run the property as a high country sheep station, managed by John and Sharon Templeton, previously of Mararoa Station, near Te Anau. Neighbouring land occupied by Walter Peak Tours Ltd is not included in the sale deal."

All the new owners have interests in underwater tourism. Ian G. and Tonya A. Koblick are, respectively, President and Chairman of the Board of Directors, and Director and Secretary, of Marine Resources Development Foundation. Most other Directors have a strong U.S. Navy or Air Force background, and include former astronaut, Scott Carpenter.

The Kahns are the owners of the Israel-based Coral World International, which is jointly owned by Ampal (see below) and the Kahn Group. Morris Kahn was the founder of the Kahn Group, and current president of Coral World is his son, Benjamin Kahn, who is also President of the Maui Ocean Centre, Maui, Hawaii. Coral World owns the Underwater Observatory Marine Park in Eilat, Israel, as well as two in Australia (Underwater World Perth, and Oceanworld Manly, NSW). It has developed similar parks at St. Thomas in the U.S. Virgin Islands, in the Bahamas, and in Jakarta, Indonesia. (See http://www.hotspots.hawaii.com/mauirpt.html, http://www.coralworld.com/consulting, and http://www.coralworld.com/eilat/oceanarium.)

The company describes itself as follows:

Regarding the parks they develop:

A further block of Closeburn Station on the Glenorchy-Queenstown Road, Queenstown is being sold for residential subdivision. The land adjoins both Lake Wakatipu and conservation land. The purchasers in this case are David Salman and Walter Jared Frost of Indonesia. Salman, through his 70% holding in J. F. Investments Ltd is also a seller (D. Broomfield of Aotearoa owns the other 30% of J. F. Investments). They are buying a two hectare block for $134,588, plus $6,000 per year "for expenditure of a capital nature" on the farming operation on the remaining station. The OIC says that

Salman appears to be giving himself a better deal than other block buyers. The last such sale recorded by the OIC was in July 1998 when three approvals were given for the sale of blocks of this land. Each block was under half a hectare, and the sale price of each was $500,000 plus an annual levy of $3,000. The purchasers were from Singapore and Malaysia. Each also acquired "an undivided 1/27th share in 926 hectares of land being the area of Closeburn Station not set aside for residential development".

In April 1998, RMI Resources Ltd, of which Salman is the principal shareholder, received approval to acquire up to 70% of J.F. Investments (New Zealand) Ltd which owned the 935 hectare Closeburn Station. The OIC said:

Salman has a number of other investments in Queenstown including an interest in 17 hectares of land at Tuckers Beach Road near Queenstown, for residential subdivision; and Woodlot Farm Ltd, a Singapore/Indonesia owned company involved in a golf course and housing development near Queenstown.

Broomfield is the developer behind the Quail Rise subdivision at Frankton near the Lower Shotover Bridge. It is divided into 31 sections from 1,200 sq. m. to around 6,000 sq. m., priced at around $89,000 each. A number are selling to Asian investors seeking to place their money in a safe haven (National Business Review, 20/11/98, "Southern sections sell like hot cakes", by Chris Hutching, p.73).

• Georges Michel Ltd, owned by Georges Maxime Michel of France, has approval to acquire a further three hectares of land adjacent to six hectares it already owns. The land is in Vintage Lane, RD 2, Blenheim, Marlborough, and is being purchased for $250,000. "The two properties had been operated in common with the rest of the Merlen Wines Ltd vineyard before the company went into receivership". He intends to "revitalise the neglected vineyard". In December 1997 we reported that Georges Michel Ltd gained approval to acquire a six hectare vineyard in Rapaura Rd, Blenheim, owned by Merlens Winery Ltd (in receivership and liquidation). for $620,000. At that time Michel was reported to be a citizen of France but a resident of the Island of Reunion.
• Lay & Wheeler Group Ltd of the U.K. has approval to acquire a half share of Clayvin Estate Vineyards Ltd which own 16 hectares of land at Wrekin Road, near the upper reaches of the Brancott Valley, Marlborough. The price is $1,750,000. Lay & Wheeler, established in 1854, is based in Colchester, U.K. The purchase is vertical integration into the U.K. company: the OIC says the company "is regarded as one of the U.K.’s pre-eminent wine importers" with "strong connections" with the importation of wine from other wine companies in Aotearoa. It is owned by John Richard Wheeler (39%), Johnny Wheeler (26%), Mary Wheeler (19%) and Elizabeth Lee (16%), all of the U.K.
• James Alexander and Sharon Lee Vyborny of the U.S.A. have approval to acquire a ten hectare vineyard in Hawkesbury Road, Renwick, Marlborough from Tresmere Holdings Ltd of Aotearoa for $1,042,500. The grapes will be sold to wineries in California as well as to local wineries.