Commission explains decision on Wattie

Press, 30 May 1985, Page 20

Commission explains decision on Wattie

PA Wellington The Commerce Commission has explained why it allowed Wattie Industries to buy 50 per cent of Dominion Industries, Ltd, from the Goodman Group, which effectively gave Wattie a 24.9 per cent holding in N.Z. Forest Products. NZFP already holds 24.9 per cent of Wattie shares. Part of the decision revealed that NZFP and Goodman (which together hold 60 per cent of Wattie) had agreed that the chairman of the Goodman Group, Mr P. L. B. Goodman, would be the next chairman of Wattie. The chairman of both Wattie and Goodman has a casting vote, therefore the interlocking directors could effectively control decisions of both companies. The commission gave its consent to the move on Dominion Industries on February 27, but had not released the reasons for it until yesterday. Dominion Industries, formed as a holding company by Wattie and Goodman, held 24.9 per cent in NZFP. The Commission chairman, Mr John Collinge, said the commission had found the proposal to acquire 50 per cent of Dominion did not prevent effective competition between Wattie and NZFP because neither controlled the other and because the companies had traditionally traded in separate markets.

The transaction arose from two agreements between Goodman-NZFP and between Wattie-NZFP relating to the acquisition of shares in Wattie by Goodman and NZFP. In considering the proposal, the commission took into account the agreement between Wattie and NZFP whereby: 9 Each agreed not to take more than 24.9 per cent shares in each other. O Each agreed to appoint no more than two directors to the board of each other. 0 Wattie agreed to vote in accordance with NZFP directors at general meetings of NZFP. The commission raised issues on the structure of the Goodman and Wattie companies which were also the subject of the agreements. This meant six directors were common to each of the Wattie and Goodman boards, and those six directors constituted half of each board of 12 directors. In relation to cross-share-holdings, Goodman has about 35 per cent of Wattie and Wattie about 23 per cent of Goodman. Both companies were direct competitors in ice cream, flour, pastry goods and pet foods, and the two might be expected to be interested in competition opportunities in other food processing industries. Although the commission

found that it had no power under the Commerce Act in dealing with a proposal between NZFP and Wattie to make an order on the relationship of Wattie and Goodman, it asked whether such interlocking directorships would be suited to ensuring competition between the two companies in domestic foodstuffs markets. The commission posed the question: “Where the two major food companies in New Zealand, which compete directly with each other in some markets, have significant cross-shareholdings and have six interlocking directors (including a chairman with a casting vote) of 12 on each board, is that a desirable structure to ensure competition between them in domestic markets for foodstuffs?” “Although the existence of Goodman, NZFP and the Dairy Board as shareholders of Wattie may be valuable in relation to export markets, the question of whether the interlocking directors would inhibit competition on the domestic market had also to be addressed,” Mr Collinge said. The commission noted that Wattie, NZFP, and Goodman had taken steps in their agreements to ensure the "proprietorial independence” of all three. The commission hoped that the same effort had been or would be put into ensuring the competitive independence of the companies.