The Dim-Post

January 25, 2012

The Grifter

Filed under: economics,finance,Politics — danylmc @ 1:20 pm

Fran O’Sullivan casts a skeptical eye at Sir Michael Fay’s bid to keep the Crafer farms in ‘New Zealand hands’ (Fay is a tax resident of Switzerland), and reviews some not-very-ancient history:

The most interesting example of the influence game that I can recall was with the September 1990 sale of Telecom to the US “Baby Bells” consortium for $4.25 billion. Business readers will recall that Fay Richwhite and Co (the merchant bank controlled by Sir Michael and David Richwhite) and the Freightways partners Alan Gibbs and Trevor Farmer effectively pulled the deal together for Bell Atlantic and Ameritech and emerged with minor holdings themselves after the share float.

The Baby Bells consortium was not the highest bidder when the then Labour Government put 49.9 per cent of Telecom on the block. The top bid was said to have come from Australia’s Optus.

But as former Telecom chief executive Peter Troughton revealed in a National Business Review article in 2006, a few days before the final bids were due, “I was informed that a non-conforming bid would be submitted, and that the government might be prepared to accept it.”

Other bidders were given just 24 hours to match the Baby Bells’ bid.

The NBR article also reported former Telecom company secretary Martin Wylie saying the change in the rules of the sale was a bad signal. “It was a Mickey Mouse way of doing things. I was somewhat surprised that a transaction of that size would be treated on that basis.” There was more besides including the failure to put appropriate conditions around the sale of a monopoly network.

Fay has recently banged on about the lack of transparency in the OIO’s handling of the Pengxin application.

But that pales in comparison to the extraordinary manoeuvring over the Telecom sale. The rival bidders were treated appallingly. Optus was outraged that the Government switched its sales plans within days of the announcement. But it did not file for a judicial review of the Government’s decision. It just accepted this was the way business was done under the second (sic, fourth) Labour Government.

Also worth remembering what happened after they bought Telecom. The company was loaded up with debt, which the new owners then paid to themselves as dividends and then flicked the heavily indebted company on, having made a fortune. Every developed country in the world enjoyed a nineties dotcom boom – except us, because we didn’t have the  infrastructure, because our telecommunications monopoly couldn’t afford it.

Fay did the same thing with our rail network. There’s no reason to believe he won’t do exactly the same thing here, and that the farms won’t be sold piecemeal to China within a year of Fay purchasing them and gearing them for more debt.

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30 Comments »

  1. wonder if fran knows it was actually the Fourth Labour Govt.

    Comment by Che Tibby — January 25, 2012 @ 1:34 pm

  2. Walter Nash has issued a denial from beyond the grave.

    Comment by Sanctuary — January 25, 2012 @ 1:37 pm

  3. Wow, I’ve never had it succinctly explained why we didn’t suffer in the dotcom crash. I wasn’t around to see that there never was a dotcom boom in the first place. I had just presumed that it happened.

    Comment by Ben Wilson — January 25, 2012 @ 1:50 pm

  4. I would must prefer that both Fay and Richwhite were both sold off piecemeal to Chinese organ harvesters to recoup some of what they managed to loot.

    They embody parasitic capitalism.

    Comment by Gregor W — January 25, 2012 @ 1:54 pm

  5. Every developed country in the world enjoyed a nineties dotcom boom

    Followed as Ben says by a dotcom crash. Which is one reason I migrated to NZ in 2003 – it was a whole lot easier to find an IT job here than in the burnt-out UK market.

    Comment by Rich — January 25, 2012 @ 1:57 pm

  6. Every developed country in the world enjoyed a nineties dotcom boom – except us, because we didn’t have the infrastructure, because our telecommunications monopoly couldn’t afford it.re 90s dot com boom.

    I think this overstates it a little. We had no dotcom boom because people were still shit scared of stocks post ’87 and property offered significant tax advantages.

