private equity firms

The two-year battle for control of New Zealand's biggest retailer looks set to move to a new arena - the Supreme Court - after the Court of Appeal blocked Woolworths and Foodstuffs from making bids. The decision led to The Warehouse's share price plunging to a nine-year low of $3.01 before rebounding to close down 60 cents on $3.22.

Woolworths, of Australia, and Foodstuffs, owner of New Zealand's two largest supermarket chains, issued statements expressing disappointment and saying they were reviewing their options. They have 20 working days to decide whether to appeal to the Supreme Court. Stephen Tindall, The Warehouse founder whose interests control 52 per cent of the shares, was unavailable for comment.

The Commerce Commission, which blocked the two chains from bidding for The Warehouse last June and then had its ruling overturned by the High Court in November, hailed the decision as a victory for consumers. Despite The Warehouse having only three stores with grocery offerings, it could not be ruled out as a significant supermarket competitor, commission chairwoman Paula Rebstock said. "The commission considered the presence of an innovative third party, such as The Warehouse, had the potential to increase the level of competition in this important market."

Most analysts, fund managers and competition lawyers BusinessDay spoke to said they thought Woolworths and Foodstuffs would go to the Supreme Court. "I'd say there's an 80 per cent-plus chance of that happening," Tower portfolio manager Paul Robertshawe said. Buddle Findlay competition partner Tony Dellow said: "Given they have already spent a lot of money on this, the incremental cost of going to the Supreme Court is pretty low."

What chance the companies have in the Supreme Court will be hard to gauge till the Court of Appeal issues its judgment, probably early next week. "A lot is going to depend on how the Court of Appeal has framed its answer today," Chapman Tripp partner Andy Nicholls said. The two main questions would be about the likely performance of The Warehouse Extra stores (offering groceries) in the next few years and how speculative the commission could be in predicting whether the stores would challenge the existing supermarket duopoly. "The concern everybody will have is the extent to which the Court of Appeal has endorsed the commission taking quite a speculative approach when faced with a new entrant. I imagine the supermarkets will be looking hard at that, and that would be the question they would consider [testing] in the Supreme Court."

If they are unsuccessful, there are several other ownership scenarios for The Warehouse. Mr Tindall, who made a $5.75-a-share bid in partnership with Pacific Equity Partners in 2006, may have another go at privatisation. "Price-wise the timing would be better now than it was then," Forsyth Barr analyst Guy Hallwright said. "But raising debt would be a lot more difficult."

Deutsche Bank analyst Kristan Walker said Mr Tindall and PEP could well make an offer for the 20 percent held by the two supermarket players. "It could be quite an opportune time for Stephen Tindall to come out with a privatisation plan and literally offer something on the table and take the stock off their hands – that's an extra 20 percent that sits alongside his 50-odd percent, and then it's not so much of stretch to get to the compulsory acquirement level."

Market commentator Arthur Lim said funding such a move would not be an issue, with Mr Tindall's stakeholding and PEP among one of the most cashed-up private-equity funds around. Nothing was stopping Mr Tindall going ahead with another privatisation bid, but without knowing whether Foodstuffs or Woolworths would appeal, such a move would be premature.

Rival bidders may also emerge, with Australian conglomerate Wesfarmers seen as the most likely. However, after buying supermarket chain Coles last year, Wesfarmers was busy trying to turn that business around, ING senior analyst Craig Brown said. "I think you've got the two most logical bidders on the table right now."

The Warehouse may decide to scrap its grocery strategy, though it is unclear whether that would clear the way for a Woolworths or Foodstuffs bid. "One thing that hasn't changed in all this is that the key player is Stephen Tindall," Mr Brown said.

The Warehouse founder Stephen Tindall may relaunch his bid to buy back the Red Sheds after a court decision to prevent the supermarkets from initiating takeover bids. The Court of Appeal's move to overturn the High Court judgment clearing suitors Woolworths and Foodstuffs to acquire the country's largest listed retailer means Tindall could resurrect plans to take back the business he started 26 years ago.

Tindall, who already controls 53 per cent of the company, announced plans on September 14, 2006 to reprivatise the group in order to pursue ambitious plans to spread super-stores offering a total retailing mix including groceries and general merchandising. Back then he and Australian private-equity firm Pacific Equity Partners were offering shareholders $5.75 a share - representing just a 12.5 per cent premium on the $5.11 closing price on the day. Weeks later he was trumped by Woolworths, which swooped on a 10.1 per cent stake at $6.50 a share.

