KEY POINTS:
We live in extraordinary times when a government would contemplate buying into Fisher and Paykel Appliances. The company is indeed "iconic", as the Prime Minister puts it. It may even be "strategic" in the sense that it generates business for others in the economy.
But every company buys
goods and services from others and a strong economy is built on the profitability of them all.
Fisher and Paykel has survived longer than many other "iconic" New Zealand brands, particularly those who began manufacturing in an era of import restrictions and exchange controls. After those protections were removed manufacturers had to export to survive and Fisher and Paykel did more than survive; it grew into a global business, entering the Australian market in 1987, Europe in 1992, Singapore in 1995, the United States in 1996.
Through most of that time the New Zealand dollar's exchange rates have made this a difficult place for competitive manufacturing and Fisher and Paykel persisted for longer than could be expected. A few years ago it succumbed to the need to move much of its operations to cheaper labour markets and it was part-way through that costly transition when this global financial crisis arrived.
Now, with sales down in all its markets, it is struggling to support the debt-costs of its move overseas. It badly needs to replace some of that debt with equity, but a foreign competitor is unlikely to come to its rescue and there is little sign of New Zealand investors flocking to support a new issue as they did for Fonterra's bonds last week. Fisher and Paykel's share price plummeted on the New Zealand exchange on Monday. For the moment local investors seem not to share John Key's confidence in the company's future.
At least, we hope it was confidence and not political considerations that caused him to contemplate assistance. No company should be saved simply because its name is well-known, or because it employs a certain number of people. The Government cannot secure every job in the economy. A recession accelerates changes in the economy that should not be resisted. A lower dollar and more costly imports will remove some jobs and create others.
These are extraordinary times and many governments are helping companies caught in the storm. Not all of those companies were as robust as Fisher & Paykel before the recession hit them. But those companies were not in a small economy far from most of its export markets and dependent on a narrow range of tradeable commodities. If Mr Key is going to commit public money in any form to Fisher and Paykel he needs to be genuinely confident it will return full value to New Zealand in reasonable time.
But if the Government takes an equity stake in confidence of selling again at a respectable gain, it must explain why it thinks private investors have not yet seen the same opportunity. On Monday Mr Key said enough to stabilise the stock price. Yesterday he said that discussion of a state buy-in was "premature". It certainly was. It took the pressure off the company to find an equity partner quickly and probably removed any prospect that its bankers might yet cut it some slack.
Mr Key has long held the hope that he can expand the economy by encouraging companies to widen their horizons and upgrade their products while retaining their base here. Fisher and Paykel fits his bill. Even so, he should tread very carefully before becoming a soft touch for commercial aid. In this environment he could find many other worthy firms coming to his door.
Fisher and Paykel has survived hard times before. It deserves to survive this one. An "icon" is well placed to resist political solicitude and make its own case for support from shareholders in the nation that knows its worth.
