October
2000 decisions
Shell bids for Fletcher Energy Fletcher Residential purchases Waitakere land for subdivision AMP acquires Manukau Supa Centa SPHC buys Park Royal Hotel, Wellington Hudson buys Savoy out from Hyatt Regency Auckland Hotel site for
“a song” Brierley Investments buys Greyloch Holdings from ANZ Bank Nelson Pine Industries acquires more Nelson land as buffer to
fibreboard plant More land for Martha Mine, Waihi U.S. sheep farmer with fetish for new breeds acquires further 867
ha. Montana buys five blocks of land in Marlborough, Hawkes Bay and
Gisborne Craggy Range vineyards expand in Hawkes Bay Southland land purchased “to promote and safeguard the earth’s
biodiversity” One refusalG.T. and K.M. Dyer of the U.S.A. were refused approval to acquire land in the Auckland region. They wished to acquire it as a lifestyle property and holiday home. However they “would like to seek New Zealand permanent residency” but “appear to be unlikely to qualify due to various reasons including their age”. They intended to reside to in New Zealand on the property for approximately six months a year, because they were unlikely to meet the residency requirements. The price, size of the property and details of its location have been suppressed. Shell bids for Fletcher EnergyShell Exploration Company B.V. has approval to purchase Fletcher Challenge Energy (FCE),
a division of Fletcher Challenge Ltd for a sum “to be advised”.
This is a further step in the dismantling of one of New Zealand’s most
significant companies, both in size and in historical terms, which began
with the sale of Fletcher Paper to Norske Skogindustrier of Norway (see
the May 2000 decisions). Shell, the second largest oil company in the world,
is owned 60%
by Royal Dutch Petroleum Company (N.V. Koninklijke Nederlansche
Petroleum Maatschappij) of the Netherlands, and 40% by Shell
Transport and Trading Company of the U.K. Fletcher Challenge is
owned 39% in the U.S.A., 10% in Australia, 9% in
the U.K., 5% in Singapore and only 37% in
Aotearoa. The sale includes a total of 155 hectares of freehold land at 1334 Otaraoa Road, Waitara, 90-160 Beach Road, New Plymouth, and 567 Bird Road, Stratford, Taranaki. It also includes a total of 19 hectares of leasehold land at Mangahewa Road, Foreman Road, Mangaone Road, Otaroroa Road, and 867 Bristol Road, New Plymouth; and 562-548 East Road and 133 Cross Road, Stratford. The sale was a long and tedious process that was settled only in March 2001, five months after the OIC’s approval. It began with the smell of blood in the air, following the sale of Fletcher Paper at a price that surprised the sharemarket. Another of the giants of world oil, Chevron (Socal, owner with Texaco of Caltex) was rumoured to be another bidder. The prospect was sweetened by the rising price of crude oil, and Fletcher’s leading shareholding in Capstone Turbine Corporation, an innovative manufacturer of gas and liquid fuel-fired micro-turbine power generators with a high-technology-like share price despite having never made a profit (Press, 5/8/00, “F Energy scores investors’ favour”, p.21). However things moved slowly towards Fletcher Challenge putting its division on the block. In August, Shell applied for Commerce Commission approval for the purchase, but ran into trouble. The Commission repeatedly extended the time it needed to make a decision, and then in October (decision no. 408) rejected the proposal. The rejection came despite Shell’s offer to divest itself of all of FCE’s interest in the Kupe field, in Kapuni Gas Contracts Limited, in Fletcher Challenge Gas Investments Limited, in Challenge Petroleum Limited (the “Challenge!” petrol retailer, including its New Plymouth terminal), and FCE’s 14.2% interest in the New Zealand Refining Company Limited. Under the deal, Challenge! and the interest in New Zealand Refining Company would be sold to Rubicon, a new, supposedly technology-focussed, company to be set up by Fletcher Challenge to hold a number of the assets it did not wish, or think appropriate, to sell with its divisions. The Commerce Commission described the two companies’ international activities as follows: Shell … Shell Group companies are involved in activities
relating to oil and natural gas, chemicals, electricity generation, and
renewable resources in more than 135 countries. [Shell’s] application spells out the following
activities the Shell Group is engaged in internationally: Exploration and Production (or “E&P”): searching
for oil and gas fields by means of seismic surveys and exploration wells,
