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Fletcher becomes overseas company - buys land at Papamoa and Albany In two OIC decisions more remarkable for their existence than their content, two subsidiaries of Fletcher Challenge Ltd have approval to acquire land for subdivision. What is remarkable is that, though it has long been well over the 25% overseas ownership threshold that would make it an overseas company under the Overseas Investment Act, Fletchers has always been given an exemption from the regulations by the OIC on the basis that it remains controlled in Aotearoa. Hence none of its acquisitions have required an OIC approval. These approvals mark a change in that status. CAFCA wrote to the OIC to verify the position and was told by the secretary, Stephen Dawe, that the Commission "considered FCL no longer met the criteria for remaining on the [exemption] Schedule" (email to CAFCA, 20/12/99). We are still not clear what caused this change of heart, but it is now unambiguous: Fletcher Challenge Ltd is officially an overseas company. According to the OIC, Fletcher’s is owned
with no single major shareholder. Fletcher’s 1999 Annual Report shows the following for the four Fletcher share divisions:
The Annual Report lists a number of investors as "substantial security holders" in the various divisions. They include AMP Asset Management New Zealand Ltd (5.3% of Fletcher Energy), The Capital Group of Companies, Inc (9.6% of Energy), Debenture Nominees Ltd (5.9% of Energy and 7.2% of Paper), Franklin Resources Inc (11.5% of Building, 5.8% of Energy, 8.5% of Forests, and 5.3% of Paper), J P Morgan Investment Management Inc (7.3% of Paper) and Xylem Fund I, L.P. (6.5% of Forests). Returning to the actual decisions: in one, Fletcher Residential Ltd, has approval to acquire 3.5 hectares of land at Garden Drive, Domain Gardens, Papamoa, Bay of Plenty for $450,000. It intends to develop 31 residential lots and build houses on them. It is Stage 4 of the Domain Gardens subdivision. In the other, Fletcher Homes Ltd has approval to acquire 1.8 hectares of land at 243 Rosedale Road, Albany, Auckland for $3,456,000 to develop 32 residential lots including houses. "The acquisition is viewed as an expansion of the residential subdivision and building business of Fletcher Homes in the Albany basin." The land is being purchased from Ngatira Holdings Ltd (J. and L. Fry) and adjoins land that is "provided as a reserve, public park, for recreation purposes, or a private open space". Telecom contracts out computing to EDS, builds "potentially massive" computer services group EDS (New Zealand) Ltd, a subsidiary of Electronic Data Systems Corporation of the U.S.A. has approval to acquire "various information technology services business assets of Telecom New Zealand Ltd" from Telecom Corporation of New Zealand Ltd for a suppressed amount. This "forms part of an outsourcing arrangement by Telecom". Telecom is recorded as being owned as follows:
However, New Zealand Central Securities Depository Ltd (NZCSD) is run by the Reserve Bank as a nominee holding company for institutions dealing in New Zealand shares, such as insurance companies and investment funds. Therefore many – probably most – of these shares are overseas owned. Further, Bell Atlantic and Ameritech have both announced their sale of Telecom shares. Telecom’s Web site confirms that Ameritech completed the sale of its shares more than a year ago – in April 1998. It also says that Telecom is now only about 22% New Zealand owned (http://www.telecom.co.nz/about_telecom/who_we_are/t2_1_1_facts.html). Bell Atlantic completed its sell out in mid 1999. This development with EDS can be seen both as a huge extension of Telecom’s practice of contracting out, and as the development of a potentially enormously powerful computer services group, which also involves Microsoft Corporation. Contracting out Contracting out has been a large part of Telecom’s obscene financial success since privatisation. From 13,562 employees in 1992, the company has reduced its staff to 7,799 in 1999 according to Telecom’s Annual Reports. Many of the staff laid off were re-hired as private contractors carrying out such tasks as installing residential lines, cabling, or maintenance – either on their own account or in small companies set up by groups of redundant staff. Telecom thereby moved the risk from its own accounts to these, often low-paid, individuals, and deprived them of their service benefits, often after working for Telecom for many years. This process has continued in many different aspects of the company’s operations. For example, earlier in 1999, according to its 1999 Annual Report, "Telecom announced it had reached an agreement with specialist call centre operator SITEL Asia Pacific to contract out the provision of operator services. Operator services manages directory assistance, operator assistance and audioconferencing calls as well as passing 111 calls to emergency services. The decision to outsource operator services resulted in approximately 560 redundancies (total severance costs of NZ$15 million) at the Auckland, Palmerston North and Christchurch call centres." In similar style it set up chains of "independent" retailers selling its cellphone services. The nature of them was revealed when it decided to reverse the process. We reported Telecom’s purchase of the business of Cellnet Mobile Services Ltd, its only remaining independent Telecom Accredited Service Provider when it was approved by the OIC in May 1998. It had bought those of Motorola and Ericsson within the previous year. The Cellnet acquisition was the subject of