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The O'Brien Column: Long-term effects of Fletcher Energy sale yet to be weighed

Friday 24th November 2000

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Approval of the deal to sell Fletcher Energy to Shell and Apache Oil gave investment markets a timely boost as investors sorted out the benefits.

The Fletcher Energy shareholders were obviously the main beneficiaries. They will get the equivalent of $US1.72 billion in cash and share the actual amount in New Zealand dollars depending on the exchange rate ruling at the appropriate date.

A Fletcher Challenge statement to the Stock Exchange last week put the equivalent amount at $N24.3 billion.

The actual amount flowing into New Zealand will depend on the domicile of Fletcher Energy shareholders when the payout is made, what shareholders do with their one share in Capstone Turbine Corporation for every 70 Fletcher Challenge shares and the share in the new Rubicon company.

New Zealand's currency got a boost after the deal's approval as the markets analysed the deal but it will take some time to see whether the gain can be sustained.

The rest of the sharemarket moved up, apparently on the theory a lot of money freed up from Fletcher Energy will find its way to other leading stocks.

That view takes account of the point that institutional shareholders in the oil and gas group will shuffle their New Zealand equity portfolios to maintain the proportion of total funds invested in local equities.

Some private investors could take a different approach, preferring to put their money in areas outside the New Zealand sharemarket.

The whole country is also expected to benefit, according to FCL chairman Roderick Deane.

FCL's statement to the Stock Exchange included a comment from Dr Deane: "This is also an excellent outcome for New Zealand. It brings additional international expertise and security to the industry as well as ensuring that New Zealand exploration and production will be maintained at world-class standards."

There is no doubt Shell comes within a definition of "international expertise and security" and probable international buyers of the assets to be divested are likely to be similarly competent.

That is the situation in the short term. There is no guarantee it will remain the situation in the long term given experience in the transfer of New Zealand-based assets in other industries to international interests.

Shell has operated in New Zealand many years and can be expected to stay, unless something dramatic happens in the global group's total business mix and makes it re-examine international investments.

Buyers of the assets to be divested from the package Shell acquires may not necessarily have the same commitment.

There is nothing new in "pass-the-parcel" activities among overseas-based companies with interests in New Zealand and the situation is unlikely to change just because another group of operators may enter the New Zealand economy.

The corporarisation of state or local body-owned assets in the past decade brought in overseas companies as a majority or dominant shareholders.

Some were considered to have the international expertise to which Dr Deane referred in the context of the oil industry.

Holdings have been sold either in whole or in part and "rationalisation" of the New Zealand organisations resulted in asset disposals.

The process goes on, the latest example being Tranz Rail which intends to concentrate on freight business.

Managing director Michael Beard told the recent annual meeting Tranz Rail would focus activities on a profitable core freight business.

"Unproductive assets, customers and resources will be released and new, profitable customers and products will be developed with capital investment targeted at profitable business."

The company wants to contract out commuter services and dispose of long-distance passenger operations.

It now seems the company's two main shareholders, US-based Wisconsin Central and Fay Richwhite, have put their holdings up for sale. Other overseas companies are looking at both the shareholdings and the disposable assets.

Before Tranz Rail we had TransAlta, which swept into the electricity industry with banners flying and bugles blowing.

Trouble back home saw the group move out of the New Zealand company. National Gas Corporation moved in but NGC is now an offshoot of The Australian Gas Light Company which owns 71.6% of the capital.

Earlier than Tranz Rail and TransAlta there were movements in Telecom's shareholdings.

Overseas-based shareholders in New Zealand companies can contribute to reorganisation and financial and operational efficiencies but people should not be deluded into thinking international companies are here forever.

Dr Deane would have no such delusions, having seen share movements in the companies mentioned.

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