Australian listed fuel retailer Ampol has announced its intention to spend close to $2 billion buying Z Energy, New Zealand’s listed petrol retailer.
Offshore interest in Z was not unexpected.
There are two ways large companies can grow value for their shareholders.
One is “organic growth” by investing in, and growing the existing business, which may mean new products and new clients, but it’s growth within the structure you have.
The alternative is growth through acquisition.
By taking over other businesses and merging them, a company can get synergies to fast track growth.
For many businesses, acquisition brings a step change that takes too long or is too hard with organic growth.
There are laws that regulate businesses buying each other, for example rules to protect consumers and control foreign ownership.
If a company hoovers up competitors, then it effectively controls the market.
It’s expected that Ampol will need to sell its Gull service stations to avoid these competition issues.
Foreign ownership rules are governed by the Overseas Investment Act 2005 which requires consent for ‘significant business assets’.
Given its size, Z Energy falls into this category.
This means that to acquire Z, Ampol must explain benefits for New Zealand.
Benefits can include retention of jobs and the introduction of new technologies.
This “new technology” category is interesting.
Z’s traditional business of supplying fuel is in decline over the decades ahead as electric vehicles (EVs) grow in popularity, and we transition to a lower carbon economy.
This may mean entirely new technologies like hydrogen get traction as alternative energy for vehicles.
Ampol’s Future Energy and Decarbonisation Strategy for its Australian assets target net zero carbon by 2040 and the development of future energy solutions.
It talks about being an early adopter of new technology and repurposing its market leading infrastructure.
Given Ampol knows change is coming, its intentions as a foreign owner of Z are important.
Will it simply treat Z as a cash cow, trying to make as much money as possible from declining petrol sales over time?
Or is it prepared to invest and help the business transition, funding new infrastructure for hydrogen vehicles, EV charging and other energy solutions?
When the Overseas Investment Office weighs the benefits from Ampol’s acquisition, commitments around future plans, capital investment and new technology should be clear.
It’s in our national interest to have a buyer who will help the transition.
Waiwera hotpools are a tragic example of an offshore owner who isn’t committed to New Zealand and fails Treasury’s objective for “sustainable, productive and inclusive overseas investment.”
As well as questions around offshore ownership and competition, some takeovers also present interesting ethical dilemmas.
A recent example is the $2 billion acquisition by cigarette manufacturer Philip Morris of UK asthma inhaler manufacturer Vectura.
You read it right, a cigarette company is buying an asthma treatment company.
There is no law against it, but it feels weird for a company that harms lungs to own the company medicating that harm.
Takeovers are part of the ongoing action in capital markets, allowing companies to grow and innovate.
Offshore acquisitions of New Zealand businesses should only happen if they maintain competition and help fund our development.
In the case of Z Energy, Ampol should be committing to fund new energy infrastructure for a lower carbon world.
- John Berry is Chief Executive of ethical fund manager and KiwiSaver provider Pathfinder Asset Management. Pathfinder does not invest in fossil fuel companies, or in Facebook.
(This article was originally published by Stuff August 30, 2021)