But market experts say yesterday's development could see Tindall's grand plan back on the table.

Tindall and PEP managing director Tim Sims are understood to still hold each other in high regard, and the Red Sheds' share-price plunge yesterday to $3.22 means buying up the remaining 43 per cent becomes an entirely more attainable option. Based on his 2006 offer premium, Tindall may need to offer only $3.62 a share, given the state of the markets.

Deutsche Bank analyst Kristan Walker said Tindall and PEP could well make an offer for the 20 per cent held by the two supermarket players. "It could be quite an opportune time for Stephen Tindall to come out with a privatisation plan and literally offer something on the table and take the stock off their hands - that's an extra 20 per cent that sits alongside his 50-odd per cent, and then it's not so much of stretch to get to the compulsory acquirement level." But he cautioned that a private-equity investor would also be contemplating its exit strategy. With the two major players Foodstuffs and Woolworths unlikely candidates for a trade sale, the offer price now would have to factor in an attractive rate of return. "It comes down to price now."

Market commentator Arthur Lim said funding such a move would not be an issue, with Tindall's stakeholding and PEP among one of the most cashed-up private-equity funds around. "The ability to source funding might not be as readily accessible as before, but a 53 per cent shareholding accounts for a lot of underlying equity."

Lim said there was nothing stopping Tindall going ahead with another privatisation bid, but without knowing whether Foodstuffs or Woolworths would appeal such a move would be premature. "If Stephen makes his move he would have to be comfortable that they are not going to frustrate the process."

Head of research at ABN AMRO Craigs, Mark Lister, said the potential for Tindall to revive his privatisation plans was still there, but the prospect might be even more attractive in future. "The outlook for the domestic economy doesn't look like it's hit the bottom yet, so while it's at the low point, it still could go even lower," he said. "Retail's a sector that we're still all fairly cautious of, despite things having come back a fair way. There's still probably going to be a tough road for retailers in the short term."

With the two court decisions going either way, Lister believed there was a fair chance the suitors could appeal. "Either way, it sounds like that it's going to be reasonably drawn out, whether they do anything or not. "It still could be a little while before you get a final, final resolution on what ends up happening with The Warehouse," he said.

Deutsche's Walker, who had been favouring Woolworths to be the successful bidder, believed an appeal was likely. "I think it's going to be difficult, if not impossible, to replicate the same floor space that The Warehouse has in relation to Woolies wanting to be a major player in the general merchandise category in New Zealand. "It really does leave little options [for Woolworths] on the table."

Woolworths and Foodstuffs were reviewing their options after the decision.

Foodstuffs managing director Tony Carter said it was difficult to comment further or make a judgment on a potential application for leave to appeal, as they had yet to see the reasoning behind the decision. "There is a statutory 20-working-day period for an application for leave to appeal to the Supreme Court. We will be utilising this time to digest the Court of Appeal ruling before making any decisions."

The Commerce Commission, meanwhile, called the decision a victory for market competition and supermarket consumers.

THE STORY SO FAR
* The Warehouse has been in play since September 14, 2006, when founder Stephen Tindall revealed plans to privatise, offering $5.75 a share in partnership with Pacific Equity Partners.
* Later that month he was trumped by Woolworths, which bought a 10.1 per cent stake at $6.50 a share.
* In December 2006 Foodstuffs - already a 10 per cent owner - declared its intention to bid for The Warehouse. Foodstuffs and Woolworths applied for Commerce Commission approval to proceed.
* In late June last year the commission declined their applications.
* An appeal against that decision was heard in the Wellington High Court in October.
* On November 30 the High Court overturned the commission's decision.
* The commission applied for leave to appeal the decision and on January 31, the High Court granted it.
* The commission's appeal was heard in late April in the Appeal Court.
* On May 2, Woolworths and Foodstuffs agreed to a moratorium on bidding until 48 hours after the Court of Appeal issues its judgment.
* The Court of Appeal yesterday overturned the High Court decision, preventing Woolworths or Foodstuffs from launching takeover bids.

After 70 years the makers of a classic Kiwi biscuit are leaving Lower Hutt.  Griffin's Foods Ltd announced today it would close its Lower Hutt factory – at a loss of 200 jobs – relocating production to its newly redeveloped Papakura site.

