Editorial: Endace deal exposes flaws in grants system

Steven Joyce. Photo / Rotorua Daily Post

Taxpayer would be happier if Govt could claw back aid in the event of a takeover.

Governments can easily run away with the idea that grants to business are always a good thing.

Unfortunately, business can run away with the grants.

That may be what will happen to $10 million given to the Auckland tech company Endace in 2010 if it now accepts a $130 million cash takeover offer from a California network solutions firm, Emulex. Its founder, Selwyn Pellett, who stepped down from Endace in 2010 and might now wish he had not, says the takeover is not good news for taxpayers.

"Institutional investors will be very happy, I suspect the staff who have stock options will be happy. People who shouldn't be happy are the New Zealand taxpayers ..." To that might be added the Government which provides these grants to keep research and development in New Zealand.

But Economic Development Minister Steven Joyce seems quite happy.

Emulex has told officials it wants to expand here and create a "centre of excellence" for research.

One of the grants to Endace was for three years and Mr Joyce says the Government will continue with the funding as long as the R&D stays in New Zealand.

A firm that is paying $130 million for Endace's intellectual property probably finds the remaining $2 million or so from the Government neither here nor there. But the taxpayer will agree with Mr Pellett that it would be good if these grants were given in a form that was convertible to equity in the event of a takeover.

We could all be happy.