SOEs buying private companies

October 26th, 2009 at 1:00 pm by David Farrar

The SST reported:

THE GOVERNMENT will become one of the biggest players in the commercial property services market following Quotable Value’s (QV) takeover of DTZ.

QV has been in negotiations to buy the New Zealand arm of DTZ, a large publicly listed valuation and property management company based in the UK.

Neither company was responding to calls on the subject last week, but the Sunday Star-Times understands that DTZ’s staff have been told the takeover will proceed and both sides have been putting the finishing touches to the deal.

QV is a state-owned enterprise and its takeover of DTZ will create a property services company with turnover of nearly $70 million, making its easily the biggest property services company operating in the commercial property market.

While in one sense it is good to see an SOE operating commercially and making good commercial deals, it concerns me that they do so with taxpayer money, and an implicit Government guarantee.

Much the same happened when Kordia purchased Orcon. A smart strategic buy for Kordia, and some useful finance for Orcon, but should the NZ Government own an ISP and a commercial property company?

The Government has promised not to see any during this term. I hope that they have a more flexible policy for the 2011 election, which would allow the Government to exit areas that are commercially competitive.

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12 Responses to “SOEs buying private companies”

  1. kiwirights (48 comments) says:

    Governments can help competition in markets where market forces produce results that are bad for consumers (who are also taxpayers). The best example is the healthcare market in the US, where they can afford, but don’t have, universal health care. So be careful what you wish for in the ISP market – the government owning Orcon could be a very smart move for more reasons than just economic ones! (Or not, depending on how it is handled!)

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  2. ben (2,379 comments) says:

    I do not understand the voter appetite for public ownership that drives this sort of thing.

    Much if not most of the available evidence is that these companies do not perform as well under public ownership. As you say David, the implicit guarantee is part of that. So are the mixed objectives and incentives for revenue (size) maximisation rather profit maximisation.

    Without public ownership, the government still collects one third of the profits these companies earn with no public money down and with no obligation to bailout a failing institution and none of the political distractions that interfere with governments running core services, like roading or health.

    Yet voters still vote out governments that want to privatise and vote in governments that want to nationalise.

    I suppose there are faster ways for a country to make itself poorer, but that doesn’t make nationalisations like this a good idea.

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  3. Viking2 (11,467 comments) says:

    The bit left out is that DTZ hasd been losing money, just like rail. Oh Dear here we go again another bloody sinkhole to puff up the ego’s in Wellington.
    Kordia efforts haven’t been up to much so don’t expect much from this. Its a long way from doing property valuations of a very poor standard (for the benefit of the other beneficiary arm of Govt. called local bodies) to running a property management co.

    P,S. was That fellow Mr Brown involved in this as well?

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  4. ben (2,379 comments) says:

    but don’t have, universal health care

    Careful, it is universal in the US in all but name. Two important reasons why not everybody is currently legally covered is illegal immigration and because people eligible for Medicare only sign up for it when they get sick. The statistic of 47 million not covered used by the Democrats to get elected is mostly an illusion.

    Yes, the government can help competition, but odds are its not the sort of competition that is helpful. Its not helpful competition when the government subsidises its operator, or gives it special rules, or gives it an implicit guarantee to prop it up before failing (which is always true).

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  5. ben (2,379 comments) says:

    Viking – if true, then that is shocking. Governments are not the sort of organisations known for bringing expertise and making the hard decisions required to turn failing oranisations around.

    The more things change, the more they stay the same. I thought Labour was voted out last election. Now the government is running a 10 billion deficit and STILL SPENDING MORE MONEY.

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  6. Viking2 (11,467 comments) says:

    In yesterdays Herald.

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  7. Gooner (995 comments) says:

    Why doesn’t the government just be done with it and buy all property too – like the Chinese government has. Then it can lease it back to us, the peasants, and we can work for the government for 365 days instead of 120 as we currently do.

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  8. Jack5 (5,137 comments) says:

    This Government is starting to be a big disappointment. It is continuing the dirigiste policies of Labour. Perhaps Labour and National should amalgamate.

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  9. RodD (12 comments) says:

    Kordia/Orcon is very confusing as it keeps buying other privately owned ISP’s. The Govt is therefore building up a vertically integrated Telco.

    If Kordia builds another trans-tasman cable – will it be cost plus?, will govt departments be forced to use it? will it wholesale?

    Kordia could be the vehicle for a FibreCo but as it buys more private companies and competes with the private sector it all gets a bit confusing.

    Kordia are doing some great things – but what are they?

    Rod

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  10. Viking2 (11,467 comments) says:

    RodD ask Whaleoil, he knows a bit about them.

    Jack; see my post about Street. Suggested the same thing.

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  11. KiwiGreg (3,255 comments) says:

    “Why doesn’t the government just be done with it and buy all property too – like the Chinese government has. ”

    Umm China is undertaking the largest privatisation program in history at the moment.

    They never bought the property in the first place of course, just pretty much killed all the property owners.

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  12. KordiaGroup (1 comment) says:

    Kordia operates as a commercial business and has shareholders like any other – it’s just that the Kordia shareholder happens to be the NZ government. The government doesn’t direct the business strategy, and recent acquisitions have been about shifting the business from a heritage broadcast space into more telco and media activity.

    The trans-Tasman cable is another commercial venture and will not be funded or ‘guaranteed’ by the government – if the business case stacks up by the beginning of next year, Kordia will push ahead with it, and customers will be signed up on a commercial basis.

    If you’d like to know more about Kordia, visit our website: http://www.kordia.co.nz/
    Or visit our blog: http://kordiagroup.blogspot.com/

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