Chief executive Ron Vela said much of the factory's equipment was nearing its end date, and the company could not justify the investment needed to bring it up to scratch.  Griffin's was committed to retaining its manufacturing base in New Zealand but could not do so without rationalisation of its operations, Mr Vela said.

The company was established in Nelson by John Griffin in the 1860s.  The Lower Hutt factory was opened in 1938 and the Papakura factory in 1967.  The company now has nearly 1000 employees – 228 in Lower Hutt – and operates four manufacturing sites in New Zealand.

Pacific Equity Partners bought Griffin's in June last year, and since then has invested more than $130 million into the business, Mr Vela said.

Griffin's turnover is in excess of $300 million and it produces more than 350 products, including toffee pops, gingernuts, snax, meal mates, cameo cremes, mallowpuffs, krispies and wine biscuits.

The Lower Hutt site is expected to close in October 2008.  Mr Vela said Griffin's was the only major biscuit supplier in New Zealand that produced all its company branded product lines locally.  Competition from imported products continued to be fierce and the company wanted to counter this competition by producing top quality products for the New Zealand market, and growing offshore market opportunities, he said.  Mr Vela said the decision to close the Lower Hutt plant was extremely difficult, given the potential impact on staff.  There would be a number of positions available for staff wishing to relocate to Auckland, and "generous" redundancy packages would be available, he said.

The Service and Food Workers Union (SFWU) said its 200 members at the site were "extremely disappointed" the decision had been made without consultation.  SFWU national secretary John Ryall said the shock was compounded by the fact that in 2002 the company's former owners worked on a study with the union and the Lower Hutt City Council that concluded the plant should stay open and was a viable business.

"We think the company is under pressure from their investors to squeeze a bigger return from their investment," Mr Ryall said.  "Private equity companies like PEP have a long, established history of breaking apart investments like food manufacturers and selling the parts off in exchange for larger shareholder returns.  "This closure announcement comes hot on the heels of the announcement to close Avondale's Cadbury factory.  "We have some very real concerns about the future of food manufacturing in New Zealand." Mr Ryall said.

Fletcher Building will not buy all the Carter Holt Harvey assets put on the block by billionaire Graeme Hart, but might acquire small parts of the businesses.  Speaking after yesterday's annual meeting in Auckland, Fletcher chief executive Jonathan Ling said the building materials manufacturer and distributor would not make any big acquisitions within the next three months.

Mr Hart is selling building product makers and marketers Wood Products New Zealand and Wood Products Australia, the Carters building materials chain, and furniture and joinery business Interion.  Fletcher Building. advised by investment bank Goldman Sachs JBWere, is understood to have looked at these businesses.  However, Carter Holt owner Rank wants to complete any sale, which analysts expect to be about $2 billion, by the end of the year.

Asked about the potential for big acquisitions, Mr Ling said: "There's nothing of any size in the pipeline at the moment."  Asked specifically about the Carter Holt asset sale, he declined to comment, citing confidentiality obligations.  It is understood Fletcher could buy small parts of the businesses, possibly as part of a consortium.  However, international private equity group CVC Capital Partners is believed to be the frontrunner to acquire the Carter Holt assets. 

Mr Ling said Fletcher's current focus was integrating July's US$700 million (NZ$929 million) acquisition of benchtop group Formica from private equity groups Cerberus Capital Management and Oaktree Capital Management.  Mr Ling said the planned closure of a Formica factory in California and the doubling of production at an Ohio factory were running behind schedule.

Fletcher will pay Cerberus and Oaktree a further US$50 million if this restructuring is finished by June 30. Mr Ling said delays would affect this payment but, citing confidentiality agreements, he declined to say how.

Formica's Asian and European operations, which comprise about two-thirds of its business, were performing better than expected, helping to offset the slowing United States economy, he said.  Predicted savings from combining Formica with Fletcher's Laminex business, about $13 million in 2007-08, were on track.

Chairman Roderick Deane said Fletcher's net earnings for the first four months of 2007-08 were ahead of the same stage last year both with and without the inclusion of Formica.

Fletcher was "comfortable" with analysts' forecasts for annual earnings after tax and before unusual items of between $450 million and $460 million.  After removing one-off tax and insurance benefits, last year's profit rose 5 per cent to $399 million. At more than $1 billion, Fletcher's construction backlog was at record levels, Mr Ling said.

Fletcher shares rose 12 cents to $11.30 yesterday.

