Brierley

"The young company led by Heatley, who three years earlier had been on the end of a concrete mixer making a mini-golf course, was now taking on the well-connected Establishment names and winning. ‘I got the impression that the perception of us changed a lot then and that’s when I first met the Brierley guys. I had come across them before, but that was the first time we’d really engaged with them and, in hindsight, I think it was the start of some begrudging respect from them. I felt we very much had an adversarial relationship with Brierley’s for a couple of years. It was kind of strange. I respected them and I think they had some grudging respect for us, but my strong sense was that we pissed them off because we were the little guy, they were the big guy and they thought we were coming on to their patch and they weren’t used to it.’ But Rainbow, caught up in celebrating the deal it had just done, did not give sufficient thought to the possible consequences of poking the bear. Publicly it could have been perceived that Brierley’s had not only lost money, it had lost face. Its reply would prove fatal for Rainbow."

"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."

"‘Rainbow would have completely crashed and gone like the others because it was a bubble company and the share price was totally in bubble territory and he’d paid big prices for all those stakes in the companies he had,’ Alan Gibbs says. ‘The clever thing he did was to sell out to Brierley before the crash so he must have had some presentiment of it. If he’d stayed five more minutes, he’d have been on his belly. He was lucky.’ Sir Bob Jones recalls Ken Wikeley saying to him, ‘You know, Craig has an almost animal intuition to know when to jump out of something.’"

"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."

"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."