The Shoeshine Column: Sour smell rises from fish move

Friday 12th May 2000

Political meddling sinks sensible Sealord deal

When Brierley Investments chief executive Greg Terry opens his mouth interesting statements can emerge.

The government this week pulled the plug on foreign bids for BIL's 50% of Sealord.

Terry told reporters the decision "doesn't have any effect on the value of the company or its profitability so it shouldn't affect the offer price."

If Terry seriously thinks excluding seven out of eight bidders won't affect the price the remaining bidder offers then he has no business running an investment company. His comment was no doubt prompted by marketing considerations.

The same considerations must have prompted his description of Sealord as "arguably our best-performing asset," generating a 20% return over the seven years it has been held.

BIL and the Treaty of Waitangi Fisheries Commission bought Sealord from Carter Holt Harvey in 1993 for $355 million or $177.5 million apiece.

Terry's 20% takes the value of BIL's stake to $213 million. So the average annual growth rate has been 3.1%.

BIL would have done better leaving its money on bank deposit. The scary thing is that when Terry says it's their top performer he's not exaggerating much.

Even so Sealord's financial performance has picked up markedly in the last year or two and it is gaining a reputation as an efficient and innovative outfit.

So the coalition's decision to restrict bidding to the Sanford/Amaltal joint venture has sent shock waves around the business community.

Its right to do so is enshrined in the 1996 Fisheries Act, which says foreigners can't buy more than 24.9% of a New Zealand company holding fish quota without getting government permission.

The government can authorise a larger stake if that's in the national interest. In this case, said Finance Minister Michael Cullen, ministers weren't satisfied any of the overseas bidders met the criteria.

These are laid out in section 57 of the act which says a holding of more than 24.9% is in the national interest if it will, or is likely to:

A - create new jobs, or save jobs from being lost;

B - attract new technology or business skills to New Zealand;

C - increase export markets or create new ones;

D - increase market competition, efficiency, productivity or domestic services;

E - bring additional investment for "significant development;" or

F - increase New Zealand fish processing.

Plainly any decent-sized, competitive foreign partner for Sealord could deliver on B, C, and E at the very least.

Shoeshine's inquiries reveal two at least of the bidders were blue-chip companies that would have been a perfect fit for Sealord. They would have added distribution and marketing all over Asia and strong synergies in raw material supply.

So how can Cullen and his cabinet colleagues find there is "no national interest"?

Lest any minister find him or herself backed into a corner over specifics, the act provides a classic "out." They can refuse permission on the grounds of "such matters that the minister, having regard to the circumstances and the nature of the application, thinks fit."

So much for the foreign bids. Now let's look at a "counterfactual" - the sale of BIL's stake to Sanford/Amaltal.

Create new jobs? Hardly. Where two companies in the same business in New Zealand are effectively merged it's much more likely jobs will be lost, although that might increase productivity.

New technology or business skills? Shoeshine suspects strongly technology and marketing know-how would flow from Sealord to Sanford, not the other way around.

In fact it's hard to see how Sanford/Amaltal would satisfy any of the criteria of the national interest checklist. But of course it doesn't have to.

The same applies to BIL, if it decides not to sell. It can't deliver new export markets, technology or business skills. The fact it is looking to sell suggests it isn't keen to plough in more capital. The return it has had from its seven-year involvement suggests it has been a poor steward, full stop.

Why has the cabinet taken a line which cuts across the desires of both Sealord's owners? Pure politics.

For one thing, it's hard for a centre-left government elected on a platform of "not selling the farm" to make any decision that increases foreign ownership of New Zealand assets, no matter how much sense a foreign sale makes.

True, it could have blocked Singapore Airlines' bid for 25% of Air New Zealand. But the B shares SIA bought were already available to foreigners and were already, polite fictions apart, held by a foreign company - BIL.

Then there's the risk Maori activists would latch on to the issue and kick up a fuss. Ngapuhi's Dick Dargaville this week threatened the commission with legal action if it didn't exercise its pre-emptive right to the BIL stake, saying the original brokers of the fisheries settlement had always intended Sealord to be Maori-owned.

Maybe. But it's doubtful the commission can afford it. The group has cash of only $35.5 million and is known to be debt-averse.

The only way forward now is for it to buy BIL's stake and onsell 24.9% to a foreign partner. If it can't do a deal the losers will be its Maori stakeholders.

Meanwhile the local representatives of the knocked-back bidders are outraged with the government's 11th hour bombshell. "We're in danger of becoming known as the Zimbabwe of the South Pacific," one exaggerated.

Many weeks of hard work and a lot of money were invested in the bidding process. If this is the standard of commercial good sense and political courage we can expect from our new government an already shell-shocked business community still has much to fear.

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