Death of an empire

Fletcher fades with a whimper

- Bill Rosenberg


Over the last year, decisions from the Overseas Investment Commission (OIC) have chronicled the dismemberment of one of the most significant companies in New Zealand’s commercial history: Fletcher Challenge Ltd (FCL). Descended from the Fletcher empire that thrived on State housing and other public works under the first Labour government in the 1930s depression, Fletcher Challenge (after numerous takeovers and mergers), its board and top managers, became central to the New Zealand economy and politics. Its former head, Sir Ron Trotter, was one of the most vocal supporters of Rogernomics and its successor "structural adjustment programmes" and a prominent member of the Business Roundtable. On the other hand, the leading representative of the Fletcher dynasty remaining in the company, Hugh Fletcher, has been a critic of the neo-liberal economic experiment, while still pursuing the transnationalisation of Fletchers itself – ultimately leading to its splitting apart and sale to overseas control. Its adventures overseas – particularly in Canada and Chile – drew huge public criticism, and, in Canada, angry and bitter industrial action.

That is not to say that FCL was really a New Zealand company: in the last decade, its overseas ownership rose to around 50%, though arguably it was still controlled in New Zealand (while having to rely heavily on overseas investors). In August 1999, the OIC withdrew its exemption from the Overseas Investment regulations and recognised that it was in fact an overseas company. In May 2000, the OIC reported that FCL was owned

  • 39% in the USA
  • 37% in Aotearoa
  • 10% in Australia
  • 9% in the UK
  • 5% in Singapore

The break up was blamed on the failure of FCL to make the best of the split of its shareholding into four "targeted" divisions – Paper, Forestry, Energy and Building. "Dr Death", Rod Deane, fresh from making Telecom one of the most disliked and ruthless companies in New Zealand, took over as Chairman, and with his usual lean efficiency proceeded to carve the company up.

The importance of the company is obvious from the OIC decisions reported below. Only the sale of Fletcher Building, which will remain as a standalone company, is not covered.

May 2000: Norske Skogindustrier Of Norway Buys Fletcher Paper

In May 2000, Norske Skogindustrier ASA of Norway gained approval to acquire Fletcher Challenge Paper. FCP includes the Tasman Pulp and Paper Mill at Kawerau, plus substantial assets overseas including Canada and Australia. It owns 510 hectares of land in Aotearoa in the Bay of Plenty around Kawerau, Whakatane and Tauranga, and an additional 88 hectares of leasehold land in the same region.

FCL had tried to sell off FCP to its 50.8%-owned Canadian associate, Fletcher Challenge Canada, in 1999 (see our commentary on the October 1999 OIC decisions), but failed.

According to the OIC,

"Norske Skogindustrier ASA is a major international producer of printing paper and has a strategy of being one of the leading players in the worldwide paper industry. The Applicant desires to increase its production capacity and obtain full global coverage. This will be achieved through acquisitions rather than building new capacity, and the acquisition of Fletcher Challenge’s Paper Division, a major producer of newsprint and pulp, offers such an opportunity… The major asset of Fletcher Challenge’s Paper Division in New Zealand is the Tasman Pulp and Paper Mill at Kawerau, which is viewed as playing a strategically important role in the future operations of the Applicant in the Asia-Pacific market".

Given that expansion "will be achieved through acquisitions rather than building new capacity", it seems unlikely this will result in anything but the takeover, and pressure on New Zealand assets to perform as part of the intra-firm trading of their new owner. To the extent that FCP was still locally owned, it also means the loss of dividends from the overseas assets of FCP, and increased exodus of dividends.

Norske Skog described its acquisition as meaning that

"Norske Skog is now the world’s second largest newsprint manufacturer, with 13% of global production capacity. Norske Skog has 11,000 employees, its turnover is more than 30 billion Norwegian kroner, and it has 21 whole and partly-owned mills in 13 countries on five continents. Total production capacity is 5.8 million tonnes of paper, including magazine paper and improved grades. Norske Skog also produces one million tonnes of market pulp".

It said that it was "the largest acquisition any Norwegian company has ever made outside Norway" (Press release, "Largest acquisition in Norway’s history completed today", 28/7/00 – see

For examples of environmental protests against Norske Skog’s activities see (17/4/97 – Urgent Appeal to Spread Word That Norske Skog Broke Environmental Promise); and (12/3/97 – Urgent Request for Norske Skog to Change Their Old-Growth Policies).

