BHP takes 31% of N.Z. Steel

Press, 27 July 1989, Page 35

BHP takes 31% of N.Z. Steel

PA Wellington New Zealand Steel is set to gain a strong, kindred shareholder in the Broken Hill Proprietary Company, Ltd, the biggest company in Australasia.

A BHP-led consortium has headed off a rival bid from Fletcher Challenge with a $323 million N.Z. Steel take-over agreement, announced yesterday. This will see BHP take a 31 per cent holding in the steel company whose ownership has been fraught this year with the failure of major shareholder, Equiticorp, and the sudden collapse of a sale to the Minmetals Corporation, of China. BHP’s emergence as a likely long-term shareholder was warmly received by NZ Steel’s acting managing director, Mr John Spencer, who called it “ideal” for his company’s development. BHP has drawn the New Zealand whiteware manufacturer, Fisher and Paykel Industries, into the consortium as a 25 per cent shareholder, alongside two other parties yet to identify themselves. The consortium company, Helenus Corporation, Ltd, will buy 80 per cent of NZ Steel from the statutory managers of Equiticorp for $225 million. Helenus will also buy 20% from Fisher and Paykel for S9BM. The purchases are conditional on approvals from the Commerce Commission and the Overseas Investments Commission. Minmetals dropped out 12 days before settlement was due on June 30. “If NZ Steel was free to choose a shareholder, the BHP interest would be the one we would choose,” Mr Spencer said. After general discussions between BHP and the New Zealand company, he was assured the Australians wanted to be a stable, longterm shareholder. NZ Steel would benefit from the technical expertise of BHP, which has a steel division that has four mills in Australia and extensive operations in Asia, the Pacific, and North America. BHP Steel’s chief executive, Mr John Prescott, said in a statement that the group looked forward to “bringing its acknowledged industry strengths to NZ Steel.” The remaining 44% of Helenus

was held by shareholders who were expected to declare themselves later, Mr Prescott added. (BHP has 31% of Helenus and Fisher and Paykel 25%.) The Equiticorp statutory manager, Mr Fred Watson, said the 80% stake in NZ Steel would be sold to Helenus for $225M, on settlement some time after August 31 and within seven days of statutory approvals being received. The price earlier agreed with Minmetals was never publicly disclosed, but it was widely tipped to be about S4OOM. Fisher and Paykel’s stake in Helenus, and hence its reinvestment in NZ Steel, would cost SS4M, the managing director, Mr Gary Paykel, said. The price to Fisher and Paykel for selling its 20% in the first instance will be S9BM. There was no gain or loss in that price when the costs in buying and holding the stake were taken into account, Mr Paykel said. Fisher and Paykel acquired its NZ Steel shares in October, 1987, when then associate company Equiticorp Holdings bought most of the steel maker from the Government. The two-way deal with Helenus would, therefore, bring in S44M cash for Fisher and Paykel, Mr Paykel said. There is a further gain for the company from penalty interest charges on a loan Fisher and Paykel made last year to Equiticorp to help fund the latter’s NZ Steel share buying. Repayment of the S2SM principal on that loan, secured against part of Equiticorp’s 80% holding in NZ Steel, is part of the deal announced yesterday. “There was a penalty interest clause on that loan so there’s a bit more to come back from Equiticorp,” Mr Paykel said. The charge amounted to about S3OM, he added. BHP Steel’s public affairs manager, Mr Peter Devers, said the company’s stake in Helenus Corporation was in line with BHP Steel’s philosophy of taking minority interests in offshore steel businesses.

“About 90% of New Zealand Steel’s output — as I understand it — is in flat products, including hot rolled strip and cold rolled strip, galvanised and painted steel and tubes,” Mr Devers said. BHP Steel produces hot and cold rolled strip, galvanised sheet and is the world’s largest producer of painted steel. But Mr Devers said BHP’s stake in New Zealand Steel would not mean less competition across the Tasman. “What we would be doing is enhancing the strength of New Zealand Steel and we expect to strengthen their competition in the marketplace,” he said. BHP Steel is working flat out to keep up with demand in Australia and overseas. BHP Steel. has emerged from years of streamlining and restructuring to be the main contributor towards BHP’s sAustl.O3s billion (SNZI.36 billion) after-tax profit for the financial year ended May 31. BHP Steel lifted earnings 144% to $450.7M. ' Its output is 6.7 M tonnes a year from three huge "integrated” steelmaking centres: Whyalla, in South Australia; and Port Kembla and Newcastle, in New South Wales; and five other mills. Its output is 16 times greater than that of New Zealand Steel. BHP plans to increase it to 7.95 million tonnes and build a “minimill” in Sydney’s western suburbs. The NZ Steel expansion is expected to raise production in 1989 to 500,000 tonnes of coil steel and finished product. When the stage 2 expansion project was running at full capacity in mid-1992, annual production would be up to 650,000 tonnes, Mr Spencer said. NZ Steel was established with Government backing in 1965. Until the expansions started in 1981, the mill exported its output in raw, slab form to Japan. Japanese steel mills turned this into finished products for re-export to New Zealand. Now NZ Steel exports finished product to Japan, Australia and the United States. >