The lucky country spends up large in New Zealand

By Martin Thomson and Mark Williamson

Friday 17th September 2004

Figures recently released by the New Zealand Department of Statistics confirm what everyone suspects. Like it or not, Australian companies are investing in New Zealand in greater numbers and carrying larger chequebooks than at any time in the history of the two countries.

Total direct investment from Australia was $NZ29.5 billion at March 31, an increase of more than $8.6 billion or 40% over the same time the previous year. By comparison, total direct investment from the US and the UK stood at $7.4 billion and $5.5 billion, respectively.

A quick review of applications made by overseas people for consent to acquire significant businesses and land under the Overseas Investment Act and regulations tells a similar story: a significant proportion of investment into New Zealand is being made by Australian-owned companies.

Of the 13 applications seeking clearance under the merger provisions of the Commerce Act filed this year, five were from Australian-owned companies.

Merger activity involving Australian interests has not been limited to any one particular industry or sector.

Last year the banking sector saw the acquisition of National Bank by a fully owned subsidiary of ANZ for $5.88 billion, which was a significant contributor to the increase of overall Australian investment into New Zealand for the year. GE Capital Finance Australasia also bought a portfolio of New Zealand loan receivables and securities from AMP Bank for $620 million.

New Zealand's five largest banks, which between them have more than 85% of total banking system assets, are now controlled by Australian banks. This has prompted the Reserve Bank to focus on bank regulatory issues arising from the ownership of banking system assets being concentrated in Australian banks.

Investment activity by Australian companies in the energy sector is significant. Australia's AGL has announced its intention to sell its controlling stake in NGC Holdings, which may result in the sale of the stake from one Australian company to another.

ASX-listed infrastructure investment fund Prime Infrastructure recently announced its purchase of the 53.6% stake in Powerco owned by the New Plymouth District Council, the Taranaki Energy Trust and the Powerco Wanganui Trust for $680 million.

This was hot on the heels of the announcement of the purchase by ASX-listed Origin Energy of 51% of Contact Energy from Edison Mission for $1.68 billion. Both purchases are subject to full takeover offers being made.

Toll Holdings has been active in the transport and infrastructure area, having acquired an 84.2% controlling stake in Tranz Rail (now called Toll NZ).

In the print and publishing industry, ASX-listed John Fairfax Holdings acquired the publishing businesses of Independent Newspapers for $1.188 billion.

Australian-listed property trusts flush with Australian superannuation contributions are increasingly significant players in the New Zealand commercial property investment market. Macquarie Goodman entities have made a number of major property acquisitions in New Zealand, including a 75% interest in Highbrook Development in Auckland's East Tamaki for $68.4 million and the HSBC centre in Albany for $22 million.

ASX-listed Deutsche Office Trust has agreed to buy the NRM Tower in Auckland, currently under construction, for $110.4 million. Australia's Multiplex Property Trust has acquired the South City Shopping Centre in Christchurch from Macquarie Goodman Property Trust for $40.5 million.

These acquisitions were on top of existing significant ownership of New Zealand businesses by Australian companies, including TelstraClear,

IAG and the major banks already discussed.

That is not to say that the traffic has been entirely one way. The flow of direct investment from New Zealand into Australia was $757 million for year ending March 31, with total direct investment standing at $7.8 billion.

Significant acquisitions made by New Zealand companies in Australia include Fletcher Building buying Tasman Building Products and Sky City buying casinos in Adelaide and most recently Darwin.

So what does all this mean?

For policy makers in both New Zealand and Australia, the increasing levels of commercial integration brought about by these acquisitions affirm the steps being taken by both governments to harmonise regulatory regimes as a preliminary step towards a single transtasman economic market.

Greater harmonisation of New Zealand and Australian business laws can only facilitate transtasman investment and associated mergers and acquisitions activity.

Gains can and should be achieved relatively quickly in areas where processes can be harmonised with little or no effect on the substantive application of the relevant law in either jurisdiction (for example, the development of a single form of application for competition merger clearance).

More difficult and time consuming will be those areas where differences arise from a genuine divergence in policy.

For advisers working in the M&A sector, these trends highlight the need to focus on Australia as a potential source of M&A deals involving New Zealand.

This is reflected in the growing number of integrated advisers operating in the M&A market across both countries. Research of potential clients in Australia and their likely acquisition plans is now a necessity.

Going forward, while last year's Australasian investment figures may be exceptionally high, we expect increases in investment generated from Australia to continue as Australian firms seek increased access to alternative yet accessible markets across the Tasman.

Similarly, greater numbers of companies currently operating solely in New Zealand are likely to be looking to expand into the larger markets of Australia, despite the obvious challenges such expansion brings.

Martin Thomson is a partner and Mark Williamson a senior associate in the corporate and financial services group of transtasman law firm Phillips Fox

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