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Japanese firm warned over mega-merger

A giant Japanese company’s deal to take total control of one of New Zealand’s biggest meat processors came with a formal warning from the Overseas Investment Office. David Williams reports.

A Japanese meat company mega-merger in 2016 fell foul of New Zealand overseas investment rules, prompting a warning from the Government regulator.

Last December, the Overseas Investment Office (OIO) approved Itoham Foods’ application to spend $98 million buying the 35 percent of New Zealand meat processor ANZCO Foods it didn’t own. But the OIO’s consideration of the application uncovered that a 2016 merger between Itoham’s parent company and fellow Japanese company Yonekyu Corporation – creating the world’s ninth-biggest meat processor – fell foul of the law. That’s because the merged entity, listed on the Tokyo Stock Exchange, as an overseas investor owning 65 percent of ANZCO, acquired an interest in sensitive New Zealand assets. The transaction therefore needed the regulator’s approval.

According to an OIO report into the ANZCO deal – released to Newsroom under the Official Information Act – Itoham Yonekyu said the breach was inadvertent. No New Zealand lawyers were involved in the application. “There appears to have been an incorrect assumption by the parties involved in the transaction that New Zealand laws would not be relevant to a transaction which took place in Japan and in which all companies directly involved in the transaction were incorporated and based in Japan,” the OIO report says.

Despite the breach, the OIO said the directors involved in the ANZCO buyout remained of good character and recommended ministers approve the deal, which they did. But the OIO issued a formal warning to Itoham Yonekyu, sent in July last year. It said the Government regulator expected measures to be put in place to ensure future compliance. “While we will not be taking any further action against Itoham Yonekyu at this time, we will take this warning into account if Itoham Yonekyu gives effect to any transaction without consent in the future.”

Other potential issues were considered by the OIO but were deemed not to count against the good character of the parent company or its directors.

They included: livestock welfare concerns at Wyoming pig farms (at a company sold by Itoham in 2015); Itoham employees buying frozen pork without paying custom duties in 2005, after which the employees and companies were fined (there have been no recurrences); and an Itoham products recall (mainly sausages and pizza) in 2008 after traces of cyanide were found in well water (procedures were tightened and the well wasn’t used again until 2016, after authorities confirmed water quality).

The OIO said of the historical allegations: “We are satisfied with the actions that Itoham Foods Inc undertook to rectify and prevent any further occurences.”

Itoham Yonekyu has annual sales of about NZ$10.6 billion. ANZCO Foods, New Zealand’s second-biggest processor, employs about 3000 people, and has turnover of about $1.3 billion a year. ANZCO – founded by Sir Graeme Harrison, who retired in March – owns about $550 million in assets, including processing plants and farms in Canterbury, Otago, Westland, Marlborough, Taranaki and Rangitikei.

The OIO report into the ANZCO deal said Itoham had made $40 million of investments in New Zealand in the past. It had been involved in several joint ventures with ANZCO, including Five Star Beef, which is New Zealand’s only large-scale commercial cattle feedlot.

The benefits to New Zealand of Itoham’s increased shareholding were finally balanced, the OIO told ministers. They included greater efficiencies and better viability, and better integration to Itoham’s existing sales networks. Itoham didn’t promise to undertake any new significant investments.

Itoham Yonekyu is 39 percent owned by Mitsubishi Corporation.

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