The sale was at a price that surprised even FCL itself: approximately $5 billion. This was an 83% premium on both the average trading price of the shares during the 12 months preceding the offer, and the closing price on the day prior to the announcement. The sale paid off 60% of the group debt – an obstacle that contributed to the failure of the planned Fletcher Challenge Canada buy-out in 1999.

It was opposed by small shareholders’ watchdog, Max Gunn, who at the meeting to approve the sale, denounced such a "material heritage" going overseas, describing it as an "unmitigated disaster". He described FCL Chairman, Roderick Deane, as a "grossly over-paid puppet", and other directors responsible for the sale as "traitors to the economy of New Zealand and wimps who should be replaced" (Press, 5/7/00, "Huge support for Paper sale", p20).

Norske Skog did not hold on to the Kawerau Mill for long. In 2001, it passed it on to the largest forestry company in Aotearoa, Carter Holt Harvey Ltd. CHH received OIC approval to acquire the Tasman Pulp Mill at Kawerau, Bay of Plenty for a suppressed amount (but see below) in March 2001. CHH is 51% owned by International Paper Company Ltd of the USA, 5.12% by Franklin Resources Inc of the USA, 5.11% by Dellaware International Advisors Ltd of the UK, and 5% in small shareholdings in Australia. A further 13.77% is overseas owned, leaving only 20% of the shares owned in Aotearoa.

CHH applied for Commerce Commission approval for the purchase in January 2001. Announcing the application, the Commission proclaimed that the proposal involved "two of the world’s biggest forestry companies" – Norske Skog and International Paper ("Carter Holt Harvey applies for clearance to acquire Norske’s Tasman pulp mill", Commerce Commission Media Release 2001/8). In its decision clearing the sale (decision number 424), the Commerce Commission noted:

"CHH is New Zealand’s largest forest products company and its largest pulp and paper producer. CHH is listed on both the New Zealand and Australian Stock Exchanges and has substantial interests in forests, wood products, pulp and paper, tissue, packaging and building products. Its business groups include CHH Forests, CHH Pulp & Paper, CHH Wood Products, CHH Panels, CHH packaging, and CHH Tissue. CHH Pulp & Paper owns the Kinleith kraft pulp mill at Tokoroa. It also operates a paper mill at the Kinleith site, as well as a cartonboard plant at Whakatane and a paper recycling operation at Penrose".

It described Norske Skog as follows:

"Norske is the second largest newsprint producer in the world. The company is based in Norway and is listed on the Oslo Stock Exchange. Norske operates 21 mills in Europe, Australasia, North America, South America, and Asia. Norske purchased Fletcher Challenge Paper in July 2000, now making it the leading supplier of newsprint in Asia, South America and Australasia. In New Zealand, in addition to the Tasman kraft pulp mill, Norske operates a mechanical pulp plant as part of its paper mill, which satisfies the majority of its pulp requirements. The paper mill supplies all of New Zealand’s newsprint".

As to the Kinleith and Tasman mills:

"The Kinleith and Tasman kraft pulp mills are the two main suppliers of pulp, and the only suppliers of kraft pulp, in New Zealand. There are also a number of mechanical pulp mills, such as the Pan Pac pulp mill near Napier, the Winstone International pulp mill near Ohakune, and the CHH mechanical pulp mill at Kawerau (integrated with CHH Tissue). As noted above, Norske Skog also operates a mechanical pulp mill at Kawerau".

The purchase therefore gives CHH a monopoly over kraft pulp supply in Aotearoa, and domination of pulp supply in general. The Commission also notes there is very little pulp imported into Aotearoa (p20), and most of the pulp production is exported. Even though imported kraft pulp would be more expensive than that manufactured in Aotearoa (and the two companies have raised their prices to this level!), and is rarely imported, the Commission concluded that imports provided sufficient competition:

"Although there is no evidence of significant volumes of imported kraft pulp into New Zealand, domestic prices appear to have been set at or close to import parity, and this is likely to act as a competitive constraint on the combined entity".

The Commission looked at seven markets affected by the takeover: production and supply of

  • market kraft pulp (excluding fibre cement pulp) in New Zealand
  • market kraft fibre cement pulp in New Zealand
  • bulk liquid chlorine in New Zealand
  • hydrochloric acid in New Zealand
  • sodium hypochlorite in New Zealand
  • crude sulphate turpentine and crude tall oil in New Zealand

and purchase of pulp fibre in the central North Island.