Fletcher Building is teaming up with Australian rival Boral to bid for Carter Holt Harvey's Wood Products, Carters and Interion businesses being sold by billionaire Graeme Hart in what is expected to be a $2 billion plus deal.

Indicative offers for the Carter Holt assets were due last week. Market sources said yesterday that the Fletcher-Boral combination was facing its main competition from international private equity fund CVC Capital Partners.

Mr Hart is selling wood-based building items manufacturer and marketer Wood Products New Zealand, which has 12 manufacturing sites, Wood Products Australia, which has six, New Zealand's Carters building materials chain and Interion, which markets and sells furniture, joinery and construction products. Combined, these assets are forecasting 2008 earnings before interest, tax, depreciation and amortisation of about $300 million.

Sources suggested that, if successful, Fletcher and Boral planned for the Kiwi firm to take the bulk of the New Zealand assets and Boral to pick up those in Australia. Mr Hart's Rank Group has told Carter Holt staff it wants to complete a sale by the end of the year.

Boral is Australia's biggest building and construction materials supplier and also has operations in the United States and Asia. Kylie FitzGerald, Boral's general manager of corporate affairs and investor relations, declined to comment on "market speculation".

Fletcher chief executive Jonathan Ling said he could not comment "at the moment".

Staff at CVC's Sydney office did not respond to requests for comment. CVC's history in the trans-Tasman building industry includes ownership of laminates and panels business Laminex and insulation, concrete and roofing group Amatek. Ironically, it sold both to Fletcher - Laminex for $754 million in 2002 and Amatek for $582 million - in 2005.

It was unclear whether Rank had received further offers. US forestry group Weyerhaeuser, which sold half of a 67,000-hectare Nelson forestry plantation to partner and fellow US firm Global Forest Partners in June, is touted as a potential bidder. Tasmania forest products group Gunns, which owns a veneer factory in Christchurch, is also a possible bidder. Gunns declined to comment.

Fletcher completed the $1 billion acquisition of US-based benchtop group Formica on July 2, issuing $328 million of new shares to help pay for the deal. It might issue shares to help fund another big buy.

Tower equities fund manager Paul Robertshawe said Fletcher should easily be able to convince investors of the merits of buying Carter Holt assets. Fletcher had a good five-year track record, had not overpaid for previous acquisitions and its finances, with gearing, or debt-to-equity, of 46 per cent were not stretched. "If they come to us with a deal that makes sense I don't think shareholders would be upset about the timing," Mr Robertshawe said.

However, a Fletcher purchase would need Commerce Commission approval as its businesses have significant crossover with Carter Holt, notably PlaceMakers and Carters. Since completing the $3.3 billion acquisition of Carter Holt in March 2006, Mr Hart has already recouped about $1.9 billion.

Graeme Hart has put Carter Holt Harvey's Wood Products business on the block in a deal that could rival the size of Telecom's $2.24 billion Yellow Pages sale.  Wood Products manufactures and markets wood-based building items including timber, plywood, laminated veneer lumber and interior decorative materials.

Market sources said yesterday that Mr Hart was seeking bidders for Wood Products in a sale being managed by investment banks First NZ Capital and Credit Suisse First Boston.  Wood Products has 12 manufacturing sites in New Zealand and six in Australia.  Its brands include Pinex, Laserframe, HyJoist, Bestwood, Ramsey Roundwood, Ecoply and StructaFlor.  The business is thought to produce annual earnings before interest, tax, depreciation and amortisation of about $300 million.

In the biggest New Zealand asset sale so far this year, Telecom sold directories business Yellow Pages to Hong Kong-based CCMP Capital Asia and Canada's Teachers' Private Capital for $2.24 billion in March.  Some sources felt Wood Products could fetch a similar price.

Big international private equity groups, possibly including Cerberus Capital Management, Pacific Equity Partners, CVC Asia Pacific and Champ, are thought to be the most likely bidders.  Mr Hart completed the $3.3 billion acquisition of Carter Holt Harvey in March 2006, delisting what was the stock exchange's third-biggest company.  Since then Mr Hart, whose fortune is conservatively estimated at $2.75 billion, has sold Carter Holt's forests to US timber management organisation Hancock Timber Resource Group for about $1.6 billion and properties including the company's Auckland base to Australia's Valad Property Group for more than $300 million.  He has also spent about $4.5 billion buying Swiss company SIG, Blue Ridge Paper Products of the US and packaging assets from US firm, and former Carter Holt parent, International Paper.  This has transformed Rank Group into the world's second-biggest drinks packager, behind Switzerland's Tetra Laval Group, with about a 15 per cent market share.

