Big players struggle in major league

By BRIAN GAYNOR

Two big New Zealand companies started down completely different paths this week. On Monday, Fletcher Challenge announced the sale of Fletcher Paper to Norway-based Norske Skog. This effectively ended Sir Ron Trotter's and Hugh Fletcher's dream of creating a major New Zealand-based multinational.

Twenty-four hours later, Air New Zealand took a big step towards becoming a leading international carrier when shareholders approved the acquisition of 100 per cent of Ansett Holdings. The most surprising aspect of the Air NZ meeting was that there was no discussion of the issues that caused Fletcher Challenge's international expansion to fail.

Dr Roderick Deane can take much of the credit for the successful sale of Fletcher Paper. Although the sale process was in progress before he became chairman in December, the final execution had his clear stamp of authority. Unlike earlier stages of the process, this time there were no leaks and no unauthorised share dealings by directors.

When the company issued a "don't sell" directive on Monday its share price leaped 33c to $1.70. The sale had been so effectively screened from the market that there were no indications or rumours of a $2.50 a share offer.

The transaction was greeted with great enthusiasm by investors as it could be the long-awaited event that will inject energy into the local sharemarket.

If this is so, New Zealand investors will be further in debt to Dr Deane. During the 1990s he was chief executive of Telecom when it virtually carried the sharemarket on its shoulders. That was no easy task as Dr Deane had to juggle two competing objectives: a demanding growth strategy for the group; and overseas owners who wanted to extract large amounts of cash from dividends and capital repayments.

This week's announcement illustrated that Dr Deane can successfully manage a growth-oriented telecommunications group and oversee the restructuring of an ailing resource-based company. He has been one of the country's best businessmen over the past decade.

Although the sale of Fletcher Paper to Norske Skog has been greeted with great enthusiasm, it brings to a sad end the aspirations of Sir Ron Trotter and Hugh Fletcher. Their objective was to create a world-class multinational company based in New Zealand. Included in the group's statement of purpose was: "Fletcher Challenge will always be New Zealand controlled."

The company's largest division is now being sold to foreign interests because its international operations were not effectively coordinated or managed. Fletcher Challenge made little attempt to synchronise the activities of its international operations or take advantage of its strong market position.

For example, its Canadian operations could have dumped surplus pulp and newsprint onto Asian markets in competition with group exports from Australasia.

After the Fletcher Paper acquisition Norske Skog is expected to coordinate its international operations so that they do not compete against one another and to take advantage of the group's substantial market position.

The takeover should be completed in July and Fletcher Paper shareholders will receive nearly $1.6 billion. There is little doubt that if the Fletcher Challenge group had been more effectively and proactively managed an offer of $2.50 a share for the paper division would have had few acceptances.

Although Air NZ owns 50 per cent of Ansett, this week's decision was the big step because the management of the Australian airline will switch from News Corporation to Air NZ.

The country's flagship carrier is taking an enormous step yet there was no discussion at Tuesday's meeting on how Ansett will be managed or whether Air NZ is up to the task.

The lack of discussion on these important issues is one of the strange characteristics of the local business community. In rugby, we praise or criticise the contributions of players and coaches. In cricket, Daniel Vettori and Chris Cairns are acclaimed for their professionalism and competitiveness and Matt Horne and Craig Spearman are reproached for poor footwork and loose shot-making.

Political commentators have written positive comments about Pete Hodgson's contribution to the Labour cabinet and expressed disappointment at the performance of Steve Maharey. These remarks are not frowned upon because it is generally accepted that the performance of people in public positions should be subject to analysis.

With business issues it is different. The business community uses the "tall poppy" defence and the threat of legal action to deflect criticism. This resistance has been remarkably successful. As a result we get little critical analysis of management strategy and the performance of executives when it matters. Most of analysis occurs after a company has collapsed.

In contrast, Australian newspapers are full of incisive analysis of management strategies and the performance of chief executives. This analysis has made a positive contribution to Australian business.

There is often a paternalistic and small-town approach to stock exchange listed companies. At the recent annual meeting of Restaurant Brands, Sir Laurence Stevens praised chairman Bill Falconer and his fellow directors for their wonderful performance. Mr Falconer replied that his first directorship had been with Sir Laurence and he "had learned everything he knew" from him.

Shareholders cringed at this exchange because Restaurant Brands has never achieved its full-year prospectus profit forecast and on the day of the meeting its share price was more than 40 per cent below the May 1997 issue price.

As Air NZ is a major sponsor of our national sport it is appropriate to make a rugby analogy.

In recent years the group has performed like a middle-of-the-table team in the national provincial championship. Earnings have been well below the 1995 and 1996 figures, a 20c a share dividend forecast has not been maintained and its financial performance has been greatly inferior to Qantas.

The Ansett purchase and the on-again, off-again sale of a major shareholding to Singapore Airlines has been in public whereas Dr Deane successfully negotiated and completed the sale of Fletcher Paper behind closed doors.

The Air NZ team has not been a relegation contender but it has never looked like making the playoffs. The team is now going to play in the Super 12 but its owners have done nothing to strengthen the squad. Any rational assessment would conclude that if the team failed to impress in the domestic competition it will struggle in the Super 12 unless players with significant international experience and success are drafted in.

The lingering impression from Tuesday's meeting was that chairman Sir Selwyn Cushing and managing director Jim McCrea answered questions proficiently and willingly but there was little energy, except for Greg Terry. It was difficult to imagine that the company was about to embark on exciting growth.

Contrast this with the excellent Technology Conference run by the Society of Investment Analysts in Auckland this week. Eighteen listed, or soon to be listed, companies presented at the conference and their enthusiasm and confidence were infectious.

The acquisition of Ansett Holdings has presented Air NZ with a wonderful opportunity but it would obviously benefit from the introduction of some new-economy enthusiasm and decisive and insightful governance.

Is there any chance that Keith Phillips of IT Capital and Dr Deane would make themselves available?