Rainbow

"The entreaties of Rainbow’s lawyers prevailed. The way was clear for the listing to proceed although, ever since, Heatley has been sympathetic to those who are wrongly accused. Rainbow was small but it was also genuine and, as time proved, its growth prospects were far better than even the directors had dared to hope or the accountants had dared to forecast."

"Margaret Tapper, who had a degree in Classics, and Margaret George, a nurse, had originally wanted a profitable company of a size they could manage along with their domestic commitments. Heatley was charging ahead with optimism and enthusiasm, carrying others along with him who, as Perkins had foreseen, were being led out of their comfort zone. There were few female directors on any public companies at the time, let along two women on one board. ‘I was company secretary of Rainbow and I hardly knew what it meant,’ says Tapper."

"The threat of the float being kiboshed never became public but it caused two weeks of great anxiety behind the scenes amid furious letter-writing by both parties’ lawyers. Heatley was affronted on behalf of his friends. Although he and Sheffield were just getting established, Tapper and George’s reputations were impeccable. But the official held a powerful position and because the market already knew that the float was imminent, if Rainbow’s partners could not persuade him that the company’s forecasts were genuine, the float would have to be cancelled. If that happened, the partners’ names might forever be tainted by the association."

"⁠Rainbow did work out, however, and spectacularly so. Between May 1984 and July 1987 it was as though fertiliser and warm rain had been applied to the newly seeded companies on the New Zealand Stock Exchange. Most flourished. Rainbow morphed from a small leisure company to a significant corporate player. The company that had been worth $6 million when it listed in 1984 was worth $600 million by July 1987. Along the way it bought bigger and bigger assets for higher and higher prices. Talented people joined Rainbow including Gary Lane, who had been a partner at Coopers & Lybrand, and Lloyd Morrison from the broking firm Ord O’Connor Grieve. As the share price rose, the company would place more shares to raise more capital to fund more acquisitions. It also took on more and more debt.⁠"

"Tapper recalls that it was Coote who suggested that if they brought Allan Hawkins in, his name alone would add two cents to the share price at listing. Hawkins had just launched Equiticorp and was, in Heatley’s words, ‘the golden boy of the finance scene’. Equiticorp itself was booming. Hawkins later plummeted from grace to end up in jail after Equiticorp failed, but that was in a future no one at Rainbow could then imagine. ‘We went to see him and asked if he’d be chairman if we floated,’ Heatley remembers. ‘He sort of yawned, but he must have taken a bit of shine to us because he said yes.’"

"On the day of Rainbow’s debut Heatley was managing director of the most recently listed company in New Zealand, his shares on paper were worth more than a million dollars and he was just short of his twenty-eighth birthday."

"Rainbow sat tight until March 1986, when Heatley picked up *The New Zealand Herald* and saw that Rothmans had announced the sale of its New Zealand tobacco business to Rothmans Holdings Ltd of Australia for $80 million. Heatley knew that Rothmans’ New Zealand tobacco business was making $24 million a year so it did not make sense to him that the company was proposing to sell it for only $80 million. In addition, to his mind, the company was going about the sale in a Mickey Mouse way by not first seeking shareholder approval. ‘To this day I think the deal was essentially designed to screw the other shareholders in New Zealand. Anyway, that’s how I saw it. So I thought, This isn’t good, they’re trying to sell a key asset at a lower price than, in my opinion, it’s worth.’ Heatley called Rainbow’s lawyers, who advised him that Rothmans’ move was not illegal. But he was riled. It occurred to him that if Rainbow made an offer for the New Zealand tobacco business, then Rothmans Industries’ shareholders would have a legal right to know about it. That might thwart the proposed deal with Rothmans Australia."