an investigation by the Commerce Commission. Its report of 15/5/98 (p.6) gives Cellnet’s parentage and its relationship to Telecom: "Cellnet is a wholly-owned subsidiary of Fisher & Paykel Industries Ltd. Its sole business is the sale of cellular equipment, and cellular connections to, and air time on, the Telecom cellular network. Cellnet’s rights to sell cellular connections and air time is governed by an agreement between Telecom and Cellnet..." The Commerce Commission’s investigation revealed the phoney (no pun intended) nature of the distribution outlets Telecom set up, seemingly competing to provide telecommunications services based on Telecom’s network. The "TASPs", in this case, were a marketing device set up by Telecom. They existed at its whim. The Commerce Commission quotes Telecom itself as saying (p.17): "A practical examination of the behaviour of TASPs and the other market participants (Telecom and BellSouth) demonstrates that the TASPs have an insignificant competitive effect in the market. What might at first appear to have been competition between TASPs was, in fact, driven not by normal market dynamics but by the TASP agreements each had with Telecom. The TASPs act not as independent wholesalers or distributors, but rather as contractual agents of Telecom in the provision of cellular services. This is reflected in the lack of significant service or pricing initiatives coming from the TASPs and their reluctance in adopting Telecom initiatives. These attitudes and behaviour reflect the TASPs’ reliance on the TASP agreement to suggest that they need do no more or less than that set out in the strict terms of the TASP agreements." And "TASPs have an existence only by virtue of those contracts created by Telecom. In effect the TASPs are simply commission agents of Telecom for a distribution of a service." Another indication of the way Telecom deals with its contractors is revealed in its 1999 Annual Report where it shows that its costs of maintenance – increasingly contracted out – had fallen in the last two years. The first reason it gives for the falls in both years is "improved prices from external contractors" (Management Commentary, p.10). The present contract was announced in a joint statement by EDS and Telecom under the headline "Telecom and EDS Announce Largest-Ever New Zealand Outsourcing Deal". According to the statement, "the relationship includes a 10-year, $1.5 billion agreement for EDS to supply all of Telecom’s IS services". It involves EDS running all of Telecom’s information systems (computer-based services), and taking over employment of the Telecom staff involved: "EDS will manage and operate Telecom’s company-wide information systems and technology delivery, including its enterprise applications, technical infrastructure and IS assets. EDS will also manage and operate Telecom’s billing and customer information systems. Approximately 600 staff are involved in managing Telecom’s current IS requirements and EDS is offering to employ all Telecom staff affected by the outsourcing agreement." Another 400 IS staff remain with Telecom, mainly to run its network business and for "strategy and business analysis". In any contracting out arrangement it is essential the company retains the ability to determine its strategic direction and hence need for computer services. Telecom had also been negotiating with IBM, already a major supplier to Telecom, on the deal. IBM lost to EDS, and although it will continue to work for Telecom with EDS for "some time", this is a major blow to its position in Aotearoa. Telecom reportedly accounted for about a third of IBM’s 1998 $331 million income, and it has also suffered from the INCIS fiasco. EDS likely takes IBM’s place as number one information technology company in Aotearoa (New Zealand Herald, 17/7/99, "Telecom picks EDS for partner in big outsourcing deal", by Chris Barton). However the agreement goes further than solely EDS taking over Telecom’s information systems. Powerful computer services group The spectacular development of the Internet, which combines both telecommunications and computer technology, has emphasised what was occurring anyway: the merging of those two technologies. Telecom has long wanted to become a provider of computer as well as telecommunications services. Its development of its Internet Service Provider subsidiary, Xtra, was its most successful (if brutal) foray into the area. The agreement with EDS, which also includes Microsoft Corporation, is a carefully constructed step that is both clever and potentially dangerous. Telecom’s computer operation is significant in its own right: for example it includes 7,500 PCs and "scores" of IBM AS/400 and Sun minicomputers, plus Xtra’s infrastructure (New Zealand Herald, op cit; Press, 14/7/99, "Telecom close to IT call", p.28). The carrot of contracting this out to EDS creates a means for Telecom to "develop and deliver online solutions to customers" – in other words, create a computer services operation in alliance with EDS and Microsoft. A report before the deal was finalised described these services as including website hosting and content, on-line billing, software rentals, call centre management and other customer services, Internet marketing, on-line procurement, and selling other companies’ products (Press, 7/9/99, "Telecom, EDS alliance", p.20). To emphasise the nature of this relationship, Telecom has taken a 10% shareholding in EDS and will have a director on its Board (there was already cross-directorship: a member of Telecom’s Board since May 1998, Paul Baines, is a director of EDS). Telecom has the right to take