Takeovers highlight gap in market
The sale of Vodafone NZ for $3.4 billion is the latest of a flurry of takeover activity involving some of this country’s most recognisable names. While these deals – from Trade Me to Restaurant Brands to Tip Top to Vodafone – will benefit shareholders of the acquired firms (not to mention a few investment bankers) what does it tell us about the state of the capital markets and the health of the economy?
New Zealand First described the sale of Fonterra’s ice cream brand Tip Top to British-based Froneri as an “alarming trend”, with leader Winston Peters saying it was a sad day for New Zealand.
The Acting Prime Minister implied Tip Top’s fate was sealed by poor investment decisions made by Fonterra’s former top management which led to an added-value company being lost to overseas ownership.
That’s true to some extent – Fonterra announced the sale because it needed to reduce debt and realign its investment portfolio after taking huge write-downs on its Chinese business.
But the fact that overseas buyers are snapping up our companies is a separate issue. It is evidence that our firms are well regarded and attractive to foreigners who are easily able to access cheap credit and outbid potential local bidders.
The problem is not so much the takeovers themselves – in fact, M&A activity is usually healthy for the capital markets.
The problem is there are no new firms joining the public markets, while at the same time it’s very difficult for our own relatively small private equity firms to compete with the big global players.
The New Zealand Superfund has been called on to participate more when it comes to investing in local firms, but that doesn’t mean it should engage in a bidding war for assets that may require additional capital to grow, such as Tip Top and Trade Me.
The Vodafone NZ sale bucks the trend somewhat with local infrastructure and utility investor Infratil taking a 50 per cent stake alongside Canadian firm Brookfield.
Infratil is regarded as a patriotic investor. Its founder, the late Lloyd Morrison, was a champion of New Zealand business and the capital markets.
Infratil has demonstrated in the past with its acquisition of Shell NZ that it can add value to its purchases and then list them on the sharemarket. It may well do so again with Vodafone.
The New Zealand stock market has been a very strong performer over the past decade and recently broke through the 10,000 level for the first time. But non-domestic interests now control more than 50 per cent of the stocks on the NZX.
The industry is currently engaged in a review of the capital markets to identify strategies to increase domestic participation and encourage private businesses to list.
The latest rush of takeover activity simply highlights how important that task is. That’s where the focus should lie, rather than lamenting overseas takeovers of successful companies.