"Another of Rainbow’s purchases, for a brief time, was a small stake in ⁠*The New Zealand Herald* publisher Wilson & Horton. Heatley had always been interested in the media from a consumer’s perspective and now thought he would like to be a long-term shareholder in the publishing company and get to know its chairman, Michael Horton. Heatley thought there could potentially be a good partnership. He liked publishing, liked the media and respected what Wilson & Horton had achieved. But after buying 3 per cent at a good price, no overture was forthcoming from Wilson & Horton. ‘I think Michael took the view that there was no way he was going to let me in.’ After a short time, Rainbow sold its stake and moved on to other investments.⁠"

"‘So now it gets heated. They send us a note back saying, “The deal’s done and you’re too late and we’re not interested.” Now I ⁠*know* there is something strange going on because if you were going to sell your house for $300,000 and I come along and offer you $350,000, you would take the $350,000 but they just said no. They didn’t even say, “Let’s have a meeting, let’s discuss it.” If they’d been smart they would have engaged with us but it felt to me that Bob Matthew had just taken this adversarial attitude, which seemed personal about me though I don’t know why.’ Again Heatley picked up the phone to Rainbow’s lawyers, who agreed to seek an injunction in the High Court against Rothmans’ sale of its New Zealand business to its Australian counterpart.⁠"

"‘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."

"Again, Heatley reached for the phone. He got through to George Roberts, one of the world’s foremost names in leveraged buyouts. The pair had never met, but Heatley said he would like to fly to Roberts’ San Francisco office and sit down with him to talk about the possibility of Rainbow buying a stake in Woolworths Australia. Roberts agreed but told Heatley he could promise him only 10 minutes. He was polite but not encouraging. ‘If you want to come all this way, well, okay.’ Then he added, ‘I wouldn’t make the trip if I were you.’"

"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."

"Matthew had to stand up and tell shareholders that the meeting could not go ahead. The injunction granted to Rainbow had been upheld. ‘I remember Bruce Hancox from Brierley’s coming up to me at the meeting and saying, “Craig, we want this animosity to finish. We want this fight to be over. You’ve won. We want to buy your 18 per cent and all this can go away.” So I said, “Well, there’s a price at which we’d sell.” And of course there was a price at which we would sell because, after all, we’d bought it in order to make money.’ The two companies negotiated, Brierley’s accepted Rainbow’s price and Rainbow came out of the deal with a $22 million profit. It was a lot of money and, equally important, it was a win."

"⁠Immediately after selling Rothmans, Rainbow had swooped on Progressive Enterprises, then owners of the Foodtown, Three Guys and Georgie Pie chains. Rainbow had spent $93 million in 48 hours to pick up 20 per cent of Progressive, paying a premium of 35 per cent over the last sale price for Progressive shares. Rainbow subsequently increased its holding of Progressive to 44 per cent. It was a good investment but an expensive one, and the opportunity to now also get into Australia’s under-performing supermarket business, if Rainbow could buy into Woolworths, was too tempting to resist.⁠"

"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."

"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."

"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)"

"Heatley, Rainbow and other relative newbies to the investment scene were already seen as upstarts. But they were upstarts who were sometimes nimbler, who sometimes made better decisions and who often offered more money, allowing them to muscle in on territory that had only a short time before belonged exclusively to their established rivals. There was one sure way Brierley’s could prevent this happening again—it could take over Rainbow. And if it moved quickly enough, Brierley’s would also get its hands on the stake in Woolworths that it so keenly wanted. Brierley’s believed that this would also allow it to get around Australia’s takeover laws, which said that, other than an allowed creep of 3 per cent each year, any investor planning to acquire more than 20 per cent of a company had to bid for all of it. Rainbow did not seem to realise the danger it was in. It was also stretched by debt. The month after acquiring Woolworths, Rainbow placed 21 million shares worth $100 million. Heatley was quoted as saying that the placement not only improved Rainbow’s gearing ratios, but ‘it might answer some of our armchair critics’.[3](private://read/01jectdbce729daxqkxt7cbe8r/#mn8) The company had not abandoned plans for listing in Australia, he added."

"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."

