July 1999 decisions

CHL New Zealand Ltd of the U.S.A. takes over Lane Walker Rudkin

CHL New Zealand Ltd, owned 90% by David Teece, 5% by Kenneth Klopp, and 5% by Chris B. Woodward, all of the U.S.A., has approval to acquire LWR Industries Ltd for an amount "to be advised". One of the last remaining large clothing and textile manufacturers in Aotearoa, Canterbury-based LWR (formerly Lane Walker Rudkin), manufactures the well-known Canterbury brand among others, including Gold Top and Jockey (under licence). The Canterbury brand accounts for over 60% of its turnover. It also (and increasingly) imports cheap clothing.

Professor David J. Teece, 90% owner of CHL, is described by the news media as an "American-based New Zealander", although if he still had New Zealand citizenship, the company would not be classed as an overseas company. He is Mitsubishi Bank Professor of International Business and Finance at the University of California at Berkley, where he researches "corporate strategy and public policy, technological innovation, knowledge management, and intellectual property, regulatory and antitrust economics, telecommunications, computers, and energy". His numerous publications include ones in the area of foreign investment, transnationals, and privatisation. A notable paper he co-authored, lauding the economic changes in Aotearoa since 1984, was demolished by (then Lincoln University) economist Paul Dalziel. Teece gained his university education at the University of Canterbury and University of Pennsylvania, and has other property investments in Aotearoa (see http://haas.berkeley.edu/~imio/teece.html, and http://www.haas.berkeley.edu/bpp/faculty/teece/profile.htm).

Kenneth Klopp, with 5% of CHL, "has had 20 years experience in the international apparel market" according to the Christchurch Press. "Now a consultant, Mr Klopp has clients in New Zealand", and this is where the interest in LWR started (Press, 9/6/99, "BIL ready to take low bid for LWR", p.30).

LWR was owned 64.2% by Brierley Investments Ltd. However BIL, in a financial and organisational mess and selling off assets to reduce debt, considered LWR "no longer fitted its investment profile". It instructed CS First Boston to find a buyer. This was despite LWR being one of the highest yielding stocks on the sharemarket, providing a gross yield of 12.75%. Even the loss of Canterbury’s All Blacks contract, vastly outbid by Adidas, was expected to have little effect on this situation (Press, 4/6/99, "Bid for LWR expected", p.19).

BIL’s desperation to sell gave CHL an easy controlling stake – and one that undermined the position of other shareholders. When CHL’s offer came in June, BIL accepted CHL’s initial offer of 106.2 cents per share, to be bought over two years, with continued board membership over this period. This compared to a sharemarket price of 120 cents and a net tangible asset backing at 31/12/98 of 148.8 cents a share. It was described by a sharebroker as "a disappointing offer for shareholders", and "almost like a sacrifice sale by Brierley’s". Another was amazed that BIL would sell at that price (Press, 9/6/99, "BIL ready to take low bid for LWR", p.30; 3/9/99, "BIL retains role at LWR", p.27).

Christchurch lawyer, school and university friend of Teece, and director of CHL, Lindsay Lloyd, defended the low offer price. He said that LWR had traded in the 92-100 cent range for much of the last year, and it had stagnated. The dividend rate could not be sustained. The new owners would push the Canterbury brand into the U.S.A. and develop the business in Europe (LWR had bought Cotton Oxford in the U.K. 18 months before), while keeping Christchurch as the major manufacturing base. "LWR could not support a dividend and sales expansion at the same time", Lloyd said, justifying the delisting of the company – while also opening the door to future transfer pricing. Lloyd holds the sole share in CHL New Zealand as nominee for Canterbury Holdings LLC, registered in Delaware.

The accusation of stagnation was not far off the mark. Over the last two years, BIL had milked LWR for cash. Last year, BIL forced a buy-back of a third of LWR’s shares at 135 cents, increasing LWR’s debt by $20 million. This was at the same time as LWR had been under considerable pressure because of the tariff cuts that have come close to destroying the clothing and textile industry in Aotearoa. LWR had 3,700 staff at its peak, many in small factories in towns throughout Aotearoa. It now has only 800, mainly in Christchurch. This was despite it increasing its exports from 10% of sales in 1985 to 55% currently. About 30% of its sales come from imports from cheap labour countries, rather than goods it manufactures in Aotearoa. LWR had done remarkably well, despite BIL’s rapacity (Press, 9/6/99, "BIL ready to take low bid for LWR", p.30; 14/10/99, "Top jobs always at risk with takeovers looming", p.25).

