BIL

"‘Bob Matthew basically told me to fuck off. He said something along the lines of, “You’re wasting our time. You’ll never make any money. We don’t want you on our share register, piss off.” That was essentially the five minutes.’ Heatley was taken aback. Rainbow had no particular plans for the investment and no appetite for more than its 18 per cent. The new shareholder asked for a board seat and was turned down. Heatley had walked into a situation that he had not foreseen and he could discern no reason for the hostility. ‘But this is a male thing and I’m not particularly proud of it but when someone says, Fuck you, you kind of think, Well, fuck you, too.’ What Heatley did not know, and had no way of knowing, was that while Bob Matthew appeared to hold a significant stake in Rothmans, it had in fact been funded by BIL. Heatley knew only that Matthew was hostile."

"For Rainbow, the pleasure of sealing the Woolworths Australia deal masked an ominous downside. Brierley’s had gone after the same 20 per cent stake for which Rainbow had successfully bid. Via its Australian investment arm, Industrial Equity Ltd, BIL already owned 20 per cent of Woolworths and was keen to increase its stake in the Australian supermarket chain. So soon after BIL had been forced to pay more for Rothmans than it had expected, Rainbow had again irked its bigger competitor by getting in the way of a deal that Brierley’s thought it should have clinched. Whether or not Heatley and Lane were aware of it at the time, their Woolworths purchase turned Rainbow into a Brierley’s target."

"The takeover went ahead in August 1987. *Personal Investor* magazine reported that Heatley’s 32 million Rainbow shares, which had been about 25 per cent of Rainbow, became 20 million BIL shares, making him the second largest individual shareholder in BIL with 2 per cent. The largest individual shareholder was Ron Brierley himself, with 4 per cent of the company. Margaret George and Margaret Tapper did not do well out of the settlement, which gave three BIL shares for every five Rainbow shares, and four BIL shares for every five Rainbow options. ‘In the conversion to Brierley shares, something went on with the Rainbow options which diminished the value, or it should have been spread around us all,’ Tapper says. George agrees. ‘I think that’s where I ended up a bit confused and wondering what had happened.’ Everyone involved in the company had learned so much, but there was nothing they could do to save it at the end. On 23 November 1987, Rainbow Corporation was delisted from the New Zealand Stock Exchange. The Rainbow that had arced so brightly had quickly faded away."

"Collins recalls BIL’s treasurer being invited to speak to a group of the BNZ’s senior corporate bankers. He was asked to talk to them about how he had rung the bank at 9 a.m. and by 5 p.m. had in place a $500 million loan facility. ‘The point of the example,’ says Collins, ‘was to encourage all the corporate bankers to lend more and more money and this was an illustration of how to respond quickly to what clients wanted.’ In hindsight, the incident could just as easily have been used to illustrate the lack of caution in corporate borrowing and lending, and how inadequate bank oversight was at the time. There were many contributing factors and perhaps it should have been no surprise that, to taxpayers’ chagrin, just a couple of years later the Bank of New Zealand needed a bailout."

"In her book *Brierley: The Man Behind the Corporate Legend*, author Yvonne van Dongen says BIL managing director Bruce Hancox believed that Heatley and Lane were ‘two very talented men who could well have a place in BIL. BIL also had its eye on three of Rainbow’s major investments—Woolworths, Progressive Enterprises and Kern Corporation. Although it is suspected that the value of the rest of Rainbow’s corporate assets were as ephemeral as its name, these three assets plus Heatley and Lane were considered worthy BIL takeover targets.’[4](private://read/01jectdbce729daxqkxt7cbe8r/#mn9)"

