F&P's survival something to savour

John Bongard. Photo / Richard Robinson

John Bongard savoured a glass of red wine as he talked about how Kiwis had written off Fisher & Paykel Appliances' survival chances.

"We were dead and buried three months ago," said Bongard just hours after a recapitalisation plan for the debt-laden company was unveiled which is expected to see its Chinese rival Haier emerge with a 20 per cent stake for $80-82 million after F&P's $143 million one-for-one rights issue to existing shareholders is complete.

Prime Minister John Key had started the speculation rolling on a potential Government bailout when he inadvertently disclosed he had held private talks with Bonguard on options to save the "iconic" Kiwi firm.

In fact the talks - as revealed in the Business Herald earlier this year - focused on the company's intention to add a cornerstone shareholder, flick assets and explore other capital-raising options.

Herald inquiries disclosed that the Cabinet had in any case quickly formed the view that F&P Appliances - which at that stage was still posting a profit - did not warrant a Government-funded bailout and should focus on getting another well-capitalised industry player on board.

The prospect that Haier would be the new cornerstone shareholder was sufficiently advanced by the time Key made his first official visit to China that the PM was able to indicate to major investors the Government had no objections to minority Chinese stakes in NZ companies as "part of the deleveraging process."

Bongard is adamant that F&P had never "actively gone out and sought a cornerstone shareholder" as it had all along wanted to "fiercely protect" its independent status.

It had not surrendered control to Haier, which would have just two seats on a planned seven-nine strong board. And had struck a co-operation deal whereby the two players would share market resources, develop products and co-ordinate manufacturing facilities.

Haier will have exclusive marketing and distribution rights of F&P products in China and F&P exclusive marketing and distribution rights for Haier products in Australasia.

But the company clearly needed to get its balance sheet into shape. The upshot of the upcoming rights issue - and other measures - is that F&P plans to reduce its $570 million debt burden to $153 million in a year's time.

The deal has been structured so it falls within the 25 per cent threshold and $100 million investment limit for foreign stakes in listed NZ companies thus avoiding the need for Overseas Investment Office approval. If Haier wants to substantially increase its stake later, it will have to make a full takeover offer.

The Fisher and Paykel experience is an example writ large of just what can happen when companies find themselves in a recessionary squeeze as demand dries up and adverse currency movements blow out reported debt levels.

Boston Consulting's globalization adviser Alison Sanders notes that smart Fortune 1000 companies are now spending a lot of time focusing on volatility.

Sanders, brought to NZ earlier this year by NZ infrastructure investor, Infratil, for its annual strategy session points to the issues that firms now have to grapple with as the real economy challenges impact on their businesses (see table).

Bongard is making no guarantees there will not be further redundancies at F&P if conditions worsen.

The F&P Appliances boss had chaired the session on "helping firms survive" at the Prime Minister's Summit.

Ironically one of the few concrete measures to emerge from the day-long "do fest" was a Government decision to subsidise payrolls of troubled firms so they could move to a nine-day fortnight and protect jobs. F&P Appliances was the first company to sign, after 350 workers at its Auckland refrigeration assembly plant agreed to take part in an arrangement which will see them working 35-hour weeks through to September avoiding the need for 60 redundancies.

F&P Appliances has also been a participant in the Singapore Government's Jobs Credit Scheme which grants employers an incentive to retain existing workers, and, where warranted to employ new ones.