January 1999 decisions

U.S. venture capital companies take 41% of Peace Software

Two venture capital companies based in the U.S.A. have approval to acquire 41% of Peace Computers International Ltd and appoint directors to its board. Peace Computers was set up 12 years ago by Brian Peace, a former programmer and University of Auckland lecturer as a private company. Until this purchase, he was still the major shareholder, although the OIC reports the sellers of the shares as "the trustees of the Mercury Trust of New Zealand". Its major business is through Peace Software, which has developed market-leading software to enable deregulated electricity, water and gas utilities to manage and charge their customers. It claims "more than a 25% market share" in Aotearoa for the software, which uses web browsers to access systems "that operate on open hardware and relational databases". The U.S. companies see great potential for this for the increasingly deregulated U.S. utilities.

The purchasers are Insight Capital Partners II LP with Arete Ventures LLC through its subsidiary, Utility Competitive Advantage LLC. Both companies target the "telecommunications, information technology and customer service sectors". Their ownership is 75% by J. L. Horing, J. Murdoch, R. Raghavendran, and P. Sobiloff of the U.S.A., 22% by the U.S. public, and 3% by the public of Finland, but the OIC does not make clear which of these owners refer to which company. The price they are paying has been suppressed, but Peace’s web site (and widespread media reports) put it at $20 million.

They also get board representation. In a news media statement (untastefully titled "$20 Million Venture Capital Gives Peace A Chance", http://www.peace.co.nz/public/news.htm), Peace announced "appointments to its Board of Directors, including Jeffrey Horing, partner, InSight Capital Partners; Jake Tarr, managing director, Arete Ventures; and John W. Blend III, former president of world-wide sales and marketing and director for Indus International, and a special partner with Insight Capital Partners."

The same statement roped in the support of Max Bradford, Minister of Enterprise and Commerce. "It’s deals like this that start to raise New Zealand’s profile in international venture capital markets", he is quoted as saying. "The Government is committed to actively promoting the success of internationally competitive products and building a culture which is supportive of innovation and enterprise."

Research and development will remain in Aotearoa according to Peace. It currently employs over 100 people and hopes to expand this considerably as it gains markets in Australia and the U.S. as a result of this share sale.

Insight is acting through two other associated companies, presumably for tax- and risk-avoidance purposes: Insight Venture Associates II LLC, and Insight Capital Partners (Cayman) II LP. The first is the general partner and manager of the other two Insight companies. Insight "invests in companies in the software-based segments of the information technology industry". It has other investments in North America, Western and Eastern Europe, and Asia – in which it includes Aotearoa (see http://www.insightva.com). Peace’s web site says "InSight Capital Partners has raised more than $200 million since its founding in 1995 and has rapidly become one of the largest global investors in software and software-related businesses" which can only be true if software firms are disregarded. It says Insight’s advisory board includes "prominent industry leaders such as Gartner Group CEO Manny Fernandez and Ray Lane, president and Chief Operating Officer of Oracle Corporation", and Insight’s advisory board "will act in an advisory capacity to Peace Software".

Arete "invests in entrepreneurial companies that are expected to grow rapidly as a result of the deregulation of the power utility industry in the U.S.A." Red Herring Magazine listed it as number three amongst U.S. venture capital companies, ranked by the total market value gain in their technology portfolio public offers for the year ("Don’t Look Down: The top 25 venture capital firms of 1997", by Stephanie T. Gates supplement July 1998: see http://www.redherring.com/mag/issue56S/look.html). At that time, Arete, based in Maryland, had 12 employees, and had gained US$3.774 million from two public offerings. It had US$165 million under management. Limited partners included U.S. and international gas and utilities companies. Red Herring reported that it usually invests two funds simultaneously, prefers to invest US$500,000 to US$3 million per transaction and typically invests in four to eight new companies per year.

Peace’s web site says that Arete was founded in 1983 and "manages venture funds for 13 US and three European utilities. In addition to the Utility Competitive Advantage Fund, targeted at $100 million in committed capital, Arete also manages the Utech Funds, $95 million in capital. The Utech Funds, now essentially fully invested, made investments in entrepreneurial companies addressing growth markets related to the utility industry."

Tyco of the U.S.A. takes over Rhino Security

Tyco International Ltd of the U.S.A. (but listed in Bermuda) has approval to acquire Rhino Security Ltd from the Owens Group Ltd for $13,000,000.

"Tyco entered the New Zealand market in 1990 when it acquired the world-wide operations of Wormald International Ltd. In July 1997 Tyco acquired Armourguard Security Ltd.

Rhino is a recognised provider of security services in New Zealand. The Commission is advised that through its Armourguard operation, Tyco currently provides similar security services."

It apparently had no concerns about stifling competition, and the Commerce Commission does not appear to have taken any interest.

