THE DEALMAKER

Friday 7th July 2000

How one man's vision led to the biggest local acquisition success story seen for many years. GRAEME KENNEDY

explains

A phone call from Clavell Capital executive chairman David Belcher to Ansett New Zealand chief executive Kevin Doddrell more than four years ago began the chain of complex issues, delicate negotiations and multimillion-dollar fund-raising that has culminated in the airline's sale and operation under the Qantas banner.

Along the way, teams from Ansett Australia, News Ltd, Qantas, Ansett New Zealand and Clavell's local investment group met repeatedly to reach agreement on dozens of contractual problems as the Australasian aviation scene continually changed the highly competitive marketing and operating environment.

But it all came together last week with the launch of Qantas New Zealand, the franchised branding under which Tasman Pacific Airlines of New Zealand Ltd will fight for greater domestic market share against long-entrenched rival Air New Zealand.

Mr Belcher, an acquisitions and mergers specialist who has worked in the finance and stockbroking industry for 25 years, first thought of becoming part of an Ansett New Zealand deal after reading the newspapers.

"You learn more about what's going on from the news pages than the financial section, which mostly records history. I saw the Commerce Commission was forcing an ownership change of Ansett New Zealand after Air New Zealand bought 50% of Ansett Australia and it became clear the airline would be on the market," he said.

"I called Kevin Doddrell in late 1996 and suggested that Clavell act in the sale when it came.

"My perception of Ansett New Zealand was of a business losing a bucketload of money and needed to be sold but Kevin enlightened me that that was not the case.

"And tourism is New Zealand's biggest foreign exchange earner, supported by the government and with huge growth - I realised that if we needed a good investment it had to be around the tourism industry.

"I decided then that rather than just acting in the sale, we would put a private equity-style funding structure in place to acquire the carrier."

Mr Belcher formed Clavell with fellow Payne Belcher director Carl Peterson in 1989 after the stockbroking firm was sold to Forsyth Barr in the shakedown after the 1987 crash.

He had joined Payne Belcher forerunner Bidwell Wakeman Payne after dropping out of University of Auckland law and arts courses and at 24 became the youngest member elected to the Stock Exchange.

Rather than merge with a global company or become a small private-client broker, he and Mr Peterson set up Clavell, with seed capital from several non-active shareholders including former Air New Zealand chairman Bob Matthew, as a niche merchant bank focusing on companies below the NZSE top 40.

Clavell has handled some of the country's more notable mergers and acquisitions while maintaining a low profile and long-term client relationships and loyalty.

Mr Belcher regularly contacted Mr Doddrell on progress after his initial phone call until he went to Australia a year ago to talk to Ansett New Zealand chairman Ken Cowley.

"I told him I wanted to put a group together to buy the airline and I was able to convince him that with our history of successes we would be able to put the money together and after two or three trips to Sydney we had settled on a price and got a fairly simple heads of agreement," he said.

"But the detail was one of the more complex things I've ever done. Ansett New Zealand was interwoven with Ansett Australia and News Ltd and we talked with [former Ansett CEO] Rod Eddington in negotiations for the sale and purchase agreement on everything from aircraft leases and spares to training and reservation systems.

"Ansett Australia and Ansett New Zealand had a brother and sister relationship and we had to put it all on an arms' length basis to make it a stand-alone business."

Then came the Ansett New Zealand pilots' strike as Mr Doddrell and management restructured the carrier, Singapore Airlines' attempt to buy Ansett Australia, Air New Zealand's retaliatory strike and Qantas moving in on Air New Zealand - all potentially affecting the Clavell deal.

"By December last year, this was totally consuming me and having secured an agreement and timetable with Ansett Australia and News Ltd, I started putting an investment group together," Mr Belcher said.

"I knew myself and Kevin were starters and I wanted to have Ken Cowley involved - he had been a director since the airline's inception and had vast knowledge of the industry."

Mr Belcher, deputy executive chairman to Mr Cowley in the reborn airline, approached old friends and clients Ian Hendry and Chris Coon of Sovereign Insurance, who didn't hesitate to join the group. He put the proposal to Alan Gibbs on a flight from London - where they were the only two passengers in first class. The Skeggs family, which has had aviation interests in the past, approached Clavell for a slice of the action while Clavell clients were keen to join.

Mr Belcher chose Zazu as the security code-name for the operation - suggested by his daughter and taken from the loyal little bird in The Lion King movie. The name stuck and Zazu Ltd is the holding company for Tasman Pacific Airlines.

Mr Belcher wanted the continued involvement of Qantas, which already had a limited commercial agreement with Ansett New Zealand, and phoned the Australian carrier's chief executive James Strong after settlement in March.

"He was a bit surprised we had been able to do it but was very pleasant and welcoming when I asked for a meeting to talk about extending the relationship," he said.

"We had discussions with Mr Strong, his deputy Geoff Dixon and executive general manager for strategic planning Steve Mann, while on our side I had Kevin, Graeme Campbell [Ansett New Zealand general manager, international and retail] and two people from Simpson Grierson.

"We started by agreeing on a full commercial relationship including code-sharing and lounge access, then we had to think of a new name for the airline and came up with various suggestions including South Pacific Airlines, Triple Star, Spirit of New Zealand and Tasman Pacific.

"But as we got more involved with Qantas it became blindingly obvious - why were we trying to create another brand in the market when Qantas is one of the most recognisable brands in New Zealand and the world and a member of the Oneworld alliance?"

With the decision came a whole new set of discussions - Qantas had never done a franchise before and there were many issues including safety and on-board standards, sub-branding, card-holders, reservations, Oneworld access and co-operative fuel buying.

"The acquisition was extremely complex though only about 10% the size of the $270 million Auckland Savings Bank acquisition of Sovereign but now we have a fantastic business. It's even better than envisaged with the full Qantas relationship.

"I have been upset to see New Zealand assets unnecessarily sold offshore - there is a myth that there is not enough money here but there is plenty to buy good assets. We have been able to put together a group to buy this business more than 80%-owned by New Zealanders and with one of the strongest brands in the world behind it - that's the real buzz for me."

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