Not unexpectedly, minority shareholders tried to fight back. While the share price on the stock exchange collapsed 20 cents in a matter of days, they criticised BIL for the way it agreed to sell, particularly in the light of the 1998 135 cent share buy-back. "Brierley’s has run roughshod over the minority shareholders", said one funds manager. Fair values between 130 and 160 cents were suggested (Press, 10/6/99, "Minority holders rally to combat LWR offer", p.22).

Even more infuriating was BIL’s attempts to justify the price it accepted by saying LWR would have to cut its dividend. This undermined the value of the shares during the takeover, and was a complete turnaround from board policy, reached with BIL in control. Independent LWR directors criticised BIL and also feared the change in control of the company might lose LWR some of its licences and leases. They commissioned accountancy transnational, Arthur Andersen, to prepare an independent valuation (Press, 11/6/99, "BIL view detrimental to LWR - directors", p.15).

The Arthur Andersen valuation was 128 to 155 cents a share, and said the CHL offer was not fair. Independent directors consequently advised minority shareholders not to sell (Press, 26/6/99, "Independent valuers put 20% premium on LWR offer price", p.21). CHL responded that the report had significant technical errors and refused to move its price, threatening minority shareholders that they would be locked in without any dividends. LWR needed a "change in strategic direction to meet challenges from falling tariffs, increasing import substitution, and the threat of multinational companies like Nike, Adidas and Reebok ‘cherry picking’ the key sponsorship contract from the Canterbury International subsidiary." Couldn’t have put it better ourselves. (Press, 3/7/99, "Errors in LWR report - bidders", p.21; 8/7/99, "CHL confirms offer for LWR", p.16.)

Independent directors capitulated. They told minority shareholders to make up their own minds, but they were selling, although they thought the shares were worth more than the 106.2 cents on offer. More sturdy was Christchurch shareholder Tim Hopkins who wrote to other shareholders urging them to hold out. He was happy to call CHL’s bluff and remain a shareholder if it did not raise its price, banking on a "revitalised LWR with new focused owners" (Press, 16/7/99, "LWR holders left on own", p.27).

Many minority shareholders supported him. By early August, though CHL claimed 20% minority acceptance, this included only 4.3% of shares other than those held by BIL. In a sign of desperation, CHL, through CS First Boston, started offering sharebrokers a 1% commission for acceptances. Adding to their credibility problems, LWR announced a five year clothing and sponsorship contract with the Australian Rugby Union for the Wallabies – undermining CHL and BIL’s claims that LWR was in trouble. A few days later, after the second deadline for acceptances had passed, they had only 81% of the shares, and extended the offer once again (Press, 7/8/99, "20% accept CHL offer for LWR", p.22; 10/8/99, "LWR bidders paying brokers", p.33; 14/8/99, "CHL extends LWR offer for one week", p.21).

The delay was an excuse for CHL to reconsider. It upped the offer to 118 cents and this time independent directors recommended acceptance. The new offer went to all minority shareholders, but not BIL. Within a fortnight, CHL had the 90% acceptance required for compulsory acquisition of remaining shares. It commissioned a new valuation, by merchant bank Grant Samuel, which put the value at between 90 and 121 cents. Tim Hopkins reluctantly accepted 118 cents and CHL had its company (Press, 18/8/99, "LWR bid at 118c", p.30; 2/9/99, "CHL wins LWR", p.21; 9/10/99, "LWR offer price of 118c ‘fair’", p.21; 13/10/99, "Capitulation on LWR", p.33).

Arguably, LWR can’t be much worse off under CHL than it was under BIL. The suggestions CHL is making that LWR will not pay dividends so it can use the money to invest in expansion, and will continue to manufacture in Christchurch, on the surface sound positive. Yet the new LWR chairman will be John Green, a BIL executive; and the group managing director will be Kenneth Klopp – who will remain in San Francisco. Three of the previous executives have been dispensed with: the managing director, Terry Iggo, with ten years experience in the position, the Canterbury subsidiary chief executive, Ron Halls, and the company secretary Bruce Ferguson. It will be very tempting for the new owners to move manufacturing closer to the European and U.S. markets they say they want to focus on, or to cheap labour countries. It will also be tempting to use their control of the company to milk it of assets and profits. We will watch with interest.