According to Tyco’s web site,

"Tyco International Ltd., a diversified manufacturing and service company, is the world’s largest manufacturer and installer of fire and safety systems, the largest provider of electronic security services in North America and the United Kingdom and has strong leadership positions in disposable medical products, packaging materials, flow control products, electrical and electronic components and underwater telecommunications systems. The Company operates in more than 80 countries around the world and has expected fiscal 1999 revenues in excess of $17 billion." (http://www.tycoint.com/compinfo/compinfo.asp)

One of its subsidiaries, Simplex Technologies, "is the only U.S. owned producer of undersea fiber optic telecommunications cable.’ It manufactures cable and cable assemblies for, among others, the U.S. Navy. Tyco’s Electrical and Electronic Components "segment", of which Simplex is a member, also manufactures multi-layer printed circuit boards for military, telecommunications, and computer applications.

In July 1997, we reported Tyco’s takeover of Armourguard, bought from Freightways Ltd when it was broken up by its owner, Tappenden Holdings, headed by Alan Gibbs and Trevor Farmer. It was purchased for $32,999,999. Armourguard is the largest security firm in Aotearoa.

Tyco was number 288 in the 1995 Fortune 500, its main business being metal products. It had 34,000 employees and revenues of US$4.5 billion on assets of US$3.4 billion that year. In addition to Wormald, Armourguard and Rhino, it owns several manufacturing operations in Aotearoa (Fortune; Press, 25/7/97, "Armourguard sold", p.26).

Most of Wharepapa Station to be sold and leased back

The controversial owners of the Wharepapa and Wharekauhau Stations in Wairarapa are selling off some of Wharepapa to "up to 21" overseas investors, mainly in the U.S.A. Most of the station will then be leased back. The current owners include well known warriors of the right, Roger Douglas, Lord Rees-Mogg, James Davidson, Michael Baybak, and James Blanchard III. Based on information from Time magazine, the New York Times and elsewhere, CAFCA wrote to the OIC in 1997 asking if the backgrounds of two of them were consistent with the "good character" requirements in the Overseas Investment Act. After checking their records with the police, rather than affirm that it was confident of their good character, the OIC simply took the expedient of asking them to sign affidavits to the effect that they were indeed of good character. That was apparently sufficient for the OIC, under the principle "they are innocent: they admit it themselves". For further details, see our commentaries to previous decisions in November 1995, June 1996, and August 1996, and "The Intriguing story of Roger Douglas and his unpleasant friends at Wharekauhau Lodge", Foreign Control Watchdog, no. 84, May 1997, p.6-14. These associations provide evidence of Douglas’s links with the far right in the U.S.A. and U.K.

There are two related decisions this month. In the first decision, Wharekauhau Holdings Ltd has approval to acquire 495 hectares of leasehold land at Western Lake Road, South Wairarapa, part of Wharepapa Station from the yet-to-be-established "21 Investor Company" of "United States of America, Unknown Overseas Investors". The price is "to be advised". In the second decision, "Unknown Overseas Investors of United States of America" are given approval to acquire 516 hectares of Wharepapa station for $21,000,000 from Wharepapa Station Ltd. It is not made clear how the OIC can be sure that these "unknown" investors are of the required good character.

When purchased in 1996, Wharepapa Station covered 563 hectares. In these decisions, 516 hectares is being sold to the 21 investors ("21 Investor Company"). The 21 are then leasing 495 hectares back to Wharekauhau Station Ltd for 20 years, with two further rights of renewal. The purpose is to "repay debt owing in respect of the Wharekauhau development to date and to provide working capital for the continued development of the Lodge facilities and the Station’s farming operations". Each of the 21 investors will acquire a one hectare "homesite lot" in Wharepapa Station, and approximately 4.8% of "21 Investor Company" that will own the balance of the property (495 hectares if 21 investors subscribe). "The Commission is advised that the proposal is in the national interest as it will provide working capital to fund the further development of Wharekauhau and Wharepapa Stations."

A similar structure was used for Wharekauhau station, as reported by the Independent (7/3/97, "Who’s Who list of backers for luxury lodge", by Fiona Rotherham). That had three classes of shares with different voting rights:

  • the Shaws retained control of Wharekauhau Holdings Ltd without being on call if any extra funds were needed for the lodge;
  • "general partners", including Douglas and Rees-Mogg, were required to finance any cost over-runs if necessary; and
  • "limited partners" invested $750,000 each in the company, but had little say in the management or development of the lodge. They received shares in the company and a one-acre site on the farm, for which they had full title and on which they could build homes (under restrictive design covenants). The number of limited partners (18 at the time of the report) was originally intended to be 20 but consideration was being given to increase it to 30.

In all, 66 one-acre lots had been subdivided for residential use, of which 40 had been sold.