up to 49% of EDS over the next four years, but " EDS will retain a majority shareholding and operational control".The deal is potentially dangerous for Telecom however. Outsourcing agreements are of their nature contestable: otherwise the company receiving the service cannot periodically conduct an auction to force down costs and improve the quality of service. They are therefore frequently relatively short term – two or three years at most. Telecom has entered a ten year agreement in which it has much more than an outsourcing contract at stake. If things should go wrong with any part of the relationship it may find itself landed with a relationship it has limited freedom to extract itself from. An additional risk comes from Telecom’s lack of experience in the computer services market. It may find it is tied into a relationship where the returns are small, or strengthen only the positions of EDS and Microsoft. (See also NZInfoTech Weekly, 19/7/99, "Disputes may create contractual issues", by Dave King, http://www.infotech.co.nz/july_19/nted.html.)Similarly, it raised issues with alternative suppliers to Telecom: would they be able to get a look-in with EDS controlling a large part of Telecom’s information systems? What would happen if they fell out with EDS? As Dinesh Kumar, managing director of research house International Data Corporation told NZ InfoTech Weekly, "a few IT companies ‘may go bust’ because of the deal. Any company that has not formed a good working relationship with EDS could be in trouble". Despite this, none of the parties checked it out with the Commerce Commission before consummating the deal: "Commerce Commission spokesman Vince Cholewa said the commission had had no prior knowledge of any acquisition or arrangements between Telecom and EDS, and was interested in finding out more details" (NZ InfoTech Weekly, 19/7/99, "Telecom: Vendors not locked out", by Adrienne Perry, http://www.infotech.co.nz/july_19/ntcomm.html). At time of writing, it appears not to have made any objection.But the biggest dominance and competition issue is the new alliance itself. It has Telecom, the third-largest, and probably most anti-competitive company in Aotearoa, allied with Microsoft, in constant trouble in the U.S. over its monopolistic business practices and a dominant force in the computer software market here in Aotearoa. That does not augur well. Add to that EDS, now not only the largest information technology operation in the country but responsible for some of the most critical computer systems in the country including Inland Revenue, WINZ, the Wanganui police computer, and all the major banks. Telecom itself has one of the largest databases of people and businesses in the country – every telephone subscriber – which it regards as one of its strategic assets for obvious commercial reasons. As Adrienne Perry wrote, pointing this out in NZ InfoTech Weekly: "While privacy laws rule out accessing that data, the power of the combined data repositories of Telecom and EDS is awesome and should not be ignored." She described the Telecom-EDS-Microsoft alliance as "potentially massive" (NZ InfoTech Weekly, 2/8/99, "Dr Deane the architect behind blueprint for Telecom growth", by Adrienne Perry, p.4). So who is EDS? In 1994 we reported the sale of both the privatised Government Computing Services (GCS) and Databank to EDS. Databank Systems Ltd is the computer bureau that is the clearing house for its owners, Westpac, ANZ, National Bank and BNZ. GCS handles sensitive information such as that held by Inland Revenue, WINZ, the Police and their Wanganui Computer Centre (which GCS manages but doesn’t own). GCS was originally corporatised out of computer services run by various government departments for themselves.EDS is based in Texas, but is of special interest because it is the source of the wealth of independent (but dependably right-wing) U.S. presidential candidate, Ross Perot. The price of his independence was shown when he sold EDS to General Motors Corporation in 1984. However, in 1996, GM, while remaining EDS’s largest client, split it off as a separate company. EDS describes itself as "a leader in the global information technology services industry for more than 35 years", with "more than 9,000 business and government clients in about 50 countries". It had operating revenue of US$16.9 billion in 1998 and has been growing quickly: from 1987 to 1996, its total operating revenue grew an average of 14% annually. While its operations feed on restructuring and job loss – over half of its 130,000 employees in 1999 had come from operations it had contracted to run – it creates its own job losses too: in 1996 it sacked 4,900 employees to reduce costs. A further 6,500 were laid off or were retired early in 1997 and 1998, and 3,000 in 1999 (EDS 1998 Annual Report, pp.27-28; joint Telecom/EDS announcement 15/7/99; Press, 30/10/99, "EDS up ahead of one-offs", p.25). To aid these processes, the company owns A.T. Kearney, a "global management consulting firm specialising in performance analysis and improvement". (The source of this and the following two paragraphs is the EDS publication, "1997 EDS Fact Book".) In the U.S., the company is close to the heart of the corporate, government and military world. Directors include James Baker, former U.S. Secretary of State and Treasury Secretary; Richard Cheney, former U.S. Secretary of Defense; another former member of the U.S. House of Representatives, William Gray; the head of Hunt Oil, Ray Hunt; and the President of the University of Pennsylvania, Judith Rodin. It numbers the U.S. Department of Defense "and all branches