Fran O' Sullivan: Cullen's shock move hinders airport bid

5:00AM Tuesday March 04, 2008
By Fran O'Sullivan

Finance Minister Michael Cullen

*Commentary from Share Investor to come-Why I'm going to sell.

NZ Herald-The Battle for the Airport

The Government has urgently toughened New Zealand's overseas investment rules, putting a new hurdle in the way of the controversial Canadian pension fund's bid for a 40 per cent stake in Auckland Airport.

The unexpected move comes just one week after the Government announced it would legislate against a multimillion-dollar tax break that the Canadian Pension Plan Investment Board planned to use to extract greater returns from the airport.

Finance Minister Michael Cullen said greater protection for New Zealand's major strategic assets will be delivered under an order-in-council requiring Cabinet ministers to take into account New Zealand control factors when considering overseas investment applications affecting a very narrow range of strategically important assets.

Dr Cullen said yesterday's changes had been made in response to the uncertainty and debate that had emerged surrounding the Canadian offer to Auckland Airport shareholders.

"There has been a high degree of public debate about handing over control of New Zealand's main gateway to the world to foreign interests.

"The Canadian Pension Plan bid was always going to require consideration under the Overseas Investment Act and there has been speculation that ministers would use existing conditions under the act to reject the offer. The Government's move today is to be clear about the fact that New Zealand control factors will be taken into account as part of the national interest tests to be applied under the act."

The Auckland Airport board has been strongly opposed to the Canadian bid, taking the view the strategic asset should stay under New Zealand control. Chairman Tony Frankham has personally briefed Prime Minister Helen Clark on critical board decisions ahead of shareholders.

The Canadian fund has to achieve acceptances from 40 per cent of shareholders for its offer of $3.655 a share by the March 13 closing date.

Fifty per cent of shareholders who take part in a separate vote must give their approval for the bid to proceed.

The Overseas Investment Office must then approve the Canadians' application by April 30, or it will lapse.

The Government's unexpected move yesterday came as a shock to the Canadian fund's lawyers last night.

Dr Cullen said the change would allow greater protection for New Zealand's strategic assets and would bring the country into line with the likes of Australia, which restricts the ownership of airports.

An order-in-council was passed to insert a new clause in the regulations requiring ministers to consider "whether the overseas investment will, or is likely to, maintain New Zealand control of strategically important infrastructure on sensitive land".

Dr Cullen emphasised the ministers considering the bid - Associate Finance Minister Clayton Cosgrove and Land Information Minister David Parker - had not played any part in discussions over the new regulation.

He also said nothing about an acceptance of any Overseas Investment application.

"New Zealand already has foreign ownership restrictions on Telecom and Air New Zealand. This process has moved quickly to provide maximum certainty to markets regarding the Government's intentions."

EXTRA HURDLE
The Overseas Investment Office must now consider:

"Whether the overseas investment will, or is likely to, assist New Zealand to maintain New Zealand control of strategically important infrastructure on sensitive land."

Related Share Investor reading

Cullen's move on AIA tax plan Anti-Business
NZ Herald: Airport Deal not so sweet after tax break blocked
NZX Press Release: AIA directors recommend shareholders sell
AIA profit stays grounded
Softening opposition to CPPIB bid for AIA
Directors of AIA bribe brokers not to sell
What is Auckland Airport worth to you?
Second bite at AIA by CPPIB might just fly
AIA new directors must focus on shareholders
Auckland Airport merger deal nosedives
The Canadians have landed
AIA incentive scheme must fly out the window
Government market manipulation over AIA/DAE deal
DAE move on AIA: Will it fly?

Disclosure: I own AIA shares

Share Investor 2008

Monday Gossip: Carmel Fisher lands a big one

In the wake of the very successful Fisher Funds(MLN) Investment management company's well telegraphed losses from holdings in credit company, Credit Corp and an investment in the crumbling ABC learning centres and consequent share price drops for the company's investment vehicles. Carmel and Hugh Fisher have splashed out on this NZ$8 million plus cliff top house in an exclusive street in Takapuna, so it ain't all that bad.

