Huge Tasman gap offers KiwiSavers little choice
New Zealand Australia Members should be demanding far better performance from our biggest companies
$ 8.1b $ 2.6b $ 6.3b $ 0.1b $ 14.8b $ 4.6b $ 3.3b $ 2.1b $ 2.0b $ 1.6b $ 1.5b $ 1.2b $ 1.1b $ 1.1b $ 1.0b $ 0.9b $ 0.8b $ 0.8b $ 0.8b $ 85.5b $ 80.7b $ 115.0b $ 145.7b $ 92.6b $ 56.5b $ 26.4b $ 7.9b $ 9.1b $ 26.4b $ 14.5b $ 33.7b $ 30.3b $ 29.9b $ 29.1b $ 18.7b $ 16.7b $ 15.3b $ 13.8b $ 11.5b $ 9.7b $ 8.5b $ 7.5b $ 7.2b $ 6.8b $ 6.0b $ 5.8b iwiSaver is a fantastic long- term examples of this. price has risen since it bought Coles Myer. superannuation scheme but it has Carter Holt purchased a 50 per cent stake News Corporation has moved to the one major drawback: the scheme’s in the largest Chilean forest products comNasdaq exchange in the US but it is still confunds have limited domestic investpany and had huge problems selling this trolled by the Murdoch family, while GL ment opportunities. This is a significant holding. Brierley Investments failed to Limited ( formerly Brierley Investments) has drawback for members because there are understand the UK takeover rules and was minimal New Zealand involvement. clear advantages, particularly from a tax forced to make an offer for a major British Another problem for New Zealand inpoint of view, to investing in NZX- listed comhotel group, which made a significant contrivestors is the heavy- handed approach of panies. bution to its subsequent problems. regulators.
The accompanying table, which shows The Fletcher Challenge group of comTelstra’s market value has increased from the 15 largest listed NZX and ASX companies panies made a large number of unsuccessful A$ 13.8b to A$ 56.5b since 1997 but Spark’s nearly 20 years ago, clearly illustrates this debt- funded overseas acquisitions, while Air value, including Chorus, has declined from point. New Zealand purchased Ansett Australia and $ 14.8b to $ 8.1b. These performances have
Only four of the largest listed NZX comhad to be bailed out by the New Zealand Govbeen influenced by regulators on both sides panies in 1997 — Telecom ( now called Spark), ernment. of the Tasman. Fletcher Challenge Building, Fletcher ChalThe Warehouse, which was the 16th largThe Commerce Commission’s recent delenge Forests ( now called Tenon) and Air est NZX company in December 1997, purcision to reject the Sky TV/ Vodafone NZ New Zealand — remain listed on the domeschased Australian discount retail chains and merger is a clear example of its tough aptic exchange. has never fully recovered, with its market proach towards domestically owned com
The total value of these 15 companies, invalue rising from $ 0.7b to only $ 0.8b since panies, as is its preliminary decision to reject cluding takeover valuations, has increased legal entity, while Fletcher Challenge Forthe end of 1997. The recent demise of Pumpthe proposed merger between NZME and by only 23 per cent — from $ 37.6 billion to ests has become the NZX- listed Tenon. kin Patch was also due to a flawed offshore Fairfax NZ. $ 46.4b since the end of 1997. The latest Spark The Independent Newspapers ( INL) story acquisition strategy. NZME and Fairfax NZ are essentially the figure includes Chorus’ current market value is complicated because the company first There have been a small number of sucsame companies as Wilson & Horton and Inas it was demerged from the telco in 2011. sold its publishing business to the ASXcessful offshore purchases but mistakes are dependent Newspapers at the end of 1997.
