Indecision: Time for joint venture infighting.

As indicated in a previous post, it took the new Labour government three years to reach a decision on whether to sell any of the durene-rich hydrocarbon stream. Senior business people tend to have big egos, and doing nothing does not feed big egos. Accordingly, some of them began to feel they had to do something, the only opportunities to do anything were against the other parties, hence the dynamics within the three parties to the joint venture began to change. The question was, where did everyone stand?

The very small company was in a rather peculiar position: apart from my experience as a chemist, it had no knowledge, but it was the cause of getting the tender process being in existence, and it was the registered start of the process. Without them, there would be no process, and everyone knew it. I doubt ICINZ had any love for the small party, but they believed the politics of the situation meant that the government would want some New Zealand content, so our position had to be accepted. Subsequent evidence suggested that those politicians could not care less whether there was new Zealand content or not. All they wanted was a clean run at the next election.

Our financier was a major merchant bank that was making a lot of money out of start-ups in the overheated economy that came with the freeing up of the economy in the mid 1980s, but that did not mean it was our natural friend because it also had its eyes on the government asset sales program, so it had good reasons not to irritate the government, and it stood to make more money from the asset sales than it did from this start-up, or so it thought.

The position of ICINZ was also of interest. It represented the multinational, but it had local shareholding, as part of the price that ICI paid to get its preferred sales position. In the normal course of events, the UK parent, ICI, would not be particularly concerned about the dilution of its interest, because it expected essentially all the products that were handled by ICINZ to have originated in the UK, or maybe Australia. They were probably somewhat puzzled that this “colonial outpost” could be the origin of the only cheap source of dianhydrides, important polymer intermediates, in the world, but what could they do about it?

Recall that in the previous protected environment, certain multinationals, including ICI, set up local companies and encouraged these to be good citizens and develop industries in New Zealand. Unfortunately, ICINZ had a poor reputation. As an example of the problem, in the early 1970s, ICINZ decided to get involved with a project to develop montan wax from peat deposits. This project failed, partly for technical reasons (which the UK parent would never have let happen), but in my opinion mainly because, to save money, they constructed the plant near existing road infrastructure, as opposed to close to the better quality resource. Capital expenditure was another interesting exercise, as they had discretion up to a certain amount, beyond that they had to get Australian approval, or seriously beyond that, they needed UK approval and UK management. As it happened, I believe the site they started mining had the worst quality peat. I assume management would have got their knuckles rapped for that, so when the durene opportunity came up, at first they were gun-shy, particularly since the project would compete with two significant UK plants. They hoped the project would go away. When it did not, and when they were superficially locked out, which could mean that one of their opposition might start to get preferences on local sales of all the chemicals they were importing as well, they were only too happy to form a joint venture with a small company if that got them onto the field. The small company could be dealt with in due course.

In a situation like this, perhaps the most important assets a small company has are its contracts. What I found was that all parties honored to the letter their contractual obligations, but anything not specifically agreed was a potential minefield for the smaller partner. One problem with the government delay was that cash kept going out, but the venture was not getting anywhere. The smaller company had to do most of their share “for free”, or through sweat equity. But after the three years of getting nowhere, decision time came and our venture won. It seemed to be well worth it then.

One of the other consequences of this delay was that it gave the participants time to think. During this period we looked at all the chicanery going on in the overheated stock market bubble that was being generated. As one of our financiers remarked, during this period you could float a brick shithouse! That, of course, was of no value to the development of a sound business proposal, but it did give me the inspiration necessary for some of the “bubble–aspects” for my novel “Red Gold”, which outlines the nature of one class of fraud that becomes prevalent in overheated markets.


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