    Comment by Gregor W — January 25, 2012 @ 1:57 pm

  7. Which isn’t to dispute that Fay is probably looking to buy the farms as a (dubiously) NZ person and then put them in effective foreign control through some sort of offshore derivative/loan agreement.

    I fail to see why talking with a Keewee accent makes one an intrinsically “better” business owner, anyway.

    Comment by Rich — January 25, 2012 @ 2:02 pm

  8. We never had a dotcom boom/crash? Tell that to Telstra, who back in the day had an NZ operation featuring the local head honcho forking out three million of Telstra’s money to play golf with Tiger. Telstra managed to lose several hundred million on the mad idea of setting up a end-to-end network to rival TCNZ, starting in Wellington because that was where all the bosses lived and growth forecasts from fantasy land.

    Comment by Sanctuary — January 25, 2012 @ 2:11 pm

  9. By coincidence I have reached much the same conclusion as you, regarding Sir Michael.

    Comment by David Farrar — January 25, 2012 @ 4:19 pm

  10. @4. I coughed up a cup of tea. And nodded @6.

    “Fay did the same thing with our rail network. There’s no reason to believe he won’t do exactly the same thing here, ”

    Railways and TCNZ were monopolies, these are just a handful of farms, a small % of our landmass. But I agree: he no doubt has DIFFERENT chinese buyers already lined up.

    Comment by Clunking Fist — January 25, 2012 @ 6:08 pm

  11. I’m surprised he hasn’t teamed up with that modern incarnation of a robber baron Kim Dotcom. Seems awefully old school to be trying to wring a few dollars out of dairy farms. Maybe that party with Starboy put him off.

    I wonder if he does actually believe he’s comming to NZ’s rescue with this toxic mix of croney capitalism and patriotism.

    Comment by NeilM — January 25, 2012 @ 8:06 pm

  12. Why doesn’t the Government buy the Krafar farms? If Michael Fay is theoretically able to buy it and sell it off piecemeal to China after a year and make a fortune from it, then an entity with money available to them obviously is able to buy this and turn it into a viable business. And who better than the Government? It will create jobs in one of our most prominent sectors, it will increase the Government’s assets (which is in the dreadful process of eroding), it makes sense to me. Especially since no reputable individual has bid on it as far as I know.

    Comment by Daniel Lang — January 25, 2012 @ 8:07 pm

  13. Always good to see old mates Labour and Sir Michael teaming up again for another go at the asset base.. but this time I suspect the OIC might fail both on the “good character” test.

    JC

    Comment by JC — January 25, 2012 @ 8:12 pm

  14. This may come as a surprise to you, Danyl, but Tranzrail was a crap railroad in everyone of its incarnations for the last 60 years. Fay and the wonderfully named David Richwhite simply picked some the remaining flesh off a very dead carcase. They were a sidebar in a very long decline punctuated with the infusion of large sums of public money, the most recent being the purchase from Toll Holdings. It is of sentimental value to the NZ Labour Party and provides a useful (and economically viable) service to a few very large clients like Fonterra and some forest owners on a small portion of its national network. Otherwise, the rest of us don’t care

    Comment by Tinakori — January 25, 2012 @ 8:35 pm

  15. Despite your moniker, Tinakori, you have forgotten (or more likely don’t patronise) the brilliant service Tranzrail offers Wellingtonians as far north as the Manawatu on a daily basis without the hideous problems faced by other metro public trains services around the world. It may seem third world to you but it is not, and I speak/write from experience. There is much more to Tranzrail than freight.

    Comment by Spitfire — January 25, 2012 @ 9:06 pm

  16. As far north as Palmy North, out, fucking, standing.

    Comment by will — January 25, 2012 @ 9:14 pm

  17. By coincidence I have reached much the same conclusion as you, regarding Sir Michael.

    Though the reflexive forelock tug seems strong as ever.
    “Sir” Michael. Taito Michael? Just because the cunt chiselled himself a title doesn’t mean that we’re obliged to perpetuate it.

    Comment by Joe W — January 25, 2012 @ 9:40 pm

  18. LIke Taiti Phillip “I was misunderstood” Fields – that type of cunt yes?

    Jesus you’re a cunt Joe.