After buying Carter Holt at a time of weak international conditions for forestry companies, Mr Hart is looking to sell as the Agriculture and Forestry Ministry predicts 30 per cent growth in forestry export earnings to $4.65 billion in the next four years.

Carter Holt has about 10,000 staff and four other business units - Pulp & Paper, Packaging Carton, Packaging Corrugated and building products chain Carters.

Fletcher Building has been a sharemarket darling for the past five years but investors might have missed out altogether if Fletcher Challenge's board had taken private equity advances more seriously.  In September 2000, when the Fletcher Challenge group was being broken up, a private equity firm came knocking on the door expressing interest in Fletcher's building business.

Though the offer was not made public, BusinessDay understands it came from Credit Suisse First Boston Asian Merchant Partners and was worth about $2.82 a share.  CSFB Asian Merchant Partners is the firm that floated ill-fated carpet maker Feltex in 2004.

Unimpressed with the private equity advances, Fletcher Challenge's board jilted CSFB.  Fletcher Building, with businesses which include PlaceMakers, Fletcher Construction, Golden Bay Cement and Gerard Roofs, listed on the sharemarket as a standalone company in March 2001.

Its shares, which started at $2.23, hit a record high of $13.42 in May after Fletcher Building raised $328 million in a placement of new shares to help fund the $1 billion acquisition of benchtop group Formica. Though the shares have slipped back, they are well above $12.

Roderick Deane, formerly Fletcher Challenge chairman and now chairman of Fletcher Building, recalls that the offer came when the breakup of Fletcher Challenge was well under way.  It would have been a "huge hassle" to address the CSFB offer.  Furthermore, Dr Deane describes the offer as indicative with numerous conditions attached, giving a range of prices rather than a specific one.  "It just seemed to us that it didn't have a large enough premium in it to warrant pursuing and it was too indefinite," Dr Deane says.  "If they'd actually made a firm, unconditional offer then of course the obligation to disclose would have been much more immediate."  The offer was subject to a confidentiality agreement and Dr Deane says the other party did not want it made public.

CSFB spokeswoman Elizabeth Rudall declined to comment.

Fletcher Challenge was broken up in New Zealand's biggest corporate restructure in 2000-01.  Fletcher Paper was sold to Norske Skog for $5 billion.  Shell and Apache Corporation bought Fletcher Energy for about $4.8 billion. Fletcher Forests was listed.  Today, having sold all its forests and its wood processing assets bar a sawmill and mouldings plant in Taupo, it is known as Tenon.

Dr Deane says Fletcher Building was always regarded as the potential crown jewel but it had not been "polished up" for some time.  After analysis the board decided what its strategies should be and pooled the lessons individual directors had learned.  Chief executive Ralph Waters joined in mid-2001.  Since then Fletcher's share price has surged as it has cut costs, made the most of strong construction and infrastructure demand, and expanded in Australia by spending $1.6 billion on acquisitions.  Mr Waters handed the reins to Jonathan Ling last September.

With Formica, Fletcher is now the world's biggest maker of laminate boards for use in kitchens, bathrooms, shops, hospitals and schools.  After starting as a company dependent on the domestic residential building market, it is now on track to make more than half its revenue overseas.  "When we listed Fletcher Building it was No17 on the stock market. Today it's No2 in market cap. I think that's the vindication."

BRW Rich 200 members have offloaded assets valued at more than $15 billion in the past year. So why have they done it and what does it mean for the economy?

Australia's super wealthy have engaged in an unprecedented level of selling over the past 12 months, disposing of more than $15 billion worth of assets. Enormous fortunes have been made, empires have been liquidated overnight, careers have ended and new businesses have been born. The economy is awash with money and private equity firms, property developers and public companies are desperate for new assets to boost returns. BRW Rich 200 members such as James Packer, Kerry Stokes, Solomon Lew and Lang Walker have been presented with deals that were simply too good to refuse.

But there are other reasons behind the great sell-off. Some Rich 200 members are selling up to expedite the transfer of wealth to their children. Some just want to retire. Others are seizing the opportunity to enter new businesses or rebalance their investment portfolios. And in what should be a warning for the business community, the Rich 200 - who are legendary for their ability to spot trends - are also selling up because they see trouble ahead.