of the military" amongst its clients, along with many U.S. States and Dow Chemical. It is particularly proud of its record in health services, saying that in the 1970’s, it "became the world’s largest processor of commercial health claims". In 1997 it provided services to 115 million U.S. residents through clients in "managed care organisations, hospital systems, Blue Cross and Blue Shield plans, pharmaceutical companies, Medicare and Medicaid programs, and the U.S. federal government". Beyond the U.S, its clients include the Supreme Court and National Police Agency of South Korea, and the governments of the U.K. (including Inland Revenue), Hong Kong, and South Australia. It claims "adaptation to Indonesia’s culture and business style" helped it win contracts there, including to the huge Salim Group (owned by Liem Sioe Liong, closest crony and supporter of the spectacularly corrupt former President Suharto). Such contracts were rarely won without payoffs to the Suharto family or cronies like Liem Sioe Liong. Is that what "adaptation to Indonesia’s culture" means? Other than its Databank and GCS acquisitions in Aotearoa, its clients include electricity and gas utility TransAlta New Zealand, Capital Coast Health, the Department of Corrections, and Land Information New Zealand. It is also expanding its banking clientele. It runs the major banks’ joint data processing needs through a contract with their jointly owned Interchange Settlements Ltd (ISL). ASB Bank, ANZ, BNZ and the National Bank all have contracted out their cheque processing to it, leaving only WestpacTrust among the major banks still doing it in-house. ("1997 EDS Fact Book; NZ InfoTech Weekly, 2/2/98, "EDS eyes banking options", by Adrienne Perry, p.2; Press, 6/7/99, "More business for EDS", p.28). It has lobbied for further privatisation or contracting-out of government services, sponsoring the highly controversial "Beyond Dependency" conference on social services run by the Department of Social Welfare (now part of WINZ) in 1997. While selling the expertise, efficiency and quality of its services, its record in Aotearoa has been mixed and illustrates the weakness of the contractual relationship required in outsourcing. For example, twice in 1997, people were unable to access their bank accounts on computers run by EDS. In December 1997, thousands of Christmas shoppers and beneficiaries had to wait for several hours after ATM machines stopped working. While shoppers had to wait up to seven hours, 745,000 beneficiaries received their money up to a day late. EDS blamed a faulty new application for the first outage, and a faulty disk for the second. "Both events were outside the Service Level Agreement EDS had with ISL", so EDS’s remedy was for its clients to spend more money on new or better systems (Press, 23/12/97, "Glitch disrupts cash machines", p.1; 24/12/97, "Payout fault hits beneficiaries", p.3; NZ InfoTech Weekly, 2/2/98, "EDS eyes banking options", p.2). A similar problem occurred in February 1998, when about 75,000 people did not receive their benefits after "a fault between EDS, the company that runs Income Support’s payment system, and banks" (Press, 18/2/98, "Bank glitch delays benefit payments", p.8). Larger numbers were affected in October 1998 after processing problems between EDS and some banks (Press, 14/10/98, "Bank glitch delays pension payments"). A new Inland Revenue Department computer system for filing employer PAYE returns had "teething problems" in March 1999. Employers experienced hours of delays trying to contact the help desk, run by EDS, which was supposed to help employers work through the problems. Employers described the system as "chaotic". IRD said the help desk was under-resourced. EDS later brought on extra staff (Press, 18/3/99, "Firms hit by IRD glitch", p.1; 29/5/99, "IRD out to fix PAYE system", p.21). EDS was also one of the contractors (with PricewaterhouseCoopers) developing a new Land Information New Zealand computer system for storing and accessing land titles. In June 1999 it was running nine months late and $35 million over its $95 million budget (Press, 22/6/99, "Computer's bill up $35m", p.1). Merger between Hoyts, Village Roadshow and Force cinemas approved A merger of the three main cinema chains in Aotearoa has been approved by the OIC, despite Commerce Commission opposition. The approval is for the Village Force Hoyts Joint Venture to acquire "certain business assets and undertakings" of Hoyts Cinemas Ltd, including a hectare of leasehold land at 392 Moorhouse Ave, Christchurch (on which is sited the Hoyts 8 cinema complex) for $50,000,000. Approval is also given for the joint venture to acquire "certain business assets and undertakings" of a 50/50 joint venture between Force Corporation Ltd and Village Roadshow Ltd (commonly known as Village Force), including the new Force Entertainment Centre, 267 Queen St, Auckland, also for $50,000,000. The Village Force Hoyts Joint Venture is owned 50% by Hoyts Cinemas Ltd of Australia, 25% by Force Corporation of Aotearoa, and 25% by Village Roadshow Ltd, also of Australia. Between them the two chains operate about 70% of the cinema screens in Aotearoa. Hoyts owns and operates 9 cinema complexes in Aotearoa; Village Force have 13, including Rialto cinemas. Both also have interests, such as management contracts, in complexes owned by other companies. Force is dominant in Auckland, while Hoyts is stronger in Wellington and the South Island. Hoyts is controlled by Australian tycoon, Kerry Packer, through his company, Consolidated Press Holdings (Press, 17/5/99, "Packer wins fight for Hoyts", p.33). Force is