Woolworths

"⁠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.⁠"

"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.⁠"

"Within three months, Consolidated Properties had bought shopping centres worth $2.25 million, producing income of $241,000 a year. In each case the deals were anchored by contracts with a supermarket chain, either Woolworths or Coles. The Subiaco Football Club connection with Woolworths’ Roy Liddell had made them bombproof. The financial deals were getting more complex but at street level the business model seemed simple enough. Build a supermarket and the people will come: first the smaller tenants then the customers."

"If Elsie was a warm and loving saint in her youngest son’s eyes, Theo remained remote and inscrutable. By the age of 12, Alan had worked out a mutually beneficial way to extract money from Theo. Since 1944 Gibbs had owned JA Hazelwood, a reasonably substantial general store in Upper Hutt. On weekends he’d visit the business, taking Alan along for the ride. Theo was an observant man and would point things out to his son to teach him about the world, but Alan soon figured out that, at bottom, his father had better things to do than answer an endless stream of questions from a 12-year-old. He proposed that Theo pay him a sixpence fee (around $1.50 in today’s terms) if he could remain silent all the way from Wellington to Upper Hutt. The deal was readily accepted. Theo Gibbs did have a lot on his mind in the early 1950s. Having come to Wellington largely to concentrate on Macduffs Ltd, he’d found that despite his efforts, the company was struggling by 1949 in the intense post-war competition. In 1950 he arranged to merge it with Woolworths. This deal unlocked good value for shareholders and enabled him to extract himself from day-to-day management. Thereafter he operated as a company director and adviser to several businesses, including Hurley Bendon Ltd, a new lingerie company set up by brothers Ray and Des Hurley."

"But if that wasn’t enough, 1990 had also brought Gibbs another wonderful business opportunity. Earlier in the year he’d taken a call from Craig Heatley inviting him and Trevor Farmer to invest in Sky Television, his latest business venture. Heatley, 34, had been one of the stars of the 1980s, having started out with a mini-golf course on Tamaki Drive. By 1987 his public company, Rainbow Corp, controlled 55 per cent of New Zealand’s supermarket trade through Progressive Enterprises, 20 per cent of Woolworths in Australia and significant property investments. Cannily he’d sold the business to Brierleys a few months before the stock market crash of October 1987.[28](private://read/01jrsfvkjy84rkprtbz9amfvj8/#rw-num-note-477273-050103421-28) Casting about for something to do in 1988, he started talking to someone who had a horse racing television channel in Australia called Sky. At that time, he was on Brierley’s board and they owned Dominion Breweries. He came up with the idea of having a horse racing channel exclusively in DB pubs. When his Brierley colleagues passed on the opportunity, he followed it up personally."