developing economically viable fields by drilling wells and building the
infrastructure of pipelines and treatment facilities necessary for delivering
hydrocarbons to market; Oil Products: refining and
processing crude oil and other feedstocks into transportation fuels,
lubricants, heating and fuel oils, LPG and bitumen, and distributing and
marketing these products to customers; Chemicals: processing
hydrocarbon feedstocks into base chemical products, petrochemical building
blocks and polyolefins, and marketing them globally; Downstream Gas and Power: marketing and
trading natural gas, wholesaling and retailing of natural gas and electricity
to industrial and domestic customers, developing and operating independent
electric power plants; Renewables: manufacturing and marketing solar energy systems, implementing rural electrification projects in developing countries, sustainably growing and marketing wood, converting wood fuel into marketable energy, developing wind energy projects. Within New Zealand, Shell is currently active in all the above areas. The primary activities of Shell NZ include: · the exploration for, and production of, oil and gas, including holding significant shareholdings in the Maui and Kapuni fields; · the operation of Shell brand petrol stations, with more than 350
retail locations nation-wide; · investments
in renewable resources, most notably a joint venture with Carter Holt Harvey
in Mangakahia Forest in Northland; · the
production and distribution of chemicals, including petrochemicals and
detergents; · the
production and distribution of commercial products, including marine and
aviation fuels, and lubricants; and · equity
investments in NZRC (17.1%), Fulton Hogan Limited (37.6%), Loyalty New
Zealand Limited (25%) and the New Zealand Burger King franchise (50%). Shell NZ owns 50% of the shares in Shell Todd Oil
Services Limited (STOS). The remaining 50% of the shares are owned by Todd
Energy Limited (Todd). Shell and Todd are parties to an agreement made in
1955 (the 1955 JV) under which they agreed to carry out, as a joint venture,
prospecting and mining for petroleum in an area including Taranaki, the
surrounding areas and offshore from those areas, and production of any
petroleum that may be discovered. Part of this agreement proposed the setting
up of a servicing company “to do the prospecting and mining on behalf of the
joint venture”. The agreement provides that Shell is responsible for the
staffing of the servicing company and for providing technical advice to the
company. This servicing company is now known as STOS and is the operator of
the Maui field, and its onshore production facilities, and of the Kapuni
field and production facilities. FCE … The application lists the activities of FCE in New
Zealand as: · exploration
for, and the production and marketing of, oil, LPG and natural gas; · operatorship
of the McKee, TAWN, Kaimiro, Pohokura and Mangahewa fields; · a 14.2% interest
in NZRC, which operates the refinery at Marsden Point; · wholesale,
retail and marketing of petroleum products, motor spirits and convenience
products through the Challenge! service stations, which comprise 93
service stations throughout Aotearoa and 17 fuel stops in the North Island. FCE’s activities overseas include: · exploration
for, and production, transmission and marketing of, oil and gas in Canada and
Brunei; · exploratory
drilling ventures in Argentina; · petroleum
storage and wholesaling in Brisbane; · a 50%
interest in the 120 MW gas fired Cogeneration Project, located at the Worsley
Alumina plant in South Western Australia; · an 11%
interest in the Capstone Turbine Corporation, a Los Angeles based
“Micro-Turbine” manufacturer which has recently listed on NASDAQ; and · a 15%
interest in Petroz NL, an Australian oil and gas exploration and production
company with interests in Australia, the Timor Gap Zone of Co-operation,
Indonesia and Italy. However, the Commerce Commission decided that only three markets were relevant to its decision: the national markets for · gas
production currently; · post-2009
gas production; and · LPG production. In the others, it decided, there was sufficient competition, or Shell had agreed to divest itself of offending operations. Its concerns in gas production are highlighted in the following table, which shows that FCE and Shell between them had effective control of 100% of the production of gas in Aotearoa in 1999, using data from the Ministry of Economic Development’s Energy Data File, July 2000:
(PJ = Petajoules; TAWN = the Tariki, Ahuroa, Waihapa and Ngaere fields in Taranaki.) Many of these assets were the result of privatisations and subject to various “take or pay” provisions whereby the government, or its present or former corporations such as parts of the former Electricity Corporation, had contracted to pay for gas even if it didn’t use it. It had sold some of these contracts to the Natural Gas Corporation (NGC – the Australian-owned owner of TransAlta/On Energy), Contact Energy, Genesis Power and Methanex. The Commerce Commission considered whether those corporations, or the Todd Corporation would provide competition by reselling the gas, but decided that was unlikely. It concluded: “the Commission considers that the constraint from competitors is not sufficient to preclude Shell from exercising significant market power post-acquisition”. It then looked at whether new competition would arise after 2009, when the Maui and other fields are expected to be close to depletion, and new fields are expected to be in production. It estimated likely 2010 production from known developed and undeveloped fields. Its conclusion was that 63% of the likely or possible new production (including 75% of the likely new production) would be owned by Shell/FCE and only 37% by other owners. Commenting on the commercial discoveries since 1959, The Commission notes that the largest discoveries – Maui, Kapuni, Pohokura, TAWN – have all been discovered by Shell, FCE or their predecessors or associates, Shell/BP/Todd and Petrocorp. While this in part may be a reflection of the more limited interest in gas exploration in the past, more restrictive licensing regimes, and the Government involvement in Petrocorp, it is likely that Shell and Todds’ past successes will have given them information and expertise not available to more recent entrants. It concluded that with regard to new entrants to gas production post 2009, “the Commission cannot be confident of the extent of new entry and that it will be sufficient to ensure that the merged entity will not be in a dominant position in the market.” In sum, The Commission considers that the likely competitive constraints from current fields and from new fields together would not be sufficient to prevent the merged entity from being able to exercise a high degree of market power. Accordingly the Commission concludes that it is not satisfied that the proposed acquisition would not, or would not be likely to result in an acquisition or strengthening of dominance in the post-2009 gas production market. In LPG production, the Commerce Commission stated, the principal acquirers of LPG from the producers are Liquigas, Rockgas, NGC, Shell and Todd. Liquigas was established in 1981 as a New Zealand LPG distribution venture. The parties which established Liquigas and were its initial shareholders were BP Oil New Zealand Ltd, Rockgas Ltd, Natural Gas Trading Ltd, Shell New Zealand Holding Co Ltd, and Todd Petrogas Ltd. Since that time BP has sold its interest to NGC. Shell is a 18.75% shareholder in Liquigas. The other shareholders are also participants in LPG wholesale markets. They are: NGC which has a 60.25% shareholding, Todd which has a 12.5% share and Rockgas which has a 8.5% share. Rockgas is an LPG wholesaler and retailer. Its ownership is 50% Origin Energy Ltd and 50% Caltex Gas New Zealand Ltd. NGC is a listed company which undertakes the business of the acquisition, transmission and marketing of gas throughout the North Island, as well as electricity retailing. It owns the gas treatment plant at Kapuni which produces LPG and is a wholesaler and retailer of LPG, supplying LPG to BP service stations. It concludes that “the only current producer other than FCE and Shell and their associated companies, NGC, is constrained in its ability to compete with Shell post acquisition.” It considered it was unlikely that new entrants would change this position. The Commission therefore rejected Shell’s application on the basis of the dominant position it would acquire in all three markets. Naturally, Shell did not take no for an answer. It applied again on 20 October (eight days after the OIC gave its approval to the purchase!), this time offering to divest the following assets in addition to those offered the first time (see Commerce Commission decision 411): · 10% of its interest in the Maui field (leaving it with 83.75%), but also agreeing to require the agreement of another party (Todd or the purchaser of the 10%) in making decisions by the Maui joint venture; · 3.6667% of its interest in the Pohokura field (leaving it with 48%); · FCE’s interests in