Imperial buys tobacco assets after BAT/Rembrandt/Rothmans/Wills merger

Imperial New Zealand Ltd, a subsidiary of the Imperial Tobacco Group Plc of the U.K. has approval to acquire "property being certain of the business assets" of British American Tobacco Australia Ltd and WD & HO Wills New Zealand Ltd, both which are owned by British American Tobacco Plc of the U.K., for $92,592,592.

The OIC describes the circumstances as follows:

"The proposal stems from a global merger of British American Tobacco Plc, Rothmans International BV, Rembrandt Group Ltd and Compagnie Financiere Richemont AG. Subsequent to the global merger, the Australasian tobacco related businesses of Rothmans Holdings Ltd and WD & HO Wills Holdings Ltd announced a proposal to merge their businesses. As part of that merger the Australian Competition and Consumer Commission required the merged entity to dispose of certain assets as the merger could have the effect of substantially lessening competition primarily in Australia. The Imperial Tobacco Group Plc states it wishes to acquire certain assets which comprise tobacco brands, intellectual property, factory premises and related assets because they will provide it with a commercially viable entrance into the Australasian cigarette market. The Commission is informed the proposed acquisition represents a 17% market share in Australia and a similar market share in New Zealand."

The global merger was announced in January 1999. British American Tobacco (BAT), second largest cigarette company in the world after Philip Morris of the U.S.A., took over Rothmans International, the fourth largest. The combined company, worth $39.9 billion (13 billion), would be only slightly smaller than Philip Morris, and have a market share of just over 16%. Workers from its combined 70,000 would be sacked. It would be 35% owned by Rothmans shareholders (Press, 13/1/99, "New giant in tobacco industry", p.26).

The Commerce Commission began an investigation almost immediately. BAT (through WD & HO Wills) had a combined market share of 96% in New Zealand (BAT 35%, Rothmans 61%), with Philip Morris the only real competitor with only 4% (Press, 15/1/99, "Merger investigation", p.25). The investigation was still going in August, when the Commission announced that it would "not prevent Imperial Tobacco Group Plc acquiring various tobacco brands and the Petone cigarette factory, but will continue to investigate the BAT/Rothmans merger". It remained "concerned that the merged BAT/Rothmans might still be dominant in tobacco markets in New Zealand even after the proposed divestment to Imperial. ‘Our view is that it appears that BAT and Rothmans are not divesting enough assets to prevent dominance.’" (Commerce Commission Media Release 1999/92, 8/8/99, "Commission will not act against Imperial buying NZ tobacco assets, but continues BAT/Rothmans investigation", http://www.comcom.govt.nz/publications). It is not clear what the outcome of the Commission’s investigation was: even in November 1999 it had not made any further announcement.

The second part of the merger was announced only in May. Rothmans announced it would buy the New Zealand business of BAT (WB & HO Wills) for $226.2 million (A$187.8 million), and sell its Indonesian business, PT Rothmans of Pall Mall Indonesia, to BAT for $45.3 million (A$37.6 million). It would also sell some of its cigarette paper brands. The merged group would then sell some of its brands in Australia and Aotearoa to Imperial Tobacco Group for $391 million (A$325 million), including its factory at Petone (Press, 21/5/99, "Rothmans to buy BAT in NZ", p.16).

Job losses occurred throughout the period. In March, 19 people lost jobs at Rothmans’ Napier factory "because fewer people are smoking". There had been an 8% fall in sales in the last year – one of the biggest in the company’s history. In June, the Imperial takeover of the Petone factory was to lead to about 40 redundancies among the 195 staff (subject to the Commerce Commission approval). A further 20 were to lose their jobs at the factory but be offered positions with BAT. Of the 133 jobs remaining with Imperial, only 95 would be at the factory, and the remaining 38 "elsewhere in the country". BAT claimed it would have been looking at closing the factory if Imperial had not bought it (Press, 26/3/99, "Tobacco workers lose jobs", p.2; 30/6/99, "Tobacco firm may shed 40 Petone jobs", p.10).

U.K. investor buys 35% of Dairy Brands from Savoy Equities

D. Saville of the U.K., who "has a significant net wealth", has approval to acquire up to 35% of Dairy Brands New Zealand Ltd for $5,000,000 from Savoy Equities Ltd. Savoy Equities is owned as follows, according to the OIC:

  • Savoy Trust (New Zealand), 62.94%
  • Idris Hydraulic (Malaysia) Berhad, 16.35%
  • Jat Meng Taang (Singapore), 6.58%
  • Albert Cheock (Malaysia), 3.69%
  • Donna Sophonponich (Malaysia), 3.69%
  • Matthew Ng (Malaysia), 0.82%
  • "New Zealand public", 5.93%

This made Dairy Brands 29.5% overseas owned. The new ownership makes it 53.606% overseas owned.