Queensland billionaire John Van Lieshout was one of the first Rich 200 members to sell up last year. In May 2006, Van Lieshout offloaded his Super A-Mart furniture business to the private equity group Ironbridge Capital for $500 million. Van Lieshout, a Dutch migrant who arrived in Brisbane as a teenager in the 1960s and owned his first furniture store by the age of 23, built Super A-Mart into a 21-store chain with revenue of more than $350 million. The business was his life's work, but Van Lieshout knew it was time to sell up. "I got 13 times earnings," he says. "I think only once in a lifetime someone comes along and offers you that sort of money."

Greg Will, a PricewaterhouseCoopers partner who looks after a number of moneyed clients, says it is a common refrain among the legion of wealthy sellers. "There are some prices for businesses out there that are just too good to refuse. We've never seen anything like the past 12 to 24 months."

Market observers have been regularly surprised by the magnitude of many deals involving Rich 200 members. Property commentators were stunned when the Besen family received $621 million for a half-share in its Highpoint Shopping Centre and surprised at the $270 million David Burger received for the Mid City Centre building in Sydney. Media industry insiders were amazed when James Packer got $4.5 billion for a half-share in Publishing & Broadcasting Ltd's media business and when Kerry Stokes sold a half-share in his Seven Network for about $4 billion.

The $130 million Solomon Lew received for his Witchery women's fashion chain was more than most pundits predicted. Harvey Norman executive chairman Gerry Harvey thought Archer Capital's offer for the company's stake in Rebel Sport was overly generous, so he sold up and took a $150 million profit. The founder of the RAMS Home Loans business, John Kinghorn, is selling that business. Some analysts value the company at $500 million, but offers are flooding in about the $1 billion mark.

There is an old saying in the business world: when the rich start selling, the market is about to turn down. Will says many of his clients are worried about when Australia's decade-long period of prosperity will end. "It is definitely a concern for them. Waiting for the downturn is really top of mind, because that's how they have made their investment decisions in the past."

The senior vice-president of Merrill Lynch's private wealth services division, Dara Minbashian, agrees. "If you are a seasoned investor you always get worried when there is so much money around." Van Lieshout has clearly made a judgement that the prosperous times the company has enjoyed thanks to the Queensland population boom could be about to end. "The furniture business is wonderful when there is a housing boom. But it is tough when the housing market isn't going so well."

Indeed, Van Lieshout seems genuinely confused about the state of the Australian economy. As part of the Super A-Mart sale, Van Lieshout retained the property Super A-Mart sits on, including its stores, warehouses and offices (the portfolio is believed to be worth about $400 million). He had planned to plough some of the proceeds from his sale into more property investments but he is struggling to pick the market. Prices have skyrocketed in recent months to levels Van Lieshout cannot understand. "There must be so much money in the market that people are willing to pay anything. I don't want to sit on the sidelines for too long because maybe the market will stay like this. It makes me a little bit worried. Whenever I see that it's too good for too long I get concerned. It is certainly different to what I have seen in the past 40 years."

Some property-industry moguls are also wondering whether the market is near its peak. In November 2006, Lang Walker sold a $1.1 billion chunk of his property portfolio to listed property group Mirvac. Included in the deal were shopping centres and a slew of retail, commercial and industrial property. Walker started the sale process in March 2006, but most potential suitors baulked at the price he was asking. In the end, Mirvac picked through the assets individually and Walker sold only those he felt were priced correctly. West Australian investor and Rich 200 member Stan Perron also purchased some of Walker's assets. What makes the sale particularly significant is that it is the second time

Walker has sold the bulk of his portfolio. In 2000, he sold the listed Walker Corporation to Australand for $110 million, brilliantly picking the top of the cycle. Bill Bowness sold the Australian portfolio of his Wilbow Corporation to listed property company FKP for $330 million in September 2006. The sale was partly driven by Bowness's desire to step away from what he calls the "property coalface" and diversify into areas such as mezzanine financing.
Last year, however, he said he was shocked at the prices being paid for property assets. "There is so much money around and there are fund managers who are wanting to do all sorts of things," he says. "There will be tears."

But it is not all bad news. The managing director of Goldman Sachs JBWere's private wealth management division, Paul Heath, believes there are other reasons for the great sell-off besides big prices and concerns about the business cycle.