"⁠But in February 1987, Rainbow and Progressive shocked Brierley’s and the rest of the market by announcing that they were intending to merge. The new company would be called Astral Pacific and it would have $580 million of shareholders’ funds and gross combined assets of $960 million. The purpose of the proposed merger was to consolidate Rainbow’s investment in Progressive and control all its cashflows. For a company like Rainbow that had an increasingly large debt to service but little cash, Progressive’s cashflow was alluring. The new venture would own Rainbow’s 20 per cent stake in Woolworths, so Astral Pacific would predominantly be a food company and would sell its other assets that did not fit. The two companies planned a stock swap to achieve the merger.⁠"

"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.’"

"Tapper and Margaret George had loyally hung on to their Rainbow shares, thinking that as founders and owners they should do so. Their personal stakes, which had less than a year before been worth a small fortune, were now much reduced. ‘If I had my time again, I’d sell on the way through,’ says George. It had been an amazing ride but, just like that log canoe a mere three years earlier, it seemed things were quickly coming off the rails."

"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."

"John Sheffield, who had been instrumental in starting Rainbow but who had left early to try other ventures, went bankrupt, as did many others. The effects lasted years. Only Japan took longer than New Zealand to come out of the post-crash mess. Heatley himself, still on the board of Brierley’s, was then 30 years old and had not been through a crash before. Like others, he initially failed to grasp the significance of what was happening. In fact, seeing Brierley’s shares come down to $3, he bought more. ‘I was young. I had never seen a bear market and initially all I saw in the aftermath of the crash was opportunity. I had not appreciated that Brierley’s’ investments in New Zealand Insurance and in everything else had also gone way down. I did not realise the substantial nature of the diminution in the valuations of everything. I had not learned about the collateral damage and the healing time required when you have a shock like that. Think of it like the Christchurch earthquake—such a massive shift will take years of reconstruction to get back to what it was but I did not appreciate that at the time. I had only seen markets go down and come back up again.’"

"Heatley’s brief attempt at retirement was too late to save the relationship. And after six weeks of reading books and playing golf, he was bored. Despite now living in a luxurious house in St Heliers, his first designed by Pete Bossley, and being able to buy any car he wanted, in the aftermath of Rainbow he felt flat. Making money and having any lifestyle he chose had been a dream since boyhood. It had come true, but it did not feel as good as he had imagined it would. All his life he had been striving and to suddenly stop felt strange and wrong. He still played sport but part of its pleasure had been the break from work and it was not sufficiently fulfilling by itself. He continued to watch the desultory sharemarket, dabbled in it when he saw opportunities, and lost money but nothing filled the gap. Nothing seemed how it used to be. In addition, the phone stopped ringing, which showed him that most of his callers had not been ringing because they were friends but because they wanted something. The essential element of fun, he already knew, was not money but other people. Most of his friends were working and had other commitments. They were not on tap for him."

"John Sheffield, who had been instrumental in starting Rainbow but who had left early to try other ventures, went bankrupt, as did many others. The effect"

"He was enjoying himself now. Both the company’s wealth and his own were increasing rapidly. He was building the secure personal financial base that, as a child, he had not had. Single deals, like getting in and out of Omnicorp, were making more money than all Rainbow’s leisure activities put together. This was far easier, and more fun."

"‘There’s too many players in the market all fighting over the same bones,’ he said in a lengthy interview with *The Evening Post* the week that Rainbow acquired a 20 per cent stake in supermarket operators Progressive Enterprises after selling its stake in Rothmans.[1](private://read/01jectdbce729daxqkxt7cbe8r/#mn6) ‘The market is too high—it is inevitable it will come back. There are some crazy prices being paid. There are some dopey things happening. Some investment companies are having to buy anything to give themselves earnings, it can only work for so long.’"

"⁠Even if Rainbow did not have the same star status, the mood was similar. For a while, Heatley says, he felt like he was ‘in a company that could go to the moon. We were the opposite of a bureaucracy. We were quick on our feet. We had smart people. We had the backing of banks.’ And Rainbow had Heatley himself as frontman, avidly reading the business news, interested in political and geopolitical situations, unafraid to pick up the phone and pitch a deal, his mind constantly turning over opportunities, readily engaging with the media and displaying a straight-up, easy manner.⁠"