Contrived foreign takeovers

Many proposals were difficult to unravel. Body language of vendor and buyer, however, sometimes told us a lot. Sometimes, a management’s eagerness to work for a foreign enterprise might not be entirely congruent with the interests of shareholders, and subtle probing might give us a lead to follow. By visiting the target businesses and talking to people in the industry, I often obtained an adequate understanding of what the transaction was all about. I was not restricted by the need to obtain sworn evidence.

State government involvement, either directly or indirectly, (because of constitutional powers) raises sensitive issues of demarcation, requiring consultation and joint decision-making. Community sensitivity, and tensions between the foreign-controlled and Australian-controlled enterprises in a particular sector, also raised problems of approach. For me, it was a fun place to be in.

An example of body language giving the game away was the situation when a well-built Aussie, with all the hallmarks of a man from the country … came to see me about a proposal to take on a Japanese partner. … With superb confidence, he told me that he was going to allow the Japanese to acquire forty-nine per cent of the equity in his grazing property. … With fifty-one per cent ownership, he would control the joint venture. The Japanese partner would put in a very substantial sum of money to expand the property’s operations.

About eighteen months later … the Japanese man strode in first and took up a seat a little further back than the one facing my desk. He was followed by the Australian, shoulders and head down, hat in hand, who took the nearer seat. The Japanese … said that the parent company in Japan was foreclosing on the joint venture in Australia because the loan owing by the venture was now double the original plan, and the venture wasn’t able to pay.

In answer to my questions, it became clear that the local representative in Australia of the overseas corporation had participated equally in decisions to expand and to borrow capital beyond the initial agreement. All of a sudden, the parent company wanted payment. As that was not possible, it wanted to purchase the remainder of the equity to protect its loans.

It was all so simple. To me, it looked like a carefully calculated move to take over full control of a desirable and viable property by two steps, without risking the violation of any government rules. What had the local representative of the conglomerate been doing, agreeing to the injection of extra capital without regard for repayment? He should have known and should have been responsible, equally, for the venture’s inability to repay in the short term.

At least one other major Australian entrepreneur had entered into a fifty-one/forty-nine per cent partnership, not long before, with a Japanese corporation, claiming that the two-per-cent edge gave him control. Subsequently, it would be argued that the debt incurred by the joint venture was too great for the Australian partner and he would seek government permission to sell his fifty-one per cent to the foreign interest. Thus, the Japanese investor took over full ownership and control of viable real estate in Australia with a viable business prospect attached.

The government would feel that nothing could be done to prevent that take-over, notwithstanding any unhappiness at the community, at regional or political level. If the same Aussie entrepreneur did it again and again, the government’s hands would still remain tied. It was certainly an effective way for foreign enterprises to acquire valuable Australian operations, especially the large tracts of land attached to them. There were many in the community who felt that acquisition of land was the primary motive, and that such purchases were for the very long term for the enterprises from a country with limited land.

Returning to the cattle property acquisition, … I suggested to the Japanese that his parent company’s approach was a little like a man transferring his money from one pocket to another and then back again – and making a gain from that move. At that, the eyelids of the Japanese came down like blinds being drawn to stop the passer-by from looking in. He then stood, nodded to me casually as he said, “Thank you,” and walked out. He was followed by the Aussie who seemed surprised by his departure. Obviously, my antennae had received the correct picture.

Equally obviously, I had displayed my prejudice against the tactics employed. Privately, I also knew that I had reacted openly because it was the Japanese who were using these tactics … my wartime-induced prejudices had to go.

Sometime later, when I was working on a major Japanese tourist proposal, I heard that a senior Japanese embassy official in Canberra had described me as a “hard but fair” official.

(These extracts from ‘Destiny Will Out’ reflect the reality of ‘market forces’ at work, and the risks public officials take in seeking the truth in commercial transactions. Not only did I survive, but I also made quite a few friends. Perceivable integrity is the default position in this arena.)