(For further decisions involving Savoy, see the next item in this commentary.)

Dairy Brands, the "second largest listed dairy farming company in New Zealand", has 2,735 hectares of land in 14 dairy farms, six of which are in Otago and eight in Canterbury. This holding has been reduced since August 1998 when Savoy Equities (then called Counterpoint) increased its shareholding in Dairy brands: at that point, Dairy Brands owned 3,961 hectares of land. The company’s main activity in the last two years has been to sell off less profitable farms. The farms currently held are:

In Canterbury, 1,561 hectares as follows:

  • Rangitata Dairy Farm (Timaru)
  • Northbank Farm (Selwyn)
  • Southbank Farm (Selwyn)
  • Oakdale Farm (Selwyn)
  • Murrayfields Farm (Hurunui)
  • The Terracy Dairy (Hurunui)
  • Acton Dairy Farm (Ashburton)
  • Ealing Farm (Ashburton)

In the Waitaki District, Otago, 1,173 hectares as follows:

  • Awanui Farm
  • Pukeuri Farm
  • Seven Mile Farm
  • Stewart Road Farm
  • Terrace Top Farm
  • Peebles Siding Farm

Savoy Equities’ holding in Dairy Brands was 74.66%. Since it was split off from the orchardist-turned-property developer, Apple Fields, Dairy Brands has generally made substantial losses. These were at least in part caused by the huge debt load (55% of total assets in early 1999) landed on the company by Apple Fields. Dairy Brands was thoughtfully given part of the "Rural Super Bonds" debt that Apple Fields created and led to Securities Commission investigation and criticism. In August 1999, almost half of Apple Field’s properties were put into receivership by Tower Trust, the trustee for the Rural Super Bonds. They were not making the payments on their high debt load and Apple Fields couldn’t sell its overpriced properties – nor had it made its payments under its guarantee of the debt. (The sale of one of those properties is recorded below – see the consent for Eminence Investments Ltd of Malaysia.) Dairy Brands had escaped that fate by selling half its farms (though only 34% of their area) and refinancing its debts with Rabobank (Press, 16/2/99, "D Brands cuts loss, forecasts profit", p.24; 31/3/99, "Dairy Brands confident", p.29; 20/8/99, "Apple Fields properties in receivership", p.1).

Both Apple Fields and Dairy Brands are playthings of the New Right. Managing Director of Apple Fields, Tom Kain, a Business Roundtable member, spent much of his energy trying to put a knife into the export monopoly of the Apple and Pear Marketing Board. Dairy Brands is chaired by former National Government Finance Minister (and ACT mole) Ruth Richardson. Their success in business mirrors the success of their economic policies. Particularly symbolic was Apple Fields’ takeover of successful niche ice cream manufacturer, Killinchy Gold, which initially formed the core of Dairy Brands but died under the care of its new owner. Dairy Brands sold the business but retained the brand.

Dairy Brands is a subject for further social engineering experiments. Following the sale of half the farms, the remaining farms will be moved away from using sharemilkers, to company operated farms. Two farms serve as a model, which will involve larger scale farming (Press, 11/8/99, "Dairy Brands cuts debt, losses for year", p.31).

In May 1999, Agriculture Resources Ltd, owned by two of New Zealand’s biggest dairy farm owners in a joint venture with farm financier and insurer, Farmers Mutual Group, offered to buy out Savoy Equities. It was shortly afterwards joined by and clients of sharebroker Forsyth Barr. The dairy farmers, Richard King and Lyn Williams, own "about eight farms" in the Wanganui and Taranaki regions through Agriculture Investments Ltd. Farmers Mutual said it would end up owning about 17% of Dairy Brands, and Forsyth Barr about 34%. It is not clear where D. Saville of the present OIC decision fits in to this, but it seems likely he is one of – perhaps the only one of – Forsyth Barr’s "clients" involved (Press, 4/5/99, "Farmers, financier take Dairy Brands", p.35; 29/5/99, "Broker in D Brands placement", p.21; 23/7/99, "Dairy Brands plans growth", by Alan Williams, p.26).

