Doing things his way
Brian Gaynor looks back at Sir Douglas Myers’ legacy — the controversies and courtroom battles, as well as the standout successes
Sir Douglas Myers was one of the country’s most successful and controversial businessmen. He had a number of career highlights but the standout was the purchase of Alan Bond’s brewing interests by Lion Nathan in the early 1990s. However, this was interspersed with a number of controversial share transactions.
His first controversy was the takeover of his family company, Campbell & Ehrenfried, in 1972.
Campbell & Ehrenfried had its origins in the Hobson Bridge Brewery, established by John Logan Campbell and William Brown in Auckland in 1840. In 1898 it merged with Albert Brewery, founded by Louis Ehrenfried, to form Campbell & Ehrenfried.
Arthur Myers, Ehrenfried’s nephew and Doug Myers’ grandfather, ran the new company. It played a major role in the establishment of New Zealand Breweries ( NZB) in the 1920s.
In May 1970, at the age of 32, Myers was appointed managing director of Campbell & Ehrenfried. He quickly sold most of its hotels to NZB and in return acquired a 50 per cent interest in New Zealand Wines and Spirits ( NZWS). NZWS, which was managed by Campbell & Ehrenfried, had a monopoly to supply NZB’s 200 hotels.
Myers made a successful takeover offer for Campbell & Ehrenfried, which was mostly family owned, in 1972 for $ 5.65 million. Immediately after the transaction, Campbell & Ehrenfried sold the Strand Arcade in Auckland’s Queen St for $ 3.7m and Myers received a $ 5.3m capital dividend.
A number of family members took court action against Myers in a high profile case, known as Coleman v Myers. Family shareholders argued that Myers had not disclosed the true situation regarding the company and he had prior arrangements to sell assets above their disclosed values.
Justice Peter Mahon decided in favour of Myers but on August 11, 1977 the Court of Appeal reversed the decision and found Myers guilty of fraudulent misrepresentation. The Court ordered Myers to pay an additional 45.8 per cent per share to former Campbell & Ehrenfried shareholders, plus interest.
The decision was a huge blow to Myers, both financially and reputationally.
The Court of Appeal decision was a groundbreaker because it determined that directors had a fiduciary duty to individual shareholders under special circumstances. Before Coleman v Myers the courts upheld, in line with UK court decisions, the view that directors had no special duty of care to individual shareholders.
After the negative decision, Myers settled down to managing his 100 per cent owned Campbell & Ehrenfried and rebuilding his reputation.
In the early 1980s, Myers’ relationship with New Zealand Breweries — now called Lion Breweries — began to deteriorate. This was important because Lion owned the other 50 per cent of New Zealand Wines and Spirits, Campbell & Ehrenfried’s main asset.
When the relationship reached an impasse in June 1981, Myers exercised his “put option” that required Lion to purchase his 50 per cent of NZWS. Myers appointed Alan Gibbs to represent him in the arbitration process while Lion chose Sir Thaddeus McCarthy, the 74- year- old former President of the Court of Appeal.
The parties were a long way apart as Lion wanted to pay about $ 13m for the 50 per cent NZWS stake whereas Campbell & Ehrenfried was looking for $ 32m.
Meanwhile, Myers had a much bigger game plan when he walked into the office of Wellington stockbroker Jarden & Co in the spring of 1981. Jarden’s partners were stunned when he told them he wanted to buy 15 per cent of Lion on market.
They were astonished because the Wellington firm had no previous association with Myers. He was Auckland blue blood — Kings College, Northern Club etc — and Auckland businessmen usually used Auckland stockbrokers.
On November 16, 1981 Jarden quickly accumulated 15 per cent of Lion on a first come, first served basis from Wellington institutional investors. The response was so strong that Myers decided to purchase 19.9 per cent of Lion at a total cost of $ 28m, close to $ 150m in today’s terms.
The following day Myers delivered a giant Moet champagne bottle, well over two feet tall, to the Jarden office. It was an astute decision to use Jarden because the Wellington stockbroker had a close relationship with Lion’s institutional shareholders.
The Lion share purchase, and the huge bottle of Moet, were forerunners of boom times ahead on the NZX. Myers spent $ 28m, mostly borrowed, to purchase 19.9 per cent of a major listed company. This was a huge risk as the final NZWS sale price had yet to be determined.
The arbitration process determined that Campbell & Ehrenfried received $ 24m for its 50 per cent NZWS holding, Myers was appointed Lion CEO and the brewer sailed through the 1987 sharemarket crash relatively unaffected as it had remained focused on it core business under Myers’ stewardship.
The next controversy was Lion’s takeover of L. D. Nathan in 1988. The deal was severely criticised because Lion offered Fay, Richwhite & Co $ 9.20 cash per share for its 35 per cent stake while all remaining shareholders received one Lion share, worth $ 5.60 at the time, for each L. D. Nathan share.
Malaysian Breweries, which owned 22 per cent of Lion, argued in court that Lion paid a much higher price for Fay, Richwhite’s holding because the latter was warehousing shares for Myers. The courts found in favour of Myers, as did subsequent enquiries by the Securities Commission and NZX.
The two- price deal for L. D. Nathan left a sour taste with many Lion shareholders, including Malaysian Breweries, which sold out and purchased a controlling stake in Lion’s archrival DB Group.
Myers’ biggest and most successful deal was Lion Nathan’s purchase of 50 per cent of Alan Bond’s Australian brewing assets in 1990 and the remaining 50 per cent two years later. These transactions were a huge success and were the primary driver behind Lion Nathan’s strong share price performance in the late 1990s and early 2000s. The Australian operations represented 75 per cent of group assets and 80 per cent of operating profits.
The next big controversy occurred on April 27, 1998 when Kirin announced it would purchase 45 per cent of Lion Nathan at $ 5.40 a share. As the transaction was prior to the introduction of the Takeovers Code, the Lion Nathan directors were able to jump to the top of the queue and sell most of their shares ahead of other shareholders.
Myers sold 85.66 million shares at $ 5.40 each for a total realisation of $ 463m.
The Australian Financial Review had this to say about the Kirin deal: “One suspects that if a corporate Titanic sank in New Zealand waters, the captain and the officers would be the first to safety, all quite legal of course”.
Exactly 11 years later, on April 27, 2009, Kirin and Lion Nathan agreed to terms whereby Kirin would acquire the remaining shares for A$ 12.00 each. Lion Nathan shareholders approved the scheme of arrangement on September 17, 2009.
Thus, Lion’s valuation had increased from:
Just $ 140m when Myers acquired his initial interest in November 1981
To $ 1.4b just before it purchased 50 per cent of Alan Bond’s brewing interests in 1990
To $ 3.0b when Kirin bought its initial 45 per cent in 1998, and
$ 8.1b ( A$ 6.4b) when Kirin gained full control in 2009.
Myers deserves most of the credit for this as he was managing director of the company between 1982 and 1997 and the Australian brewing acquisition has been the most successful offshore acquisition by a New Zealand company, by a wide margin.
But more than anything else Sir Douglas Myers was his own man; he did things his way. He didn’t get caught up in the speculative euphoria of the 1980s and he purchased the Australian brewing assets when most New Zealand businessmen were selling their offshore assets.
His focused and long- term business approach delivered fantastic returns for Lion shareholders.
Disclosure of interests: Brian Gaynor is an executive director of Milford Asset Management.