"While the corporate battle was deadly serious for Rainbow and BIL, it was entertaining to others. ‘Obviously there is little love lost between those daring Kiwi corporate raiders Craig Heatley of Rainbow Corp and BIL top banana Paul Collins,’ *The Sydney Morning Herald*’s CBD column opined on 26 March. ‘The two are locked in mortal combat over NZ retailer Progressive Enterprises, a battle which could prove costly to the loser. Collins claims that Progressive shares are worth twice as much as Rainbow shares (Rainbow is offering one share for each Progressive) while Heatley dismisses as “absolute bulldust” allegations attributed to Collins to the effect that Rainbow is about to fall in a heap.’[8](private://read/01jectdbce729daxqkxt7cbe8r/#mn13)"

"Heatley was reluctant. His instinct was not to agree, but by then Rainbow had its back to the wall. Brierley’s had more mana, its executives had more longevity and credibility with the public and its campaign against the merger with Progressive had damaged Rainbow’s image and substantially diminished its market value. Rainbow had been overstretched and Heatley had been out-manoeuvred. ‘There is no question they intimidated us,’ Heatley says, although he told *Personal Investor* magazine afterwards, ‘I must add that if the situation was reversed, then I probably would have done the same thing.’[9](private://read/01jectdbce729daxqkxt7cbe8r/#mn14) Additionally, despite being willing to defend his ground, Heatley’s preference was the personal and cordial approach. He had never liked the public fight and knew that Rainbow could not win it. In fact, the battle of public opinion had already been fought and the outcome was that Rainbow shares were now trading for just over $2, about half their value since the battle for Progressive started. In April 1987, the wrangling was brought to an end with the announcement that BIL would buy 30 per cent of Rainbow Corporation from its directors. That would take BIL’s stake in Rainbow to 32 per cent and allow BIL to effectively control Woolworths."

"Now on BIL’s board, Heatley’s radar was still pinging, especially for big investment opportunities. Paul Collins remembers sitting in his office with Bruce Hancox before the sharemarket crash when Heatley walked in. ‘Craig said, “I think we actually need to do something bold. I think what we need to do is buy General Motors.”’ Collins was dumbstruck. ‘I know it’s available,’ he recalls Heatley adding, ‘because I’ve been talking to some investment bankers in the United States.’ At that time Brierley’s market capitalisation was somewhere between $6 billion and $8 billion, Collins recalls, and General Motors was many times larger. ‘And here he was talking about us buying a company that at that time was probably capitalised at a multiple considerably larger than BIL’s. I said, “Well, where would we even start, assuming we found the money?”’ Heatley replied, ‘We’d just all relocate over there.’ He went on to explain what they could sell and split up to make it work and concluded by saying that Brierley’s should make $50 billion out of it."

"In the heat of the animosity, Brierley’s executives were astonished to open the daily newspapers one day to find a full-page ad placed by Rainbow. Printed in large type were two quotes from Paul Collins, one from November 1986 saying that Brierley’s would not buy into Progressive and one in March 1987 saying that Brierley’s had just bought into Progressive. The headline, in an even larger font, simply said, ‘CONFUSED?’ This was followed by the text, ‘We don’t blame you.’ The ad went on to say that the ‘recent activities of BIL regarding the merger of Rainbow and Progressive have created confusion where before there was harmony and accord’. Shareholders of Rainbow and Progressive had approved the merger, the ad continued, which had also been assessed by independent consultants and considered fair and beneficial to the shareholders of both companies. It ended by recommending shareholders call their stockbrokers for further advice. Collins had seen nothing like it before in New Zealand. While corporates in the United States and United Kingdom sometimes engaged companies to do proxy solicitations and to make direct pitches to shareholders and potential investors, it was almost unheard of at home. Heatley was breaking new ground."