The deal was to take place in stages, with 50.56% ownership purchased by Farmers Mutual and Forsyth Barr taking effect in August (final payment in October), and an option for Agriculture Resources and Farmers Mutual to take the remaining 24.1%. Agriculture Resources bid for Dairy Brands when Counterpoint (now Savoy Equities) bought its original 50% in 1997. Counterpoint paid $14.5 million for its 74.66%; Savoy Equities sold it for $12.55 million. The price per share, at 34.5 cents, was well under the net tangible asset backing of 45 cents. Agriculture Resources will be made the manager of the company under the new owners (Press, 17/6/99, "Savoy signs Dairy Brands contract", p.29; 26/8/99, "Dairy Brands report sought", p.26).

Meanwhile Savoy Equities, and the man behind it, Jihong Lu, are failing even more spectacularly in a much higher profile investment. The Auckland City Council has finally practised euthanasia on Lu's $1.5 billion Britomart development after his company, Britomart Investments, missed three deadlines for resource consents, and had difficulty raising the initial $70 million it needed (Press, 3/11/99, "Britomart at an end", p.21). Savoy Equities does not present an example of fortress-like finances: in May 1999, the majority of its assets were intangibles – mainly the rights to buy and develop Britomart. The company’s borrowings, at $27.6 million, were considerably in excess of its tangible assets ($15.7 million) (Press, 15/5/99, "Savoy expands in Auckland CBD", p.22). Two months earlier, Brian Gaynor had described the company’s financial state as "fragile", and wrote that "Savoy Equities’ pivotal role in the [Britomart] project has a strong element of unreality as the $1.5 billion development is way beyond its fragile resources and it has no experience in large-scale property development" (New Zealand Herald, 20/3/99, "Rookie developer at heart of Britomart", p.E2).

Savoy and Hudson buy Auckland Hyatt and surrounding buildings

In two related decisions, the OIC has given approval for companies related to the Savoy Trust to buy the Hyatt Regency Hotel, which is on one hectare of land on the corner of Princes Street and Eden Crescent, Auckland, and includes the Princes Court and Eden Hall Buildings.

Firstly, Hudson-Savoy Holdings Ltd has approval to acquire the above businesses, buildings and land from Otaka International Hotel Ltd of Japan. The price is suppressed, but NZPA reports it was $40 million (Press, 9/8/99, "Hyatt deal completed by Savoy", p.30). Hudson-Savoy Holdings is owned 52.5% by the Savoy Trust of Aotearoa (through subsidiary Savoy Capital Assets Ltd), and 47.5% by the Hudson Investment Group Ltd. Though the OIC identifies the Hudson Investment Group as being Australian, in fact Savoy Equities is a "cornerstone shareholder" of the company, which is listed in Australia (Press, 15/5/99, "Savoy expands in Auckland CBD", p.22). The properties will be owned by two subsidiaries of Hudson-Savoy Holdings.

Secondly, Savoy Equities Ltd (see the previous item, relating to Dairy Brands, for details of its ownership) has approval to acquire 47.5% of Hudson-Savoy Holdings Ltd from the Savoy Trust. Savoy Equities has an option over the shares. The price is "to be advised", but, again, NZPA reports that "the option could be exercised at any time before December 3, at an exercise price of $3.5m for the share capital" (Press, 9/8/99, "Hyatt deal completed by Savoy", p.30).

Eminence Investments of Malaysia buys Apple Fields property

Eminence Investments Ltd, 65% owned in Malaysia, has approval to acquire 29 hectares at Johns Road, Belfast, Christchurch, Canterbury for $1,800,000 from Apple Fields Ltd. Eminence Investments "proposes to enter into a joint venture with the vendor, Apple Fields Ltd, to develop the land into a residential subdivision". Under the sale agreement, Apple Fields must "pursue an application for rezoning of the land to permit this use. It is expected this process prior to commencement of the subdivision may extend up to five years." They hope they can create as many as 315 sections on the property.

The sale by Apple Fields is undoubtedly related to its financial problems in turning its orchards into residential subdivisions – a process that was carried out without the correct zoning in place. As reported above ("U.K. investor buys 35% of Dairy Brands from Savoy Equities") a number of Apple Fields’ properties have been put in receivership. See also "Counterpoint takes over Pacific Capital and T/A Pacific’s shares in Dairy Brands", in our commentary on the August 1998 decisions.