By contrast, 12 of the 15 largest ASX comlisted Fairfax for $ 1.2b and later merged still being made, as illustrated by Fletcher NZME, which has a current market value of panies at the end of 1997 remain listed across with Sky TV in a deal worth around $ 3.3b to Building’s high priced acquisition of Aus$ 0.2b, is proposing to acquire Fairfax NZ for the Tasman and the total value of all 15 comINL shareholders. tralia’s Crane Group. nearly $ 0.2b, giving the merged company an panies, including their takeover value, has Wilson & Horton was purchased for $ 1.1b Fletcher Building established the followestimated value of just $ 0.4b. This compares soared 237 per cent — from A$ 216.8b to by an Irish- based company in 1998. ing criteria for overseas acquisitions when it with their combined value of $ 2.1b 20 years ago.A$ 730.8b. Tranz Rail was acquired by Australia’s Toll was established in 2001:
What happened to the 11 NZX companies Holdings for $ 0.6b in 2007 and its core 1. The acquired company must be numHow can the commission seriously that are no longer listed on the NZX and why business is now New Zealand Government ber one or two in terms of market share. believe that a merger creating a $ 0.4b comhave New Zealand- listed companies been owned after the rail company’s failed 2. It must have a sustainable, good induspany will reduce the availability of news conunable to create significant long- term shareprivatisation. try structure. tent when it will be up against the likes of holder value? 3. It must have good local management Facebook and Google, which have a Carter Holt Harvey was acquired by that will remain with the company. combined market value of US$ 999b ($ 1.431 Graeme Hart in 2006 at a valuation of 4. The purchase price should allow Flettrillion)? $ 3.6b, $ 1b below its 1997 value. cher Building to earn its cost of capital within The clear lesson from the past 20 years is Brierley Investments was worth only $ 1.4b three years. that KiwiSaver members should be when it delisted from the NZX in June 2014. It is highly unlikely that Fletcher Builddemanding far better performances from It is now called GL Limited and is listed on ing’s foreign purchases have met these our li sted companies in terms of board the Singapore Stock Exchange with a $ 1.1b criteria and the same could be said for a high governance, management capabilities and market value. percentage of offshore acquisitions by NZXoffshore acquisition strategies. Lion Nathan was taken over by Japanese listed entities. It would also be extremely helpful if Wellcompany Kirin for $ 6.1b, Power New ZeaAnother big difference between the NZX ington regulators adopted a more balanced land and Natural Gas Corporation were and ASX is that the two acquired ASX comapproach towards the interests of both acquired by Vector for $ 1.5b each and panies, Coles Myer and Western Mining, consumers and domestic shareholders, the Ports of Auckland was purchased by the were purchased by the Australian comlatter including 2.7 million KiwiSaver memAuckland Regional Council for $ 0.9b. panies Wesfarmers and BHP respectively, bers. Fletcher Challenge Energy was sold to while five of the NZX companies were bought Shell and Apache Corporation for $ 4.6b by overseas interests. and Fletcher Challenge Paper to As well, the INL and Coles Myer Norwegian company Norske Skog for $ 5b. acquisitions had majority scrip components Fletcher Challenge Building is now Fletbut the Sky TV share price has fallen sharply cher Building, although it is a different since it bought INL while Wesfarmers’ share The first major difference between the NZX and ASX is the banks. Heartland, which has a market value of $ 0.8b, is the only listed NZX bank while the four major Australian banks have a market value of A$ 438.8b ($ 482.7b), compared with only A$ 81.0b two decades ago.
These four Australian banks have accounted for 70 per cent of the increase in value of the 15 largest ASX companies since 1997. New Zealand has contributed to this by selling Bank of New Zealand and ASB to National Australia Bank and CBA respectively, at bargain basement prices.
Two of our major problems are that we sell some of our best companies while most of our listed companies make poor offshore acquisitions, with Carter Holt Harvey, Brierley Investments, the Fletcher Challenge companies and Air New Zealand being good
We sell some of our best companies while most of our listed companies make poor offshore acquisitions.
Disclosure of interests: Brian Gaynor is an executive director of Milford Asset Management, which holds shares in most of the companies mentioned in the column, and included in the table, on behalf of clients.