In summary, while the Commission acknowledged that "the proposal would leave CHH with large market shares in all seven markets",

"However, after extensive interviews with 13 major companies in the markets, independent sawmills and downstream users including users of packaging materials, the Commission concluded that, in this case, large market share would not equate to dominance. Pulp products are traded internationally in large quantities. In general terms, the factors preventing dominance in New Zealand markets are the ability of CHH customers to import products, the ability of CHH suppliers to export products and, in some markets, the countervailing power of customers or suppliers".

Late in March, CHH announced it had bought the Tasman mill for $311 million. It aimed to extract $20 million in savings from operating the two mills, which are only 80 km apart as the crow flies, without job losses. Norske Skog will still own and operate the paper making operation at the mill. (Press, 27/3/01, "CHH sees savings in Tasman mill buy", p12).

Shell And Apache Take Fletcher Energy

In October 2000, Shell Exploration Company BV gained OIC approval to purchase Fletcher Challenge Energy (FCE) for a sum "to be advised". However, the sale was a long and tedious process that was settled only in March 2001, five months after the OIC’s approval.

Shell, the second largest oil company in the world, is owned 60% by Royal Dutch Petroleum Company (NV Koninklijke Nederlansche Petroleum Maatschappij) of the Netherlands, and 40% by Shell Transport and Trading Company of the UK.

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 began with the smell of blood in the air, following the high price gained in the sale of Fletcher Paper. Another of the giants of world oil, Chevron (Socal, owner with Texaco of Caltex) was also rumoured to be a 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", p21). However things moved slowly towards Fletcher Challenge putting its division on the block.

In August 2000, 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 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, liquified petroleum gas (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.


… 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:



Field Owners

1999 Gas Production

















































(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 concluded 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
  • the TAWN gas fields, including the pipeline from the fields to Contact Energy’s New Plymouth power station;
  • the Ngatoro field "except all potential reservoirs deeper than the currently producing Miocene age Mt Messenger sands" including the pipeline from the Kaimiro field and the Ngatoro field;
  • the McKee field including the pipeline to Methanex;
  • the Kaimiro field "except all potential reservoirs deeper than the currently producing Miocene age Mt Messenger sands"
  • the Mangahewa field "except all potential reservoirs deeper than the reserves contained in the MA-72 Kapuni Group reservoir".

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 US 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 $US6.75 billion in assets".

The original deal offered FCE shareholders in October 2000

  • $US3.34 a share in cash (approximately $NZ8.30 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", p34).

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", p18).

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 $US3.55 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 $US3.70 in cash, later raised to $US3.85, 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 $US3.55 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 57% and controlling ownership of Woodside Petroleum, manager (and owner of 34% 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", p15):

"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", p32). 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 Forests

Fletcher Forests was appointed to be the remaining Fletcher Challenge presence on the stock market as Fletcher Challenge Forests Ltd (FCF).

In March 2001, Credit Suisse First Boston Corporation, owned by Credit Suisse Group of Switzerland, was given OIC approval to acquire up to 27% of Fletcher Challenge Forests Division, valued at $167,853,413. The purchase was as a result of Credit Suisse First Boston underwriting an issue of FCF preference shares which were intended to raise $427 million to repay debt, as part of the break-up.

However, according to the OIC, Credit Suisse First Boston

"as underwriter of the Rights Offer has been required to purchase 671,413,653 of the preference shares (representing 27 percent of the total shares of FCF) which were not subscribed for under the Rights Offer. The Applicant’s involvement was solely as underwriter of the Rights Offer, and they do not have any intention to invest strategically in FCF. It is the Applicant’s intention to sell down the any shares which they acquire under their underwriting obligations in a controlled manner, in a reasonable timeframe. In this regard the Applicant has already entered into an agreement to on sell 10.5 percent of the total shares of FCF".

The land that FCF states it controls is significant:

110,825 hectares of freehold comprising:

  1. 75,687 hectares situated at various addresses in the Bay of Plenty/Coromandel, Whakatane, Opotiki, Rotorua and Taupo areas; and
  2. 35,137 hectares situated at various addresses in Gisborne and Hawke’s Bay areas

43,380 hectares of leasehold comprising:

  1. 28,305 hectares situated at various addresses in Bay of Plenty, Whakatane, Opotiki, Rotorua and Taupo areas; and
  2. 15,075 hectares situated at various addresses in the Hawkes Bay area.