Wharekauhau Holdings Ltd (WHL) and Wharepapa Station Ltd (WSL) have the same shareholders, but in different proportions:

Shareholder Origin WHL share WSL share
Michael Baybak U.S.A. 20.2% 13.53%
James Blanchard III U.S.A. 13.2% 8.84%
James Davidson U.S.A. 24.6% 16.48%
Roger Douglas Aotearoa 1% 0.67%
Andrew Miller U.S.A. 12.3% 8.24%
Lord Rees-Mogg U.K. 4.4% 2.95%
John Sevo U.S.A. 12.3% 8.24%
William Shaw Aotearoa 6% 20.52%
Annette Shaw Aotearoa 6% 20.52%

The Shaws are the former owners of Wharekauhau Station, and became one-third owners of Wharepapa when it was purchased in 1996. They manage the stations and luxury lodges, described in 1995 as intended to be "one of the best and most exclusive lodges in the world, while also enhancing the current scenic splendour of Wharekauhau". Wharekauhau was intended to be "an exclusive retreat for diplomats and visiting heads of Government; … a corporate retreat/conference centre for the Southern North Island; … a high class tourist facility." The New Zealand Herald reported (14/7/98, "A taste of being idle rich", p.E3) that a one-night share-twin stay at Wharekauhau cost $473 a person.

Perhaps the price and the owners led to Wharekauhau Lodge’s free advertising in the super-glossy government publication selling Aotearoa to overseas investors: "Invest in New Zealand: the right choice", in both its 1998 (p.19) and 1999 (p.47) editions. It describes the lodge as "an exclusive country estate catering to the discerning traveller and business person. Hosting guests mainly from the U.S., the U.K. and Europe, it offers unique, high-quality accommodation as part of a working sheep and cattle station".

Ownership restructuring of WorldxChange Ltd, telecommunications company

A complex restructuring of the ownership of WorldxChange Ltd, which is engaged in telecommunications, has been approved. Via an exchange of shares, the shareholders in WorldxChange, R. B. Abbott and R.M. Abbott (29.2% each), Edward F. Soren (29.1%), and Eric G. Lipoff (10%), all of the U.S.A., and Richard A. D. Vincent of Australia (2.5%), will take a controlling 79% shareholding in Communication Telesystems International, with the remainder held publicly in the U.S.A. Communication Telesystems International will then own all of the shares in WXL International New Zealand Inc, which will own all the shares of WorldxChange. The individual shareholdings in Communication Telesystems International will be the Abbotts 51.4% jointly, Soren 26.93%, Lipoff 0.36%, and Vincent, 0.9%. The value put on WorldxChange via this transaction is $5,700,000. However the total assets of the company "exceed $10 million".

Belgian owner for Dutch horse meat company in Gore

Meramist Pty Ltd, owned by the Narwelaers family of Belgium, has approval to acquire Clover Export Ltd from Exim Meat International BV of the Netherlands for $250,000. The company has six hectares of leasehold land (on 21 year leases with two rights of 21 year renewal) at River Street, East Gore, Gore, Southland on which it operates a horsemeat processing plant for export. Some beef and sheep slaughtering and processing is also carried out for the local market.

"Meramist’s sole business is the operation of an export horsemeat processing plant (one of two in Australia) at Caboolture north of Brisbane." It has "periodic difficulty in meeting customer demands and the ability to direct New Zealand product to these customers will prove beneficial to both companies". There will be no additional capital expenditure in the short term.

Apparently the former overseas owners were not good for the company:

"The viability of the plant has been under stress because of the remoteness of the existing owners and it is anticipated that the new owners with their head office in Australia and other interests in the North Island of New Zealand will be in a much better position to assist and lead Clover…"

The company’s "other interests in the North Island" are not specified.

In August 1993, the OIC approved Clover buying a further 26 hectares of land at Friend Road, Charlton 4 RD Gore because "the supply of horses is erratic and this hampers the slaughter operation. Clover Export state that the property is being acquired to enable it to establish a buffer stock of horses which will ensure that the plant can operate at its optimum level at all times." The 26 hectares is not mentioned in the current decision. At that time, all the meat was said to be exported, with export receipts expected to be $4 million in a full year's operation.

Lighthouse Hills farm near Moeraki, Otago, sold to U.S. company for $1.4m

The Austin Company Ltd, owned by Joel (49%), Ron (26%), and Isabel Ross (25%) Ogden of the U.S.A., has approval to acquire the 403 hectare Lighthouse Hills farm, near the township of Moeraki on the Otago coast, 40 km south of Oamaru, Otago, for $1,400,000. The property, which was owned by D.G., E.J., and John D. Kemp and White Rocks Farm Ltd, is "used predominantly for farming of sheep and beef, but a backpackers business has been established to supplement the farming operation. The size and diversity of the "Lighthouse Hills" property means that a wide range of tourist activities can be provided." The new owners say they will look at extending accommodation and establishing a fresh seafood restaurant on the property, and market the facilities in the U.S.A. They are "committed to ensuring the farm continues to be successful".