just over 50% owned by its chairman, Peter Francis, but is 15% owned by Shamrock Holdings, the Californian company which tried to take control of Brierley Investments in 1998. Shamrock is controlled by the family of Roy E. Disney, a nephew of Walt Disney (Press, 20/7/99, "Shamrock buys into Force", p.27). Force also has property interests, and has a 25% holding in Village Cinemas South America, which is the biggest cinema owner in Argentina. All its cinema sites in Aotearoa are owned by the Australian Westfield Group (Press, 1/9/99, "Big pictures good for Force", p.29; 20/11/99, "‘Flat’ first for Force", p.26). The proposal for a merger of operations was an extension of arrangement between the chains to share the $75 million Civic Entertainment Centre 12 screen multiplex in Queen St (called the Force Entertainment Centre by the OIC). It was greeted with fear and loathing by independent operators. Mark Christensen, president of the New Zealand Motion Picture Cinema Owners Association, said it would upset the balance of power between distributors and the exhibitors. Independent cinemas already struggled to get good movies (New Zealand Herald, 11/6/99, "Cinemas ready for pioneering deal", by Karyn Scherer, p.C3; Press, 23/6/99, "Cinemas fear merger could mean curtains", by Gerald Raymond, p.34). The Commerce Commission agreed. On 22/8/99 it announced it would seek a court injunction to stop the merger. It said that it had investigated the proposal and was concerned about the impact on competition in New Zealand markets for film distribution and screening (Commerce Commission media release 1999/95, 22/8/99, "Commission starts court action against proposed Hoyts/Village Force merger", http://www.comcom.govt.nz/publications/display_mr.cfm?mr_id=577). The chains pushed ahead regardless, two days later signing a deal for the merger. They had not even applied to the Commerce Commission for approval (Press, 24/8/99, "Cinema groups push on with merger plan", p.17). See our commentary on the February 1998 decisions for further background on the cinema industry. Ernest Adams taken over by Goodman Fielder of Australia Household name in cakes, Ernest Adams Ltd, is the latest take-over victim of Goodman Fielder Ltd of Australia. The $39,000,000 sale includes Ernest Adams’ factory (the former Glaxo pharmaceutical manufacturing plant, vacated in 1996 when its then U.K. parent closed it down) on 4.5 hectares of land at 142 Botanical Road, Palmerston North, Manawatu. The purchase is via Goodman Fielder’s subsidiary, GF Intertrade Ltd. The existing shareholding of Ernest Adams is given by the OIC as 12% BT Funds Management of Australia, 3.984% Grace Family of the U.S.A., and 84.016% other New Zealand shareholdings. However it has been considerably more complex than that, and the takeover involved a battle between the large shareholders and the Board. The original offer was made by Goodman Fielder in July 1999. A major attraction was the 70 year old brand name. Ernest Adams founded the company in Christchurch in 1929, in order to take over Adams Bruce Ltd, owned by him and Hugh Bruce. The company’s main bakery was in Tuam Street, Christchurch, but it also had bakeries in the other three main centres. It was listed on the Stock Exchange in 1973, but had an Adams family influence until 1997 when Hugh Adams, son of Ernest and chairman until 1992, retired from the Board. In the last decade it went through difficult times, facing competition from small bakeries and supermarkets. In 1995, Gourmet Direct Ltd, controlled by Errol Clark of Wellington, took control of the company. By 1996 Gourmet Direct had 46.58% of Ernest Adams, but had itself become an overseas company with a 30% shareholding being accumulated by Mega First Industries Sdn Bhd, a subsidiary of Mega First Corporation Berhad of Malaysia. That made Ernest Adams an overseas company too, though control remained in Aotearoa, and the Malaysian holding was apparently later sold down. However Clark’s reign was largely unsuccessful, despite attempts at new products, with no dividend paid since 1997 and a $1.2 million loss in the year ended 31/3/99. Goodman Fielder’s offer was not much different to what Gourmet Direct had paid for its shares in 1994 and 1995. By the time of the takeover, Tower Corporation’s subsidiary, Tower Asset Management, effectively had 56.7% of the company, part directly and part through a shareholding in Gourmet Direct. Together Tower and Gourmet Direct owned 60% of the company’s shares. Ernest Adams has bakeries in Christchurch, Palmerston North and Auckland. Its head office was moved to Auckland, but about half its sales remain in the South Island. The initial offer by Goodman Fielder was 230 cents per share, 45 cents more than the share price at the time. It had a head start: the controlling shareholder, Gourmet Direct, had given it an option to buy 19.9% of the company at 230 cents. Though no longer owning any shares, Hugh Adams supported the bid. However Ernest Adams’ chairman, Michael O’Neill came out fighting. He accused Goodman Fielder of manipulating its bid to keep out other contenders, and claimed that at least two other buyers were interested. The agreement with Gourmet Direct had effectively locked them out. He said "Goodman Fielder has manipulated this situation and is abusing a written agreement made with the company in February." He said the agreement was that Goodman would not buy any shares or encourage any shareholder to sell to it without going to the Board first. Goodman had obtained confidential information on that basis. He called on Goodman to give up the agreement with Gourmet