Investors in Fisher Funds had done well up until recently but credit crunches and stifled lending has had a big impact on Fishers growth funds especially.

Pumpkin Patch Ltd(PPL) in which Fisher has a sizable stake in, is worth way less than half it was just several months ago, similarly Rakon(RAK), the chip manufacturer, and many of the company's holdings have a horrible story to tell.

In what could be a sign of the pear shaped nature of the investment business at the moment chief investment officer Warren Couillault left the company last week and quit his shareholding at the same time.

The final announcement of his departure was made after weeks of speculation as to why he was leaving and came after were told by Fisher management not to accept deals on Fisher Fund's behalf.

Now I don't want to poke the boney finger just for the hell of it but Couillault should take some of the blame for getting into some of the risky investments that he did.

"The currency is pretty hard to tread water against,'' Couillault said about results from Rakon a few weeks back. Investors have been aware of this for some time but Fisher's ploughed more money into the stock as it got "cheaper".

At head office though, just around the corner from their new house, management are playing a blame game of their own. Blaming everyone else but themselves for the poor performance from their investment picks. Pointing the finger at the currency and "market conditions" for their investment woes.

Now I previously picked this company as one of the best in the business, in terms of results by comparison to other fund managers, and the professional way the company was run. Laying the blame at anyone but yourself is a recipe for long term disaster when it comes to business and investing.

We are all subject to the current "market conditions" but Fisher Funds and their managers were instructed to invest allot of clients funds in "high growth" and smaller cap companies. Having said that, things will work themselves out in the long run but management need to take the short term flak.

These companies are riskier even in good times but the economic slowdown we are facing makes investing in them a far bigger risk. With that sort of strategy when the shite does hit the fan one can only blame oneself for making that choice.

Bad managers blame everyone but themselves, good managers take the rap and move on.

Carmel should well remember that when she looks out at Rangitoto tonight.


Share Investor Friday Free for all: Edition 8 - Scroll down to end for related story






c Share Investor 2008

Herald Poll and Political Animal commentary

c Stan Blanch 2008



While in her own mind and those of her Labour party colleagues, Helen Clark is still the preferred Prime Minister , the all important voters are thinking something else entirely.

This morning on Newstalk ZB Aunt Helen blamed "volatility" in the polls, when talking about the loony Greens support wavering wildly since the Heralds last poll and by implication the idea was that the poll was not to be trusted. She had another go at the paper for its poll accuracy.

This and the polls of the last 10 weeks cannot be ignored by the former high flying minister.

A definite trend has emerged and the outcome looks like a hiding for the Labour party not seen in generations.

Voters could be forgiven for forgetting about party allegiance's and voting for a winning party, National, least they waste their vote on the big loser.

Hitch your train to the wagon Abner, cause its on a non stop trip to Wellington to take out the trash.


Key Joins his party at No 1 position

5:00AM Monday March 03, 2008
By Audrey Young, NZ Herald

John Key (right) has overtaken Helen Clark as New Zealand's preferred Prime Minister.

National leader John Key has overtaken Prime Minister Helen Clark in popularity in the latest Herald-DigiPoll survey, and his party has extended its lead over Labour to 18 points.

It is the first time since May last year that Mr Key has been ahead of Helen Clark as preferred prime minister, although his lead is only two points.

National has been ahead of Labour since Mr Key became National leader in December 2006 but apart from a surge in his popularity in May because of his role in the anti-smacking-bill compromise, Helen Clark has convincingly led the preferred prime minister polling. That has reinforced the view that despite poor party polling, she is Labour's strongest asset.

But in the past month, Mr Key and the National Party have both gone up 7 points in the survey.

Mr Key is preferred by 46.3 per cent of decided voters and Helen Clark by 44.3 per cent in the poll, conducted between February 11 and 28.

In January, Helen Clark was ahead of Mr Key by 10.5 points.

New Zealand First leader Winston Peters polled 3.3 per cent. Trade Minister Phil Goff, often tipped as the next Labour leader, scored no support as preferred prime minister.