Eminence Investments is owned 60% by K.Y. Wong and 5% by K.K. Wong, both of Malaysia, and 15% by K.H. Hu, 10% by H.P. Yong, and 10% by T.L. Lee, all of Aotearoa.

Principal Financial Group of the U.S.A. buys BT subsidiaries from Deutche Bank

Principal Financial Group (NZ) Ltd, a subsidiary of Principal Mutual Holding Company of the U.S.A., has approval to acquire BT Funds Management (NZ) Ltd, BT Portfolio Services (NZ) Ltd, and BT New Zealand Nominees Ltd from Deutsche Bank AG of Germany for a suppressed amount. The acquisition "fits within the [Principal Financial] Group’s strategy of becoming a global asset manager and a global provider of retirement services".

The sale is a result of the worldwide takeover of Bankers Trust by Deutsche Bank. The takeover was delayed by the revelation that Deutsche Bank had helped finance the construction of Nazi concentration camps, including Auschwitz, and profited from their victims’ slave labour and expropriation of their assets during the war. Public pressure forced it to contribute to a several billion dollar fund to pay compensation to victims, as a quid pro quo for the huge purchase (Press, 6/2/99, "Deutsche Bank war role taints BT deal", p.25; 10/2/99, "Holocaust fund deal could ease bank’s takeover plan", p.16; 18/2/99, "Holocaust fund set up by Germans", p.12).

Bankers Trust’s demise was more or less forced on it because of its losses as a result of speculation during the Asian financial crisis. It has a reputation for being one of the most aggressive and risk-taking of the large U.S. banks. See our commentary in November 1996 for some of its exploits in this country.

Deutsche Bank wanted to dispose of its subsidiaries in Australia and Aotearoa – though the local subsidiary was highly profitable, doubling its profit in the year to 31/12/98 to $65 million, on shareholder funds of $281 million. It dealt mainly as a funds manager (with over $2 billion in funds) and investment bank, and had 207 full time equivalent staff (Press, 26/1/99, "BT doubles profit", p.30).

The disposal was reportedly because Deutsche Bank feared integration problems, which was quickly shown to be true when Bankers Trust Australia’s leveraged finance team defected to rival investment bank, Warburg Dillon Read, in April 1999. However more than 20 banks showed interest in the sale (Press, 20/3/99, "Westpac likely leader in race for BT unit", p.21; 23/4/99, "BT finance team defects to rival", p.31).

The sale of the Australian subsidiary ran into trouble. In June 1999, Westpac withdrew from talks, apparently after opposition from local BT management (called "Masters of the Universe by the Australian press for the size of their bonus payments and obstructive attitude to potential buyers). Embarrassingly, this occurred at just the same time as the Deutsche Bank takeover of Bankers Trust was formally finalised internationally (at $19.41 billion). At that stage, the Principal Financial Group was said to be bidding for BT Funds Management. With the flow of funds into the company drying to a trickle as consultants advised investors to hold off until the position was clarified, Deutsche Bank had considerable pressure on it to settle a deal (Press, 7/6/99, "All options open on BT Aust", p.33; 15/6/99, "Analysts set Deutsche Bank deadline", p.20).

In the circumstances, Principal Financial Group must have seemed like a boat in a storm when it offered $2.61 billion for most of Bankers Trust’s operations in Australasia. It then sold the Australian investment bank operation to Macquarie Bank, keeping the funds management portion, which controls $41 billion in clients’ funds. The investment bank operation in Aotearoa remains for the time being with Deutsche Bank, which also owns BT Alex Brown, a Wellington sharebroker.

In Aotearoa, Principal Financial Group will retain the BT Funds Management name. The company employs 50 staff. The Principal Financial Group manages more than $197.5 billion in funds worldwide and has 250 offices around the world (Press, 19/6/99, "Principal buyer for embattled BT Aust", p.24; 24/6/99, "US group to keep BT Funds name", p. 20).

AUSTAR takes full ownership of Saturn Communications

AUSTAR United Communications Ltd, owned by United International Holdings Inc of the U.S.A., has approval to acquire the 35% of Saturn Communications Ltd that it does not already own, from SaskTel Holding (New Zealand) Ltd, a subsidiary of Saskatchewan Telecommunications Holding Corporation of Canada. The price is "to be advised". It sold the 35% to SaskTel just two years before, in July 1997. See our commentary that month for further details.