He points to succession as a big motivator. Australia's wealthy entrepreneurs are ready to hand over to their children, but are finding the next generation unwilling to grab the reins. "The younger generation see other opportunities that don't involve the family business," Heath says. Many rich entrepreneurs are finding that selling their business and splitting the proceeds is a lot easier than trying to persuade unwilling family members to take over.

Goldman Sachs JBWere's head of investment banking, Clark Perkins, says the spate of sell-offs also has much to do with the rapid growth of the private equity industry in the past 12 to 18 months. While wealthy business people have always had the option of selling their business through a public float or a private trade sale, the extremely flexible nature of private equity deals gives them a range of new options. They can sell a business in its entirety, or just sell a chunk. They can arrange to stay in the business for five years or stop work immediately. They might, like Van Lieshout, sell the operating business and keep the property.

"Private equity is providing ... a very real alternative that just didn't exist five years ago," Perkins says. He adds that a private equity deal is also often more palatable for a wealthy entrepreneur than selling out to a bitter rival through a trade sale or facing the public scrutiny a float brings. "Private equity provides a discreet, more confidential exit compared to the public market."

Of course, not every sell-off was motivated by a desire to exit. Perkins says many wealthy business people are also looking to do private equity deals to take their business to the next phase of its life. "They are looking for some fresh thinking and a drive to push the business to grow again." That is exactly why James Packer and Kerry Stokes did private equity deals.

By selling half of their media businesses for $4.5 billion and $4 billion respectively, Packer and Stokes have built massive war chests with which to make other acquisitions and expand their businesses. Packer has already made several acquisitions in the gaming sector while Stokes appears poised to play a big part in the coming shake-up of the Australian media sector.

So will the great sell-off continue? Almost certainly. Private equity funds are swollen with cash and must find ways to spend it if they are to earn the returns their investors demand. This means Rich 200 members will continue to be courted and tempted with huge prices for their businesses.

Rich 200 members are also likely to court private equity firms. Perkins says wealthy individuals and families now understand the private equity model and are more confident it can deliver them a profitable exit or capital to grow.

The sell-off will also continue as the members of the Rich 200 age. Merrill Lynch's Minbashian says: "The next 10 years will see a lot of people selling up simply because they are getting old. These guys are getting to 70 and 80 and 90 and they don't want to run a business any more."

OFFLOADING
Rich 200 members who have sold assets in the past yearBill Bowness Sold the Australian assets of his Wilbow Corporation to FKP Property Group for $330 million in September 2006. He is pessimistic about the Australian property industry and was keen to cash out while the price he could get for his portfolio was sky-high.
David Burger The Sydney property developer sold the Mid City Centre in Sydney for $270 million in May last year.

John Gandel The shopping centre magnate cashed up last year by selling his management stake in the $4.8 billion CFS Retail Property Trust to Commonwealth Bank for about $400 million. In December 2006, Gandel also sold his portfolio of upmarket retirement villages to a consortium of Macquarie Bank and property group FKP for about $105 million.

Tony Haggarty and Chris Ellis In October 2006, Haggarty, Ellis and their fellow directors of Excel Coal agreed to sell the company for $1.8 billion to Peabody Energy, the world's largest private sector coal producer.

Gerry Harvey The veteran retailer sold Harvey Norman's $185 million stake in Rebel Sport to private equity firm Archer Capital. Harvey Norman made $150 million on the deal. John Kinghorn The jewel in John Kinghorn's investment portfolio, RAMS Home Loans, is on the sale block. There have already been a few offers about the $1 billion mark from suitors including National Australia Bank. Private equity firms are ready to pounce, but a float has not been ruled out.

Solomon Lew Veteran retailer Solomon Lew agreed to sell his stake in Coles Myer to Wesfarmers for about $1.14 billion in April this year, severing his ties with the retail giant after a 20-year relationship. In July 2006, Lew sold the Witchery women's fashion chain to private equity firm Gresham Private Equity for $130 million, about $15 million more than its original offer.

James Packer In October 2006, Publishing & Broadcasting Ltd sold 50 per cent of its media business to private equity group CVC Asia Pacific for $4.5 billion. Packer got the best of both worlds: PBL retains control of the new media company and also gets a pile of cash to pay down debt and sink into expanding gaming assets.