Note that this still leaves Shell with control over 91% of gas production in Aotearoa, through the Maui and Kapuni fields. The additional divestment was minimal. However the Commerce Commission decided that the remaining 9% of gas production not owned by Shell would provide sufficient competition noting that “it represents around 48% of the total amount of gas used last year by other than the electricity and petrochemical sectors” because the rest was to a large extent tied up in bulk supply contracts. It suppressed the data that show Shell’s estimated share post-2009, but convinced itself that the divestments would mean Shell would not have a dominant position post-2009. On LPG, the Commission considered that the TAWN divestment plus competition from NGC at Kapuni, the change in the Maui ownership and voting rights, plus new information on the nature of contracts between the various companies in the LPG market, would prevent Shell from having a dominant position. Just what we have come to expect of the Commerce Commission. The actual deal involved U.S. exploration company, Apache, buying the Canadian and Argentine assets of FCE. According to Fletcher Challenge, Apache is a “leading oil and gas exploration and development company with operations in the United States, Canada, Australia, Egypt, Poland and China. As at 30 September 2000, Apache has US$6.75 billion in assets”. The original deal offered FCE shareholders in October 2000 · US$3.34 a share in cash (approximately NZ$8.30 at that time) · One Capstone Turbines share for every 70 FCE shares (valued at $1.72 per FCE share) · One Rubicon share for each FCE share (valued at $1.20) (Press, 11/10/00, “Winners and losers on FCL”, p.34) This total offer, of $11.22 was a 43% premium on the sharemarket price of $7.85 in mid October 2000, but subject to the whims of the exchange rate and the value of Capstone shares between October 2000 and settlement in late March 2001. Indeed, by the time the formal offer documents were published in 2001, the value of the offer had fallen to $9.65 per share. At that value, the 353.2 million shares were valued at $3.4 billion, and Shell was paying $2.6 billion for FCE itself. Other Fletcher Challenge shareholders were affected by the sale, Fletcher Forests shareholders faring particular badly, and venting their anger at the annual meeting in November 2000 (Press, 3/11/00, “Deane, Andrews bear brunt of shareholder frustration”, p.18). Though other bids were not apparent in 2000 (other than the suggestion of Chevron’s interest), a late bidder in February 2001 forced Shell to increase the cash part of its offer to US$3.55 a share. The new bidder, Greymouth Petroleum, played up the “little guy” and “kiwi” image, but in fact was a consortium of Ron Brierley’s Guinness Peat Group, FR Partners (Faye Richwhite), and Canadian oil company, Penn West, plus New Zealand and overseas institutions. It offered US$3.70 in cash, later raised to US$3.85, leaving the rest of the offer unchanged. A subsidiary, Peak Petroleum, would be set up to run FCE’s New Zealand and Brunei assets if the bid succeeded, while Penn West would take FCE’s Canada oil and gas interests. In Greymouth Petroleum’s favour was sharebroker Forsyth Barr which was arguing that Shell’s valuation was too low. Against it was the lateness of its bid, which Fletcher Challenge claimed came too late to allow it to back out of the Shell offer. Nevertheless, Shell raised the cash part of its offer to US$3.55 in response. That was the only achievement that Greymouth spokespeople could claim when their bid was rejected overwhelmingly at a drawn-out Fletcher Challenge shareholders meeting in March 2001, which approved the sale by 96%. Perhaps the most cutting irony was Shell’s answer to their “patriotic” call: Shell had been in New Zealand for 90 years, but Greymouth Petroleum only for weeks. A telling commentary on the sale of one of our largest energy companies comes from Australia. At the same time as Shell was bidding with great confidence for FCE, it was battling in Australia for full ownership of Woodside Petroleum, manager (and owner of a large share) of the huge North West shelf liquefied gas project off Western Australia. The decision was left to the Australian government (rather than a statutory authority like the OIC) which procrastinated over the decision for some time. Bruce Baskett described the dilemma in the Press (12/3/01, “‘Smile doctors’ no longer required”, p.15): Offshore investors are battering [the Australian] dollar