The gap between the two main parties is so wide and coalition partners so limited for Labour - the Greens are below 5 per cent - that National could easily govern alone if the poll's figures translated to votes.

National is on 54.5 per cent (up 7 points), 18 points ahead of Labour on 36.5 per cent (down 2.2).

In the January survey, the gap between the parties was only 8.8 points.

Gender bias between the two leaders persists - men disproportionately favour Mr Key and women disproportionately support Helen Clark as prime minister.

The poll shows that voters aged over 60 have a strong bias towards National and New Zealand First.

It also shows that New Zealand First supporters have a strong preference for a coalition with National over Labour (90 per cent v 9.1 per cent) and that Maori Party supporters are not overwhelmingly disposed to a Labour deal - 57.1 per cent of Maori Party supporters would favour a deal with Labour, but 42.9 per cent would favour a deal with National.

The poll was conducted after an intense political start to the year in which both leaders made "state of the
nation" speeches and announced policies on youth crime, education and training.

Polling began after both leaders visited Waitangi, where Mr Key's meeting with Tame Iti received top billing, as did Helen Clark's aversion to Te Tii Marae.

Helen Clark hinted at media bias, saying last night through a spokesman: "Obviously the Leader of the Opposition has had a lot of publicity since the beginning of the year." She believed Labour polling was holding up and was reasonably close to the 1999 result - 38.74 per cent - when Labour took office.

"The important issue now is who has the best plan for the future," she said.

Mr Key did not believe he'd had more publicity than Helen Clark at the start of the year "and in fact she got enormous coverage from the [Sir Edmund] Hillary funeral ... not that that was political."

He believed they both received extensive, though contrasting, coverage at Waitangi.

He said he never thought his hongi with Tame Iti would damage him in the eyes of the voting public.

"I thought the mood of the nation has moved on and they started looking at Helen Clark fighting the battle that has been and gone and I think they responded positively to me wanting to engage and make a day of national celebration rather than harbouring some sort of historic dispute."

Support for the Greens is showing some volatility, falling to 4.4 per cent from 9.1 in the previous poll and 3.5 in the one before that.

New Zealand First is down 0.7 points on 2.1 per cent.

Falling below the 5 per cent threshold means neither party would win seats in Parliament unless they won an electorate.

Mr Peters has not yet confirmed that he will try to regain his former Tauranga seat, won last election by National's Bob Clarkson.

The Maori Party polled 1.5 per cent (up 0.5), United Future 0.4 (up 0.4), Act 0.4 (down 0.3) and the Progressives were unchanged on zero.

Tax cuts remain the issue most likely to influence votes, 20.7 per cent of those polled listing it top.

* The poll was of 734 respondents, and results presented are from decided voters only. The margin of error is 3.6 per cent.

Related Political Animal reading

Helen Shoots herself in both feet
Colmar Brunton Poll and comment

c Political Animal 2008

Buffett dines out on a good result: You can too!

The enduring brand "Coca Cola" is one of the companies that
has made Warren Buffett's investment portfolio such a rip
roaring success.


*Get the latest Warren Buffett letter to shareholders here- Direct PDF 464 KB
*In blog format

*letters going back to 1977 also available here


Let me pick out some of my favourite parts from warren Buffett's latest letter to Berkshire Hathaway(BRK-A) shareholders. Gems of investment gold for readers to take on board:


"Insurance float – money we temporarily hold in our insurance operations that does not belong to
us – funds $59 billion of our investments. This float is “free” as long as insurance underwriting breaks even, meaning that the premiums we receive equal the losses and expenses we incur. Of course, insurance underwriting is volatile, swinging erratically between profits and losses. Over our entire history, however, we’ve been profitable, and I expect we will average break even results or better in the future. If we do that, our investments can be viewed as an unencumbered source of value for Berkshire shareholders".

That 59 billion that Berkshire Hathaway has isn't profit or retained earnings it is cash flow that has come in directly through the company's many insurance business.