    Comment by will — January 25, 2012 @ 10:13 pm

  19. “Buy land, they’re not making it anymore.”
    – Mark Twain

    Comment by Conor Roberts — January 25, 2012 @ 10:13 pm

  20. Out of interest, who would you sell the farms to Conor?

    The Chinese or Fay and his bunch of shysters?

    Comment by will — January 25, 2012 @ 10:16 pm

  21. Now before you ask what I’d do so you can avoid the question let me enlighten you thus.

    Chinese no for two reasons

    1. political suicide no matter what side of the house you sit on.
    2. the dairy industry needs a corner stone minor competitor to Fonterra and the Crafar farms could provide the entry point.

    Fay no

    1. He’s a geriatric carpet bagger.

    An alternative corporate milk producer

    1. Yes, needed
    2. The government is obviously keen to see Fonterra diversify away from being a monopoly producer
    3. Fonterra if forced to open the kimono and then restructure capital base via stock market listing would provide a new dimension to the NZ capital markets.

    Comment by will — January 25, 2012 @ 10:24 pm

  22. I know compared to the millions he’s chiseled out of the country it’s small beans but am I the only one pissed that the daughter of one of NZ’s richest men got $10000 in NZ on air funding ? I’m sure I’m not her target market but she’s pretty bloody ordinary in my opinion.

    Comment by Raumatibeach — January 25, 2012 @ 10:42 pm

  23. “When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”

    Comment by nadis — January 26, 2012 @ 12:02 am

  24. “Despite your moniker, Tinakori, you have forgotten (or more likely don’t patronise) the brilliant service Tranzrail offers Wellingtonians as far north as the Manawatu on a daily basis without the hideous problems faced by other metro public trains services around the world.”

    According to the almost daily stories in the Dom Post about late and cancelled trains there is nothing brilliant about it. It also relies on very large subsidies. The latter are probably justifiable given the Wellington topography but the quality of service is reminiscent of the old iron curtain Eastern Europe from whence the about to be replaced Ganz-Mavag units were sourced. On a nice day the trips from Wellington to the Coast or the Wairarapa are great. Still doesn’t make it a good railroad. One area where the service has dramatically changed over the years is on the Interislander. The staff now treat passengers as fellow human beings. Under the old regime this was explicitly forbidden.

    Comment by Tinakori — January 26, 2012 @ 10:04 am

  25. Totally off topic:

    3:55 “Do you think Winston will get in?”. Irony at it’s finest given how Peter’s milked this.
    6:35 John and John gossip like schoolgirls. Who is hot or not in ACT?

    Comment by Gregor W — January 26, 2012 @ 12:40 pm

  26. Okay, I think we got our take on Shearer’s tactical nous, or lack thereof:
    Stuff: ” Labour leader David Shearer, who visited one of the Crafar farms yesterday, said he supported the Fay-led bid, which included iwi interests.

    “My feeling is that New Zealanders should be able to buy their own land and we should at least give them the first option to be able to buy it,” Mr Shearer said. “

    Shearer will look a complete tit if Pengxin can dredge up a principal investor who was born in NZ then, aye? Someone to counter Michael ‘Swiss for tax purposes, thanks’ Fay…

    I called for Shearer to quickly re-brand Labour, but even I didn’t think he would be dumb enough to do a Geoff Palmer! (who was tricked in the 1980s into publicly backing a finance firm that went bust straight after he effectively gave it a govt endorsement).

    @ will & Joe – at least Field did time for his crimes…

    @ tinakori – NZ Rail was fully NZ govt owned (and profitable, and had recently electrified most of the NIMT line) until National sold it to Fay-Richwhite-Wisconsin Rail in 1993, after which it got asset stripped (eg selling and leasing back Cook Strait ferries) and no progress until it effectively went bankrupt. Cullen then goofed and let Toll Holdings of Oz take over, with promises of $100m investment if Cullen would give $200m. By the time Cullen bought Kiwirail back off Toll a few years later, we had gone well past the $200m on track upgrades, and there was no sign of the $100m from Toll. All subsequent investment (post 2004) was from govt or ARC… For the record – yes Cullen paid WAYYYY over the top at $650m (should have been $150m tops – he was only buying crocked rolling stock, not tracks or land), but we are at least now making progressive improvements, which 15 years of private ownership delivered none of.