Direct. The Ernest Adams Board obtained an independent valuation from merchant bank, Grant Samuel, which valued the company at 235 to 265 cents per share ($38.8 million to $43.8 million). Grant Samuel said the company had a higher market share for pastry products than Goodman Fielder, its major competitor, and was slightly ahead of McCains for meals, but that it had a high overhead to sales ratio. The Board therefore issued a "don’t sell" notice, quoting sales to indicate that the company was starting to see the benefits of four years of restructuring. About $3 million worth of surplus property was being sold. McNeill accused Goodman Fielder of trying to achieve windfall gains from Ernest Adams. Goodman Fielder raised the bid to 235 cents per share, the bottom end of Grant Samuel’s valuation range. Despite continued opposition by the Board, institutional shareholders holding 77% of the shares, including Tower, indicated they would accept. They took the unusual step of writing to small shareholders and telling them that they thought the Grant Samuels range was too high. They were afraid the bid would fail, and that the share price would fall back to below its level before the original offer was made. Tower reportedly threatened to break the company up if the bid failed (though it later denied this). In its usual weak-kneed way the Stock Exchange refused to intervene on the basis of the agreement between Goodman Fielder and Ernest Adams. Facing the sack if the bid succeeded, O’Neill continued to oppose the bid. With about 82% of shareholders (mainly the institutions) having accepted, the ability to stop the bid achieving the 90% level required for compulsory acquisition lay with the small shareholders. At the annual meeting in September, O’Neill made a plea for them to refuse the offer, saying earnings in the first five months of the financial year had been the best in five years. Exports had increased and costs had been reduced. It had a 23.6% market share for snack meals, ahead of McCains and Heinz Watties. It had a 38.1% share for pastry, against 28.2% for Irvines (Goodman Fielder). Its share of the cake market was 72.6%. Tower argued the improved performance could be short lived. Goodman Fielder got its 90% acceptances. Shortly after, Ernest Adams announced a sharply improved half-year profit, with sales up 7% and exports up 40%. At the same time, Grant Samuel released a new valuation in the range 221 to 251 cents, saying the 235 cent offer was "fair and reasonable". The year ended unhappily. Eleven days before Christmas, Goodman Fielder announced that it would close the Christchurch Tuam Street factory in May 2000, and move cake-making from a second Christchurch factory in Print Place to Palmerston North. The Print Place factory would be converted to make chilled and frozen foods. More than 100 jobs would be lost. All cake-making would be done at the more modern Palmerston North factory, creating 50 new jobs, or in Auckland. The National Distribution Union, representing the Christchurch workers affected, accused Goodman Fielder of having a pre-determined plan to strip out the jobs. It questioned the sense of the plan when much of the production was for the South Island or for export. A disappointed Hugh Adams said that the Christchurch factory would have stayed open if the Adams family were still in control. While the Palmerston North factory was "very, very good", New Zealand was too spread out to service the South Island from Palmerston North. (References: Press, 15/7/99, "Goodmans target Ernest Adams", p.22; 22/7/99, "E. Adams bid ‘manipulated’", p.33; 3/8/99, "E Adams board says no", p.18; 11/8/99, "E Adams directors say bid still too low", p.30; 27/8/99, "Pressure on minor E Adams holders", p.18; 31/8/99, "High noon on Adams", p.23; 1/9/99, "E Adams loses bid to block takeover", p.29; 2/9/99, "E Adams debates takeover", p.21; 14/9/99, "Goodman Fielder seals control of Ernest Adams", p.18; 8/10/99, "Sharp profit boost in final E Adams report", p.16; 15/12/99, "E Adams shift cuts 100 jobs", p.1; 16/12/99, "Adams family would not shut city plant", p.14.) Australian Gas Light gets approval to take 49.5% of TrustPower Australian Gas Light Ltd of Australia has approval to acquire up to 49.5% of Tauranga-based TrustPower Ltd, the fourth largest electricity retailer in the country, for a price "to be advised". At the time of the application to the OIC, it had 10.16% of TrustPower. TrustPower’s other shareholders were:
All are owned in Aotearoa except for Interstate Energy Corporation (Alliant) which is owned in the U.S.A. This superficially left TrustPower only 20.6% overseas owned, but ignores a number of other factors. Firstly, Infratil is now controlled by Lend Lease Corporation of Australia through its shareholding in Infratil’s management company. Secondly, Infratil has an agreement with Alliant to obtain control of TrustPower, so they work together to squabble with AGL for the company. (For further details see our commentary on the March 1999 decisions, and articles by Bill Rosenberg in Foreign Control Watchdog, "Power Frenzy: the takeover of the Electricity Industry", April 1999, "The Deformation: ‘Reforms’ continue to wreck the Electricity Industry", August 1999, and "Infratil: Privatiser for hire", August 1999.) Though the fight for control took the protagonists to court, in the end they agreed to divide the spoils. In December 1999, AGL, the Rotorua Energy Charitable Trust, Alliant and Infratil agreed to divide the six directorships on the board giving AGL two, Infratil one, and Alliant one (Press, 3/12/99, "TrustPower deal", p.15). The sale includes almost four thousand hectares of land. This led to a 1999 General Election incident in which the Christchurch-based Business Monthly misinterpreted the OIC’s decision as meaning AGL had bought only the land. New Zealand First candidate for Kaikoura, Chris Rivers, attacked the sale on this basis. When corrected he maintained his stand: "the fundamental issue remained that if AGL gained a greater shareholding in TrustPower it would lead to the effective ownership of Marlborough’s power stations by overseas interests. I do not want AGL in the country selling power. Like it or lump it, TrustPower is selling themselves out to foreign ownership." (Marlborough Express, 22/11/99, "Stations haven't been sold - TrustPower".) The land is as follows:
Rothmans buys W.D. and H.O. Wills in global merger In a sequel to the international nicotine company merger described in
the July 1999 decisions, Rothmans Holdings (New Zealand) Ltd, which is 50% owned
by British American Tobacco Plc (BAT) of the U.K. and 50% owned in Australia,
has approval to acquire W.D. and H.O. Wills (New Zealand) Ltd for $233,002,481
from New Zealand Holdings Ltd, a wholly owned subsidiary of BAT. "The proposal stems from a global merger of British American Tobacco Plc, Rothmans International BV, Rembrandt Group Ltd and Compagnie Financiere Richemont AG." The acquisition of Wills was delayed by the Australian Competition and Consumer Commission insisting the combined company dispose of some of its operations. In July it gained approval to sell some of its operations, including manufacturing facilities in Aotearoa, to Imperial Tobacco Group Plc of the U.K. Caltex buys a half share in Roading Surfaces from Works Civil Caltex New Zealand Ltd, owned 50/50 by Texaco and Chevron Corporation (also known as Socal) of the U.S.A., two of the "seven sisters" making up the dominant oil companies in the world, has approval to acquire a 50% share in Roading Surfaces Ltd from Works Civil Construction Ltd for a suppressed amount. Works Civil is owned 50% by Paul Y ITC Construction Ltd of Hong Kong, and 50% by listed shareholdings in Australia. The acquisition is "part of a joint venture arrangement" between the two companies, which is "designed to maximise the use of the facilities established at Port Taranaki and to enhance and improve the operation integrating Caltex’s expertise in petroleum products, and Works expertise in civil engineering and roading. It is stated that the integration will promote greater efficiency and improved competition against other consortiums involved in bitumen processing and roading." Works Civil was part of the privatised Works and Development Services Corporation New Zealand Ltd – itself the corporatised form of the former Ministry of Works. We reported its sale, in the September 1996 OIC decisions, to Downer and Company Ltd, a subsidiary of Downer Group Ltd, in turn owned by Paul Y ITC Construction Holdings Ltd of Hong Kong. Amatek (NZ) Ltd of the U.K. and U.S.A. buys Formica (NZ) Ltd for $35m Amatek (NZ) Ltd has approval to acquire the "assets and undertakings" of Formica (NZ) Ltd of Australia for $35,000,000 including 7.5 hectares of land at 40 Hunua Road, Papakura, Auckland. Formica manufactures imports and distributes "high pressure decorative laminates". Amatek will combine Formica’s business with its own, invest further to "achieve synergies between the manufacturing operation in New Zealand and its Australian operations". Formica was owned by CSR, which announced the sale of its Formica business in Australia and Aotearoa to Amatek in July 1999. As part of the deal it will provide particleboard for five years, with a further 7-year option ("CSR - Analyst's comments", 23/7/99, http://egoli.atwww.com.au/newsandviews/archives/4112.html). CSR has been selling off subsidiaries, particularly in its floundering timber division; it earlier announced the merger of its softwood timber panel business with Amatek ("CSR - Analyst comments re sale of interest", 31/3/99, http://egoli.atwww.com.au/newsandviews/archives/3306.html). In April it agreed to sell its 20,000 hectares of plantations and saw mills in Victoria and South Australia for A$224 million to U.S. companies familiar to Aotearoa: RII Weyerhaeuser World Timberfund (Sydney Morning Herald, 14/4/99, "CSR hard and soft on timber", by Anthony Hughes, http://www.smh.com.au/news/9904/14/business/business15.html). According to the OIC Amatek is owned as follows:
However the Sydney Morning Herald reports that a consortium led by CVC Capital Partners owns Amatek. CVC is based on the insulation, concrete pipe, timber and metal-rolling businesses of the former BTR building products division. It was bought in May 1999 for A$1.03 billion, in a highly leveraged purchase – only 33% funded by equity (shareholdings), the rest in debt. Since then, the new owners have closed a fibreglass operation in Victoria, and bought two businesses in the U.S.A. After the present deal, Amatek will close its Wagga Wagga MDF facility and use CSR’s Oberon complex in NSW. The Sydney Morning Herald says CVC holds 80.1 per cent of Amatek, with 16.4 per cent held by US investment bank DLJ Merchant Banking and 3.5 per cent by BT Capital. It says that CVC is a former arm of Citicorp, and "is among the biggest private equity funds in the UK, representing professional investors from the US and Europe". (Sydney Morning Herald, 29/4/99, "Amatek still expects to nail wood panels deal", by Anthony Hughes, http://www.smh.com.au/news/9904/29/text/business10.html). Ngai Tahu sells Te Anau "Land Bank" land to couple from Switzerland K.M. Studer and Erika Studer-Rein of Switzerland