"Heatley’s exposure to Brierley’s from the inside was causing him to re-evaluate the way the company operated. One deal in particular shocked him. Brierley’s owned 30 per cent of British life insurance company Equity & Law. By law, an investor could not buy more than 33 per cent of a British company without bidding for all of it. Heatley recalled Brierley saying that BIL would bid for Equity & Law because two other companies wanted it and he was certain one of them would bid higher. That would push up the value of the New Zealand investor’s 30 per cent stake. Heatley was torn between being impressed by the brazenness of the strategy and alarmed by its potential consequences. BIL was not bidding to buy, but bidding so that someone else would overbid and push up the total value. He thought it a dangerous ploy. What was more, these were big sums in play. Brierley’s was bidding on a scale he had not previously seen. ‘I’d never thought you’d risk NZ$1 billion thinking that you weren’t really going to buy something because you thought someone else was going to buy it. But I was just listening and thinking, Well, these guys are brilliant, they know what they’re doing.’"

"Whether or not the actual sale was a mistake, Rainbow’s board miscalculated how it would be perceived by the market. Rainbow hoped the announcement would clear up the unpleasantness and, with a new solid, respected stakeholder on board, investor confidence would be renewed and Rainbow could get back to business. But as soon as it was announced, the Brierley’s move was portrayed as a takeover and nothing the Rainbow board said would persuade the market to see the situation differently. Rainbow struggled for momentum in business and struggled for traction in the market. The perception was that it could do nothing without BIL’s permission. Adding to the woes, world sharemarkets, which had wobbled early in the year, had sustained another correction in April 1987 and were causing some people anxiety. One of them was Margaret Tapper."

"The defamation action never proceeded. In the end, BIL’s greater strength, size and presence was too much for Rainbow and when the endgame came, it was played out swiftly. BIL’s Bruce Hancox asked Rainbow for a high-level meeting. Hancox came to Heatley’s office. The battle was harming both sides, he said. It was doing no good for Rainbow, for BIL or indeed for New Zealand’s investment scene overall. A week later, Hancox came again and the two companies agreed to a truce. Another week passed and Hancox returned, this time to tell Heatley that Brierley’s had started buying Rainbow shares and was aiming for a bigger stake."

"BIL made its first bid for Equity & Law in early September 1987 and Brierley was proved correct when the French giant Compagnie du Midi quickly overbid. BIL now stood to make a £20 million profit on its 30 per cent stake. Then, Heatley recalls, Brierley said, ‘Oh, they’ll pay more than that.’ Brierley’s upped its bid for the company it did not want, to 450p per share, valuing the company at £453 million. There was a nervous wait before Compagnie du Midi came back and overbid again at 455p per share. Brierley’s brinkmanship had made his company a £42.9 million ($NZ106 million) profit. But just five days after the binding offer was made, sharemarkets around the world crashed. Brierley’s timing had been impeccable but far too close for comfort. ‘If Brierley’s had not been overbid they would have been in massive strife right then,’ Heatley recalls. ‘The French must have felt sick, although they ended up owning the company, and Brierley’s looked like heroes while I was left just thinking, Wow, these guys are cowboys.’ It seems ironic that Heatley’s General Motors suggestion had BIL thinking that he was too great a risk-taker for its taste just at the point where Heatley was reaching the same conclusion about Brierley’s. They were destined to part and, given their history, perhaps that should have been no surprise. Very soon there was a lot more on everyone’s minds than investment possibilities, though. In mid-October 1987, stock markets around the world began to slide. For many investors, executives, workers and companies, catastrophe was coming."

"But Heatley needed something new. Brierley’s had offered him the role of heading their North American operations but working in a market in which he had no contacts held no appeal for him. While they never said it, he had the sense that Brierley’s had been disappointed by his decision not to go. Maybe it would have suited them to have him out of the way, he thought. Nothing else that interested him seemed on offer. Telecommunications and broadcasting were fields about which he knew nothing but gradually, and with full disclosure to Brierley’s, he started working on the project with Jarvis and Green. By late 1988, after about a year on the BIL board, the new project was requiring all his attention and he resigned from Brierley’s. He sold all his shares in the company, making a loss on much of the stock because he had bought at $3 after the crash, thinking it was a good buy, and was selling at $2–$2.40. But as the price gradually sank to 50–60c, he was simply relieved to have got out when he did. Now he was free, cashed up and keen for a new venture."