and one of the most crucial decisions the Government has on its plate could see it plummeting even further. The rating of Australia as a place to invest depends largely on whether the Howard Government will allow Shell to take over Woodside Petroleum. The Government is spooked as it weighs up the pros and cons. In short, they are damned if they do, and will be internationally crucified if they don’t. John Howard says he is concerned that Australia is becoming a “branch office economy”. He says that his heart is with Australian ownership but the country cannot afford to put up the shutters against foreign investment. In the end the Australian government vetoed the takeover, Treasurer Peter Costello saying it was “not in the national interest”. The financial markets were “stunned”, and conveyed a warning through international ratings agency, Fitch Inc, that the act shouldn’t be repeated or it would be seen as “a generalised resistance to foreign direct investment in Australia” which would “likely hurt the country’s sovereign [credit] rating”. Fitch’s director of international public finance in London “stressed that Australia remained heavily dependent on international finance with its large current account deficits and heavy external debt burden. That makes it important that international investors remain confident they face a level playing field” (Press, 25/04/01, “Politics big player in gas decision - experts”, p.32). Australia has been warned! Australian governments are different only in that they occasionally worry before selling out. Perhaps Howard should be advised not to concern himself any more about the country becoming a branch office economy. Our governments can teach him how to stop worrying and love servility. Fletcher Residential purchases Waitakere land for subdivisionFletcher Residential Ltd, a subsidiary of Fletcher Challenge Ltd, has approval to acquire 2.3 hectares of land at Rushcreek Drive, Waitakere, Auckland for $4,176,000 from Rushcreek Estates Ltd. It “intends to develop 48 residential lots and construct residential dwellings on the land”. The ownership of Fletcher Challenge is detailed in the previous decision. AMP acquires Manukau Supa CentaAMP Property Fund, 89% owned in Australia, has approval to acquire the Manukau Supa Centa (sic) on 13 hectares at the corner of Cavendish Drive and Lambie Drive, Manukau City, for $38,721,491 from Howgate Holdings Ltd and Lady Ruby Investments Ltd of Aotearoa. AMP intends further develop the land, which includes vacant land, as a “commercial/industrial/retail estate”. SPHC buys Park Royal Hotel, WellingtonSPHC NZ Holdings Ltd, owned by Bass PLC of the U.K. has approval to acquire the Park Royal Hotel in Wellington from AMP NZ Office Featherston Street Ltd, which is 89% owned in Australia and 11% in Aotearoa, for $62,550,000. “The acquisition of the Park Royal Hotel will add a major hotel to the Applicant’s group of hotels in the Asia-Pacific area. The company currently holds the management contract for the hotel and … has 11 hotels in New Zealand under the Centra, Parkroyal and Hermitage brands.” SPHC (presumably Southern Pacific Hotel Corporation) used to be owned by the Pritzker family of the U.S.A., through a Hong Kong subsidiary, Hale Internaitonal (see our commentary on the October 1997 decisions). Though as far as we know, the OIC never approved it, SPHC has now been taken over by Bass. Tthe two companies announced the acquisition in Singapore on 20/9/00 (http://www.sphc.com.au/aboutus/prchooser.asp?type=1, “Bass finalises acquisition of SPHC Group” with a dateline confusingly 4/4/00): “Bass Hotels & Resorts today became the largest hotel management company in Asia Pacific and reinforced its dominant position as the global leader in distribution strength following formal completion of the Southern Pacific Hotels Corporation (SPHC) acquisition, which adds 59 hotels to its regional portfolio. Bass announced on January 18 that it had entered into an agreement to purchase the share capital of Hale International Limited, which owned, leased, managed or franchised the 59 hotels through various operating companies, including SPHC. The acquisition covers 24 hotels in Australia (including six owned or leased), 13 in New Zealand, eight in the South Pacific Islands (New Caledonia, French Polynesia, Fiji, Vanuatu, Suva), three in Papua New Guinea and 11 in Asia. The consideration, as previously announced, is £128 million. BHR is now the second-largest hotel operator in Australia. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||