Macraes takes interest in 101 hectare gold licence for $1

Macraes Mining Company Ltd, which is 39% owned by Union Gold Mining NL of Australia, has approval to acquire 101 hectares of mining licence at Macraes Flat, Otago for $1. The licence (32-2304) is being transferred from Barewood Mining Company Ltd of Aotearoa. Macraes’ "interest in this mining licence arose from its interest in a joint venture agreement with Barewood Mining Company Ltd (inter alia), which in part provided that should any joint venture partner default under the agreement, in certain circumstances the interest of the defaulting party in the Mining Licence would vest in the remaining party. This in fact happened, and in compliance with the provisions of the agreement Barewood Mining Company Ltd executed a Transfer in favour of Macraes Mining Company Ltd for the Mining Licence." This was approved by the Secretary of Commerce on 11/5/98, and it is not clear why the OIC’s approval is so much later. "The acquisition represents part of the ongoing identification of gold resources at the Macraes Gold Project".

Kenyan and Swiss missionaries take $6.4m position in seven Southland farms

Five groups which appear to be Christian missionary organisations, from Kenya and Switzerland, have approval to acquire seven farms totalling 1,670 hectares in Southland for a total of $6,480,000. They are making the purchase through their company, Biofarm Ltd, in which each holds a 20% interest. They are Trinity Fellowship and Stiftung Fuer Missionarishe Entwick Lungshilfe of Kenya, and Stiftung Te Amo, Christian Solidarity International, and Aktion Fuer Verfolgte Christen of Switzerland. The farms, which are engaged in a mixture of sheep, cattle, forestry and arable farming, are:

  • 643 ha. at Braxton, RD 2, Lumsden (Braxton Stud)
  • 115 ha. at Eastern Bush RD 2, Otautau
  • 121 ha. at Eastern Bush RD 2, Otautau
  • 180 ha. at Eastern Bush RD 2, Otautau
  • 168 ha. at Eastern Bush RD 2, Otautau
  • 219 ha. at Eastern Bush RD 2, Otautau
  • 223 ha. at Otahu Flat

"Some of the properties are adjoining each other, creating a large block making economies of scale. Some of the farms are now reaching the point where they are no longer economically viable in their own right and need to be converted into dairy operations or absorbed into neighbouring farms… While the applicants will continue with the existing land use in the meantime, it is intended to introduce organic farming and more cropping and to ultimately have a mixture of farm uses. … Furthermore, it is intended to enhance and expand the cattle-breeding programme at the Braxton Stud Property, by increasing the variety of livestock under the artificial insemination programme to include different varieties of beef cattle as well as dairy cattle. It is also intended to set up a cheese operation, based on organically produced cheeses, in an existing building in one of the neighbouring towns. It is also intended to convert a minimum of 250 hectares of the land to a dairy operation, which will involve a minimum of 600 cows."

Doesn’t leave much time for evangelising.

Equity for debt swap for undercapitalised Canterbury farm

Algemene Beleggings Maatschapij, owned by Cornelius Koopmans of the Netherlands, has approval to acquire 50% of Riverbank View Ltd, which owns 489 hectares at Rakaia River Road, five kilometres from Methven, Canterbury for $1,300,000. The half share is being sold by Harry Koopman and his wife Dorothy, who originally borrowed $1,300,000 from Harry’s brother, Cornelius, to buy the farm. However the farm is "severely undercapitalised" and the loan is being converted to equity in Riverbank View, reducing the farm’s debt servicing costs. The farm has 230 hectares of developed pasture, 150 hectares of "quality prime" pinus radiata forest, and 110 hectares of "poor" forest and undeveloped land.

Terako Downs, Waiau, Canterbury, sold to U.S. for $420,000

Lindsay Scott Phillips of the U.S.A. has approval to acquire the 740 hectare "Terako Downs" property, at Terako Downs, Inland Road (Highway 70), Waiau, Canterbury for $420,000 from E.S. and J.K. Wilson. The property is about two kilometres south of the entrance to Mt Lyford ski resort. Approximately 525 hectares will be developed into Radiata Pine and Douglas Fir over a four to five year period. The land, currently used for sheep and cattle, is said to be overgrazed. Phillips will make forestry management decisions, with a "consulting forester already retained in Christchurch".

Carter Holt buys land to remove house in Maungataniwha forest

Carter Holt Harvey Forest Ltd, 51% owned by International Paper Company Ltd of the U.S.A., has approval to acquire two hectares of land at Willow Flat Road, Maungataniwha, Hawkes Bay, for $60,000. The land, which includes a house, is "surrounded on three sides by CHH’s existing forest" and "presents security, fire protection and management risks". The house will be removed and the land incorporated into the forest.