This totals 154,205 hectares – considerably less than the 288,000 hectares it has told the New Zealand Forest Owners Association it owns or manages ("New Zealand Forest Industry Facts & Figures, 2000/2001", publ. New Zealand Forest Owners Association, New Zealand Forest Industries Council, and Ministry of Agriculture and Forestry, p5). Presumably the 134,000 hectare difference lies in forest cutting rights, whose sale is now exempted from requiring OIC approval – despite their conferring considerable control over the land.

It is not clear where its half ownership of the ill-fated Central North Island Forests Partnership fits into this. This partnership with Citic of China has 181,683 hectares of Crown forestry licences, 189 hectares of forestry cutting rights, 1,857 hectares of freehold land and 169 hectares of leasehold land, mostly in the Kaingaroa forest in the Rotorua area. That "partnership" has dissolved acrimoniously after Citic accused Fletchers of selling the logs too cheaply to Fletcher Challenge Paper mills. All parties (except the banks) appear relieved that it is now in the hands of receivers, having failed to make payments on its $1.48 billion debt to an international syndicate of 12 banks.

The ownership of FCF was given as 7.9%, Xylem Fund ILP, USA, plus listed shareholdings in Aotearoa (50.5%), USA (29.7%), UK (7.1%), Australia (3.6%), Japan (1.1%), and Canada (0.1%).

Rubicon Buys Challenge Petroleum And Trees and Technology

Part of the wash-up of the FCL dismemberment was to create a new company, Rubicon Ltd. It was sold to the sharemarket as a new technology company (what else!) because of its Capstone and forestry genetic engineering interests, but no-one seemed very convinced. In March 2001, Rubicon gained OIC approval to acquire a number of the assets it was bequeathed. That it required approval was interesting in itself: like the Fletcher empire at its end, Rubicon is largely overseas owned. Indeed its shares have been issued to existing Fletcher Challenge Energy shareholders. Only 37% of Rubicon’s shareholding remains in Aotearoa; 39% is in the USA, 10% in Australia, 9% in the UK, and 5% in Singapore.

First, Rubicon acquired Challenge Petroleum Ltd, the competitor to the major oil companies in Aotearoa. A competitor perhaps, but not a New Zealand one. The price was "to be advised". Rubicon acquired it from Shell Corporation Ltd, BV which got it as part of Fletcher Energy. Challenge owns 2.8 hectares of land at Omata Tank Farm, Centennial Drive, New Plymouth, Taranaki and 2.2 hectares of leasehold land at Timaru Tank Farm, corner of Dawson and Hayman Streets, Timaru, Canterbury.

Despite claiming to the OIC that the acquisition of Challenge Petroleum will produce exceptional results such as that it

  1. is likely to achieve cost efficiencies and other synergies within the Challenge retail business;
  2. allow a strong shareholding interest to generate significant confidence in the Challenge brand to continue to compete in the retail petrol stations and related fuel terminals;
  3. enable financially viable investment in the petroleum retail sector in general; and
  4. provision of continued consumer choice and improved customer service with the backing of Rubicon’s knowledge-based technologies;

in fact Rubicon quickly put it on the market. In June, the Commerce Commission approved its sale to Caltex, the smallest (by local market share) of the four major oil transnationals in Aotearoa. It was sold for about $50 million. Rubicon had paid $20 million for both it and a Brisbane fuels terminal – which it had earlier sold for $23 million (Press, "Sale boosts Rubicon", 29/6/01, p14).

Second, Rubicon is acquiring the Tree and Technology business of FCF, again for a sum "to be advised". This includes:

  • 122 hectares of freehold land and 26 hectares of leasehold in the Bay of Plenty; and
  • 12 hectares of freehold and 34 hectares of leasehold in the Wairau Valley, Marlborough.

Rubicon is also acquiring the following assets from FCF, which include genetic engineering projects: FCF’s

  • 31.61% interest in ArboGen LLC, a forest bio-technology joint venture with International Paper and Westvaco;
  • Radiata and Eucalyptus clonal development business;
  • 2.95% shareholding in the Genesis Research and Development Corporation, a New Zealand publicly listed company (which engages in medical and pharmaceutical research and development);
  • South American forests and operations.

Why the spin-doctors dreamed up "Rubicon" for this company is not immediately obvious. Certainly, having crossed it, we should turn around, look back, and consider the significance of this poignant and monumental failure of New Zealand capitalism which the Fletcher empire embodied.

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Foreign Control Watchdog, P O Box 2258, Christchurch, New Zealand/Aotearoa. August 2001.


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