Saturn is installing fibre-optic cabling in urban centres in Aotearoa, over which it provides telephone, Internet and cable TV services to homes. It provides high-speed Internet access to Internet Service Provider, Paradise.net, 20 channels of pay-per-view films, and 25 channels of television. It is Telecom’s sole competitor in residential local telephone services; in the areas where it has begun to operate, Telecom has followed block by block reducing its residential line charges, causing outrage at its demonstration of anti-competitive behaviour. Having completed its network in Wellington, which passes 120,000 homes and has 21,000 telephone customers, Saturn is currently considering expanding to Christchurch and Auckland, depending on whether AUSTAR provides the funding. It has resource consents in Christchurch, where it has a 30 year agreement with electricity lines operator, Orion (formerly Southpower), to use its underground ducts and power poles. Saturn ran into problems in the Hutt Valley because of complaints about the size of its wiring boxes on poles but claims that it has learned to do better (Press, 10/11/99, "Saturn poised to lay cable in Chch", p.21).

The purchase by AUSTAR of SaskTel’s shareholding is in preparation for a public float. SaskTel will continue to provide technical services to Saturn, and will be receiving 3.1% of AUSTAR in return for transferring its Saturn shares.

Globe Wireless leases Kaitaia land for second ship-to-shore wireless station

Globe Wireless (New Zealand) Ltd, a subsidiary of Globe Wireless Incorporated of the U.S.A., has approval to acquire six hectares of leasehold land at Far North Road, Waipapakauri, near Kaitaia, Northland for $60,750.

"Globe Wireless currently owns and operates a ship to shore wireless station site near Kaitaia responsible for delivery of messages from ship to shore and vice versa. Use of the existing site for both transmission and reception has proved unsuitable as high power signals from sending equipment can cause interference of the receiving signals [sic]. The rationale for leasing another site is to provide a station solely for receiving signals. The station is intended to be part of a worldwide communications network. Globe Wireless provides a commercial service to shipping and pleasure craft."

Sterling Grace of the U.S.A. takes remaining shares in Claymore (Spicers)

Sterling Grace L.D.C., owned by the Grace family of the U.S.A., has approval to acquire the remaining 50.2% of Claymore Asset Management Ltd for a suppressed amount. Claymore owns Stableford Investments Ltd, which in turn owns Spicers Portfolio Management Ltd. "Spicers is a funds management company offering tailored investment options…"

In June 1998, we reported that Sterling Grace had received approval to acquire a further 25.6% of Claymore Asset Management Ltd, in which it already had a 24.2% shareholding, for $720,000. The justification was in identical terms to the present approval. See that report for further details on the companies.

Kiwi Income Property Trust can buy Auckland Royal Sun Alliance building

The Kiwi Income Property Trust, which is 25% owned by "persons who may be ‘overseas persons’", has approval to acquire Kiwi Development Trust which is building the 39 storey Royal Sun Alliance Building at 42-60 Shortland Street, Auckland. This will be the tallest office building in Aotearoa. The price is "to be advised".

The approval is significant because Kiwi Income Property Trust floated Kiwi Development Trust to construct the building and off-load the risk. It now thinks KDT is undervalued: in November, units in the trust were selling at 247 cents, compared with the 380 cents they would be worth on the basis of the value of the completed building ($236 million). KIPT lifted its ownership in KDT to 34.2%, but is obviously putting itself into a position where it can make a complete takeover (Press, 12/11/99, "Leasing pleases KDT", p.21).

For further details on Kiwi Income Property Trust, see our commentary on the June 1999 OIC decisions.

AMP buys land in Otara for large shopping centre

AMP Property Trust and AMP Life Ltd have approval to acquire 18 hectares of land at 588 East Tamaki Road, Otara, Manukau City, Auckland, for $22,500,000 from National Trading Company of New Zealand Ltd of Aotearoa. AMP proposes to build a "large shopping centre" on the land. It "will be one of New Zealand’s largest shopping centres incorporating a large department store, large format shops, a number of cinemas and over 130 retail stores".

Hoyts receives retrospective approval to acquire leasehold land in Christchurch

Hoyts Cinemas Ltd of Australia has retrospective approval to acquire a lease over 1.1 hectares of land at 392 Moorhouse Ave, Christchurch for $0. The land is presumably that on which the Hoyts 8 cinema complex is situated, in Christchurch’s former main railway station.