have approval to acquire 61 hectares of land at Golf Course Road, Queens Reach, Te Anau, Southland from Ngai Tahu Holdings Corporation Ltd for $236,250. The land is part of the much larger "Stuart Block" which was farmed for many years by the Crown and then by Landcorp Farming Ltd. It was put into the "Maori Land Bank". Rather than hold onto it, Ngai Tahu has apparently bought and then sold it. The area appears to have significant conservation value: it adjoins unidentified land held for conservation purposes, and the new owners intend to "… develop the property as a heritage park with natural habitat for local flora and fauna… the park would be landscaped and planted under advice of the Department of Conservation and open to visitors as a ‘close to nature’ tourist venture." The land is currently used for casual grazing. Heinz’s Weight Watchers buys Fortuity New Zealand and prepares for sale Weight Watchers New Zealand Ltd, owned by H.J. Heinz Company of the U.S.A., has approval to acquire the business assets of Fortuity New Zealand Ltd for $31,411,275. Fortuity is owned 75% by Heinz and 25% by Richard Lawrence Penn of Australia. The purchase is a lead up to the sale of Weight Watchers International (WWI) by Heinz because "the classroom business is not a strategic fit with its other businesses". Funny – it always seemed a perfect fit: get people fat on baked beans (bought from Heinz), get them to pay Weight Watchers to slim them down, get fat on baked beans, slim, get fat … Never mind, Heinz is still keeping the Weight Watchers food businesses. Anyway: "Weight Watchers New Zealand Ltd advises it is proposing to acquire as corporate trustee of the Weight Watchers New Zealand Unit Trust, the business assets of Fortuity New Zealand Ltd… Fortuity carries out various business activities in New Zealand under the weight-loss class franchise granted by WWI. Those activities include conducting weight-loss classes and associated activity and the sale of publications and programmes relating to exercise and weight loss." It is not clear where the Unit Trust comes into the structure. Clearview Communications sold to LibertyOne of Australia LibertyOne Ltd of Australia has approval to acquire Clearview Communications for $12,510,000. Clearview is "an information and communications technology firm, specialising in provision of Internet-based business services including web site design and development. LibertyOne advises its proposed acquisition of Clearview will assist it to achieve its goal to be the leading provider of Internet-based business and electronic commerce services in the Asia/Pacific region." Full marks for optimism in a market that is bursting with companies with similar aims. LibertyOne is owned 16.49% by its managing director, Graham J. Bristow of Australia, 12.9% by Australian media giant J.B. Fairfax Press Pty Ltd, and 70.61% owned in Australian listed shareholdings. It was the first listed Internet services company in Australia, and is expanding rapidly in Australia and into Asia. The strength of Fairfax, behind it gives it some credibility. Manukau City Council sells seven hectares to AMP Property Trust The AMP Property Trust, 89% owned in Australia, has approval to acquire seven hectares of land at 451 Ti Rakau Drive, East Tamaki, Manukau, Auckland from the Manukau City Council, for a sum "to be advised". AMP intends to develop the land into a "commercial/industrial estate comprising warehouses, showroom complexes, retail stores and office space". The land adjoins land that is "provided as a reserve, public park, for recreation purposes, or a private open space". Waitomo District Council sells seven hectares to McDonald’s Lime McDonald’s Lime Ltd has approval to acquire seven hectares of land at Waitete near Te Kuiti, Waikato, from the Waitomo District Council for $2,812. McDonald’s has leased the land, a disused lime quarry, from the Council since 1988. According to the OIC, the company is owned 39.3% by the Schmidheiny Family of Switzerland, 32.7% by "unknown persons", and 28% by Broken Hill Proprietary Company of Australia; however it puts the land’s overseas ownership after the purchase at 100%. As at February 1998, McDonald’s Lime was 72% owned by Swiss-owned Milburn New Zealand Ltd. More land for Martha Mine, Waihi Waihi Gold Company Nominees Ltd has approval to acquire 0.08 hectares of land at 4 Dobson Street, Waihi, Coromandel for $110,000 from G. and R. Burr to extend the Martha Mine. Waihi Gold is owned 67.06% by Normandy Mining Ltd, listed in Australia, 16.47% in publicly listed shareholdings in Australia, and 16.47% in listed shareholdings in Aotearoa. (These latter two holdings are in fact the company AUAG Resources Limited.) "The company is proceeding with an extension to the Martha Mine that will have the effect of extending the life of the mine for about an additional seven years beyond the current estimated life of the mine of 1999. This extension involves enabling access to be obtained to ore below the level of the currently licensed pit. To reach this ore it is necessary to bench back (or extend) the perimeter of the existing pit, and the additional land is required for this, and to provide a sufficient buffer between the extended mine and surrounding residential uses. Previous consents have been granted by the Commission for the acquisition of such land. The land the subject of this application is directly adjacent to the extended Martha Hill mine licence area, and will be required as a buffer for the extended project." The last such purchases were in February and March 1999.
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