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Simpson Grierson M&A Bulletin - Q3 2019

September 20, 2019

Contacts

Partners Robert McLean, James Hawes, Don Holborow, Hugh Lindo, Andrew Matthews, Michael Pollard, Michael Sage, Cath Shirley-Brown
Senior Associates Victoria Anderson

Overseas investment M&A and capital markets Climate change (inc Zero Carbon Act and Emissions Trading Scheme)

The Simpson Grierson M&A Bulletin (formerly known as Asia Focus) aims to give a concise update on the latest news and trends related to mergers and acquisitions in the New Zealand market, with particular focus on primary industries. 

THE MARKETS

New Zealand Dollar [link]

The Reserve Bank of New Zealand has cut the Official Cash Rate to a record low of 1.0% from 1.5%.

RBNZ Governor Adrian Orr said the cut was needed due to significant headwinds at home and aboard, and that the economy needed more stimulus to help counter this weaker outlook.

The New Zealand dollar has fallen to USD 64 cents in reaction to the cut.

NZD/USD since 1 January 2019 (Source: Yahoo Finance) 

Share market [link]

The NZX 50 has risen 9% since May and reached a record high of 11,218 on September 6. There have been two IPOs since May, breaking a 2 year listing drought.

  • Napier Port listed on the NZX on 20 August 2019. Investors paid $2.60 a share through an IPO for 45 per cent of the port company, raising $234m.
  • Cannasouth, a medicinal cannabis company, listed on the NZX on 19 June 2019. Investors paid $0.50 a share through an IPO, raising $10m.

NZX 50 since 1 January 2019 (Source: Yahoo Finance)

Capital Markets 2029 Report [link]

The Capital Markets 2029 report was released on 9 September with several recommendations designed to promote stronger capital markets. Recommendations made include:

  • Simplifying disclosure requirements for regulated offers;
  • Allowing local bodies greater flexibility in accessing capital markets to fund infrastructure projects; and
  • Increasing awareness through promotion of pathways to accessing the capital markets.

A Simpson Grierson FYI on the report is linked above.

Residential Property Market

The residential property market around New Zealand continues to be steady. July saw the highest number of properties sold in that month for 3 years.

It was also the first time in eight months that the number of properties sold around the country have increased. This is thought to be linked to the ruling out of the Capital Gains Tax, as well as a general renewal of confidence.

  • Median house price increased from last year by 4.5%, to $575,000.
  • Median house price remained flat in Auckland, at $830,000.

Dairy prices [link]

Dairy prices at the latest Global Dairy trade auction remained steady, after a period of drops. Prices have dropped around 7% since May, from 1072 to 992.

Fonterra’s Farmgate forecast has reduced as a result, to $6.30-$6.40.

AGRIBUSINESS

Fonterra Announces Loss [link]

Fonterra has announced they will lose as much as $675m this year and will not be paying a dividend to farmers. The loss is partially driven by accounting adjustments from write downs of $820m.

CEO Miles Hurrell insists that the co-op remains strong at its core, with strong cashflow and reduced debt.

Changes to Dairy Industry  [link]

The government has announced changes to the Dairy Industry Restructuring Act, the primary law that regulates the New Zealand dairy market.

The main change allows Fonterra to refuse milk supply from farmers that are non-compliant with its terms and standards of supply.

The changes are currently being drafted into a bill that will be presented before parliament.

Westland Sale [link]

Westland Co-operative Dairy Company, New Zealand second largest dairy co-op, has been bought by Inner Mongolia Yili Industrial Group for $588m.

  • Westland shareholders voted 94 per cent in favour of the sale to Yili.
  • Yili officially took control of Westland on 1 August 2019.

Agriculture in the Emissions Trading Scheme [link]

Agriculture looks set to join the Emissions Trading Scheme (ETS), New Zealand’s main tool for reducing greenhouse gas emissions. Agriculture accounts for half of total greenhouse gas emissions in New Zealand, but is excluded from the ETS.

  • The Interim Climate Change Commission proposes bringing agriculture in by 2025, at a 95% discount rate, which equates to 1c per kilogram of milk solids.
  • The agriculture sector has cautiously welcomed the report.
  • New Zealand aims to reach net zero emissions by 2050.

China now biggest buyer of NZ Beef [link]

China has overtaken the United States as the biggest market for New Zealand beef.

  • Export of red meat to China has increased by 79% in the past year, growing since the arrival of African Swine Fever in China, which has cut production in China by 25-30%.
  • Meat is New Zealand’s second biggest export earner.

MINING AND EXPLORATION

Coal Mining Permit Granted to Bathurst [link]

The government has granted a coal mining exploration permit to Bathurst Resources Limited in Waikato. The permit gives Bathurst the right to explore for coal and evaluate the feasibility of mining.

An additional permit is required to actually carry out mining activities.

Foulden Marr Mine [link]

Plaman Resources, who had applied to the Overseas Investment Office to purchase 432 ha around Foulden Maar diatomite mine has gone into receivership and have withdrawn their application.

The Save Foulden Maar Society had opposed the development, due to fossils and climate records found on the site. Plaman still owns 42 ha on the site and has consent to mine that land.

FORESTRY

Log Prices Fall [link]

Log prices in New Zealand dropped about 25% to their lowest level in four years in July. The drop was due to a downturn in demand from China caused by an influx of cheap timber from Russia and Scandinavia.

  • Prices recovered slightly through August.
  • Logs are New Zealand’s third biggest export by value.

One Billion Trees Update [link]

The government is funding $442,000 worth of research in native seedling production to try reduce the barriers to tree planting.

  • 145 million trees have been planted in the programme so far.
  • The government aims to plan 1 billion trees by 2028.

Increase in Overseas Forestry Investment [link]

Forestry deals approved by the Overseas Investment Office have increased from 2018.

  • $3.6b worth of deals were approved, compared to $838m for the comparable 2018 period.
  • Factors leading to this increase are thought to include grants under the one-billion trees programme, emissions trading scheme carbon credit income and relatively less stringent criteria for overseas buyers.

RECENT M&A NEWS

Prolife Foods [link]

Profile Foods, New Zealand’s largest importer, manufacturer and marketer of buts, dried fruits, snacks and cereals is up for sale.

  • First round bids are currently being administered by PwC.
  • Prolife had a turnover of $300m last year, and supermarket deals in New Zealand, Australia and Singapore.

Huka Lodge Receivership and Sale [link]

Huka Lodge luxury retreat is to be sold by receivers to settle a dispute between two businessmen. The sale will not affect the day-to-day operations of the lodge.

Fiber Fresh Feeds [link]

Animal feed company Fiber Fresh Feeds is in receivership and is looking to find a buyer. The family owned company develops animal feed formula for horses and calves and sells to New Zealand, Japan, Australia and the Middle East.

Transdev purchase of Mana Coach and Howick & Eastern Buses [link]

Transdev, a French company who operate Auckland and Wellington’s commuter rail network have bought bus companies Mana Coach and Howick & Eastern Buses. The agreement is subject to regulatory approvals.

East Takaka and Skyfarm [link]

Two second rotation pine forests and associated carbon credits are for sale in the tightly held Golden Bay area of Tasman.

  • The forests have a combined area of 254ha and a net stocked area of 188ha.
  • The forests include 8424 emission units.

Overseas Investment Office Decisions [link]

The OIO has released decisions summaries for May, June and July. They can be found at the link above.

Contributors han.li@simpsongrierson.com