    Comment by bob — January 26, 2012 @ 1:59 pm

  27. I recall hitching a ride home from varsity one day with an old railwayman in the mid-90s. He opined that the sale of the railways was treason (by removing a strategic asset from public control) and therefore all involved should be shot. He also pretty much correctly foretold what would happen as bob has recounted above.

    Comment by Conrad — January 26, 2012 @ 4:01 pm

  28. Ah, Bob (and Conrad) this is a wonderful story of the plucky and
    profitable Kiwi railroad that was ravished by the cads from Fay
    Richwhite and Wisconsin Railroad. It is, unfortunately, not true,
    particularly the bit about the wonderful pre-privatisation railroad.
    The electrified main trunk line was one of the Think Big projects from
    the Muldoon era. and would never have gone ahead on its business
    merits alone. The subsidies and writedowns required to get NZ Rail to
    the point where it made a profit in 1993 were only possible for a
    business owned by a sugar daddy like the government. From memory,
    further writedowns or assumption of debt were also required to flog it
    off. None of this requires me to defend Fay or Richwhite or their
    record as shareholders of the privatised railway. Their stewardship,
    such as it was was simply another variation in a long and rather too
    slow decline which was smoothed at most stages with generous dollops
    of taxpayer money. The unique feature of their ownership was that they were beneficiaries of the government subsidies to the railroad (in the form of real estate, rolling stock, capital) rather than the employees. For most of the post world war two era it sure wasn’t the customers (freight and passenger) who benefited.

    Comment by Tinakori — January 26, 2012 @ 10:18 pm

  29. Trouble is, who do you trust? Fran or Michael?

    Comment by peterlepaysan — January 28, 2012 @ 9:38 pm

  30. Just to take things from the start, Chinese investment = a tiny tiny % of foreign land ownership in NZ (I understand it to be 1% of the total). NZ farmers make virtually no money out of farming, except from when it comes time to sell their farms. Australian banks make big money from our farming (rivers are the big losers). Many NZ farmers are coming to retirement age, *someone* will have to buy these farms in the cases where the kids don’t take them on. The short of it is that we need foreign buyers otherwise agricultural land values will stagnate, and Australian banks won’t like that because they’re over-exposed.
    Is there a difference between a UK/Swiss/Canadian and a Chinese buyer? Not that I can see. Harvard University’s fund owns major land holdings in NZ, because they know it’s good business.
    The ‘public worries’ are just a side show. No farmer is going to say not to sell to foreign buyers. Fay must be laughing at how easy it is to influence the public ‘discourse’ and get people rattled. The ‘angry white middle’ will always respond when they perceive that there is some sort of financial gain occurring that they’re not in on… Yet he’s just using this sentiment to aid him making a small play (sport in his old age?).
    To round this out, take a quote from Key’s recent State of the Nation speech:
    “We are a small economy doing the right things, our banks are in good shape and the Government has managed effectively through the difficulties of the past three years.”
    Interesting how he mentions Kiwibank in the plural, as if we have bankS. Or he talking about those other banks, BNZ, ANZ, ‘our banks’. Because we don’t have bankS. Let’s face it, Aussie banks have the farming sector under lock and key, and nothing, nothing will interfere with their process of slowly grinding away NZ’s agricultural profits. Essential to this is ever-inflating agricultural land values so that farmers can borrow more, and pay more interest (and have more stock).
    The Nats will lay out the red carpet for the Chinese and anyone else with money as it suits our Aussie paymasters. The real losers in all this will be the environment, as regulations currently stand.

    Comment by Gumption — February 1, 2012 @ 12:02 am


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