That shows the importance in business that cash flow has and what you can do with it. In Buffett's case he has spun-off proceeds from the big money earner to use to buy other businesses. This is something I do with my share portfolio. The big dividend payer(around 15% net annual div) Sky City Entertainment(SKC) I have used consistently to buy share holdings in other companies I like, the NZ$20000.00 I receive in annual dividends from SKC and my other portfolio holdings have helped build my holdings consistently.

Nowhere as big as the Big Buffett Boy's portfolio but who knows, I could get there in the end.

Buffett and his business partner Charlie Munger have strict criteria when picking businesses to buy:


'Charlie and I look for companies that have a) a business we understand; b) favorable long-term
economics; c) able and trustworthy management; and d) a sensible price tag. We like to buy the whole business or, if management is our partner, at least 80%. When control-type purchases of quality aren’t available, though, we are also happy to simply buy small portions of great businesses by way of stockmarket purchases.

It’s better to have a part interest in the Hope Diamond than to own all of a rhinestone.
A truly great business must have an enduring “moat” that protects excellent returns on invested
capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns.

Therefore a formidable barrier such as a company’s being the low cost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with “Roman Candles,” companies
whose moats proved illusory and were soon crossed".

I simply love the idea of what Buffett calls a "moat" business and the importance he places on that moat being retained as long as possible so as to achieve spectacular returns.

It is hard to pick a moat business in New Zealand but one that I think fits his criteria somewhat is Goodman Fielder(GFF), the Australasian food giant, that I have a small holding in. While not as moat worthy as Buffett's large shareholding in Coca Cola(KO) or Gillette, GFF is more like Buffett's shareholding in the company, Kraft Foods(KFT).

Plenty of brand strength, easily understood companies and steady, if not solid cash flows.

People have to eat!

While Buffett commented on the sad state of Americas trade imbalance with the rest of the world, especially China, pointing the finger at overspending US citizens on credit, he also looked for the long-term in his country's economy:


"At Berkshire, we will attempt to further increase our stream of direct and indirect foreign earnings. Even if we are successful, however, our assets and earnings will always be concentrated in the U.S.

Despite our country’s many imperfections and unrelenting problems of one sort or another, America’s rule of law, market-responsive(capitalistic) economic system, and belief in meritocracy are almost certain to produce ever growing prosperity for its citizens".

Very true, but longer term China is going to finish first, if it doesn't return to that other "ism", communism.

The United States must turn its hand at being a much larger exporter, its goods are in high demand overseas and its lower dollar makes China a very big opportunity for them indeed. Their protectionism when it comes to trade must be lowered dramatically.

Now while Buffett's politics are more to the left of centre and mine are more truly capitalist, I would give Buffett more benefit to himself for his success in life rather than his "start in life":

"At 84 and 77, Charlie and I remain lucky beyond our dreams. We were born in America; had
terrific parents who saw that we got good educations; have enjoyed wonderful families and great health; and came equipped with a “business” gene that allows us to prosper in a manner hugely disproportionate to that experienced by many people who contribute as much or more to our society’s well-being.

Moreover,we have long had jobs that we love, in which we are helped in countless ways by talented and cheerful associates. Every day is exciting to us; no wonder we tap-dance to work. But nothing is more fun for us than getting together with our shareholder-partners at Berkshire’s annual meeting. So join us on May 3rd at the Qwest for our annual Woodstock for Capitalists. We’ll see you there".

Buffett is wrong, the "business gene" that he talks about is inside everyone. While Warren may have been lucky in business and investing a few times, it is what he learn't for himself that made him the success he is today.

He studied, worked hard and had the stick ability and long-term goals to be able to achieve what he did.

Most of us are capable of the same.


Related Share Investor reading

Warren Buffett's 2007 letter to Berkshire Hathaway highly anticipated
Warren Buffett 2007 Letter in Blog Format
Global market meltdown: What is Warren Buffett doing?
The Intelligent Investor: Book review


Related Amazon Reading



The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy new: $14.95 / Used from: $10.74
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c Share Investor 2008