"In [February] 1998 Hoyt’s Cinemas Ltd received consent to acquire up to 100% of the specified securities of Endeavour Multiplex Ltd. At the time the application was submitted the applicant advised that Endeavour did not own any estate or interest in land as defined in the Overseas Investment Regulations 1995. Hoyts have now discovered that in fact Endeavour did have a land interest being a lease over 1.1017 hectares of land in Christchurch which contained a building which is a registered historic place under the Historic Places Act 1993. Hoyts now seek to regularise the position."

Presumably their valuation of the lease reflects the value they put on the historic place.

Land for forestry

  • New Zealand Plantation Forest Company Limited, owned by four major Japanese companies, has approval to acquire 15-year forestry cutting rights over two blocks of land in Northland, both for suppressed amounts. The land is 82 hectares at Wakelin Road, Bay of Islands, Northland, and 75 hectares at State Highway 1, Mangamuka, Northland. The Japanese companies are Chuetsu Pulp & Paper Co Limited (30%), Hokuetsu Paper Mills Limited (30%), Marusumi Paper Co Limited (30%), and Marubeni Corporation 10%. In December 1997, New Zealand Plantation Forest Co Ltd received approval for "an investment programme to plant, maintain and cut up to 10,000 hectares of short rotation (whereby harvesting occurs every seven years rather than every 27 years as occurs in current radiata pine harvesting) pulpwood species such as acacia in the Northland region and possibly other areas within the North Island. New Zealand Plantation Forest Company Ltd do not intend to buy any of the land outright, but instead propose to acquire forestry rights over suitable areas of land, to enable the planting growing and cutting operation…. The product derived from the forest(s) will either be exported whole, or will be transported to the Marusumi Whangarei Company Ltd plant to be chipped for export to Japan for use in manufacturing plants run by the Company’s shareholders." The last purchase of such forestry rights approved by the OIC was in April 1999.

Other rural land sales

  • J.F. and C.B. Daniell of the U.S.A. have approval to acquire eight hectares at 650 Matakana Road, Warkworth, Northland for $400,000. They intend to take up permanent residency by August 2000 and further develop the persimmon orchard already on the property. They also intend to establish a viticulture operation and a retail outlet on the land.
  • Mares Properties (NZ) Ltd, owned by an overseas incorporated holding company which is in turn owned by a New Zealand resident, Mr M. L. Jones, has approval to acquire the 390 hectare Crosslands Deer Farm, South Head Road, South Head Peninsula, Helensville, Auckland, for $1,700,000 from Prudential Assurance Company Ltd of the U.K. Approximately 20 hectares will be subdivided into seven lifestyle blocks for resale. "Mr Jones could have purchased the property in his own name without the need for the Commission’s approval. However for various reasons Mr Jones has elected that the property be purchased by Mares Properties (NZ) Ltd." Is the OIC approving another tax avoidance scheme?
  • S. and M. Higashide of Japan have approval to acquire five hectares at 919 Old North Road, Waimauku, near Kumeu, Auckland, for $300,000. They intend to build accommodation and a caretaker’s house on the land, and use it as a homestay for "carrying out an art therapy and stress relief business". It will be "primarily for Japanese clients, providing a serene environment in which to relax and learn painting during week long seminars". They expect up to 200 clients a year to travel to Aotearoa and stay for seven to ten days.
  • Zhaoyue (NZ) International Company Ltd, owned by Qingzhou Qian Jin Industry Company Ltd of China has approval to acquire five hectares at 42 Beaver Road, Pukekohe, Auckland for $400,000, for growing and distributing vegetables to the local market.
  • R. Hitchins of the U.K. has approval to acquire 61 hectares of land at Purangi Road, Flaxmill Bay, Whitianga, Coromandel for $730,000. The stated intention is "to establish a commercial avocado orchard of 20 hectares on the property over a five year period", although "consultant’s reports have been sought to confirm the orchard will be a viable enterprise able to generate a positive cashflow". Eleven hectares of olive trees are also being investigated. The land is currently a short term grazing lease.
  • Athlumney Farms Ltd, owned by the Cleary Family of Ireland, has approval to acquire further land in Southland. It is buying 180 hectares at Oporo Road, Oporo, Southland, for $1,630,000, and 190 hectares at Winton-Wreys Bush Road, Winton, Southland for $1,100,000, both for conversion from sheep and beef farming to dairying. For details of the family’s most recent purchases, see our commentary on the OIC’s February and June 1999 decisions.