Ralph Sarich Ralph Sarich's property company, Cape Bouvard, sold $500 million of assets to United States conglomerate GE in January. The portfolio includes office buildings in Perth, Sydney and Melbourne. While the portfolio was not officially for sale, Sarich says he had many unsolicited approaches during the previous year. GE paid cash for the assets. Peter Scanlon When Peter Scanlon agreed to sell his stake in ports company Patrick Corporation to logistics company Toll Holdings, the takeover battle for Patrick was effectively over. Scanlon took
$405 million worth of cash and shares from the deal.

Kevin Seymour He put a $250 million portfolio of properties on the market in early 2006 and sold an office building in Brisbane in February for $28 million. He is good at picking market cycles and regularly trades properties to lock in profits.

Kerry Stokes He followed the lead of James Packer by selling a 50 per cent stake in Seven Network to private equity company Kohlberg Kravis Roberts for about $4 billion. Ken Talbot The coalmining veteran, who owns a majority stake in Macarthur Coal, sold his chain of six hotels to Cairns pub baron Tom Hedley in October 2006 for $110 million. Talbot plans to invest the proceeds of this sale in a private mining group. Talbot Group Holdings recently invested $26.4 million in Timor Sea explorer Karoon Gas Australia.

Lang Walker In November 2006, Lang Walker sold a $1.1 billion chunk of his property portfolio to listed property group Mirvac. West Australian investor and Rich 200 member Stan Perron also purchased some assets.

Besen family In March 2006, the Besen family sold a half share and the management rights to its Highpoint Shopping Centre for a mammoth $621 million.

Hannan family After an emotional sale process, the Hannan family sold the newspaper, magazine and online assets of its Federal Publishing Company to News Corporation for an undisclosed sum, believed to be about $340 million.

Knowles family The Knowles family company, Australian Retirement Communities, sold a portfolio of 17 existing retirement villages (home to nearly 4000 residents), three villages under development and six villages in the planning stages to listed property company Stockland in February for $329 million.

Smorgon family In June 2006, the Smorgon family agreed to sell its $550 million stake in steel company Smorgon Steel into the $1.6 billion takeover by rival OneSteel. Smorgon Steel chairman Graham Smorgon said the decision was an emotional one. "But it was a business judgement that needed to be made."

The business of living
What next? That is the question that has confronted many Rich 200 members who have sold their businesses in the past year.

Greg Will, a partner at PricewaterhouseCoopers who works with wealthy clients, says it can be a difficult question for prosperous people who leave their business. "Having a large bank balance is great, but what are you going to do the next day?"

John Van Lieshout, who sold his Super A-Mart furniture for $500 million last year, is representative of many Rich 200 members who say that selling their business allows them to indulge passions such as sailing and golf. "It's a good life. I should have done this years ago really," he jokes.

Will says retirement sounds easy, but it can be very hard for men and women used to the intense lifestyle associated with running a business. Many struggle to find something to fill in their spare time. In most cases, the only thing that helps is finding another company to channel their energies into. "They get some little business interest that soon takes over and the cycle starts again," Will says.

Van Lieshout has plenty to keep him busy. He has retained the properties Super A-Mart sits on, a portfolio believed to be worth about $400 million. He has a small property development firm called Unison and he has established a small office with five staff to examine other investment opportunities. "I'm doing an apprenticeship in trying to learn about money markets and shares and investments," Van Lieshout says. "It is complex and I don't have a lot of education so it takes me a while to understand, but I am enjoying the learning process. He keeps an eye on the Super A-Mart business - it is, after all, his biggest tenant - but says he does not want to interfere with the new owners, the private equity firm Ironbridge Capital.

Van Lieshout, who prided himself on running a very tight ship at Super A-Mart, has caught up with one bit of scuttlebutt that makes him chuckle. "I have heard them say that it is one of the few businesses they haven't been able to trim any costs from."

The City's new breed of wheeler-dealers, it is claimed, demoralise and devastate every company they buy - the AA among them. Danny Fortson spent a day on the road with the 'fourth emergency service' to see if that reputation can be rescued

As on most mornings, Vincent Rodriguez, a patrolman for the AA, was assigned last Tuesday to the London "posh patrol" starting out in Victoria. When the day's first call lit up his on-board computer at 6.58am, he had already been scouring the streets for an hour, on call for members of the UK's biggest auto club.

The dashboard console gives the vitals: Lots Road. Green Nissan. Won't Start.

As he wends his way through the deserted streets of Chelsea - with The Independent on Sunday in tow (thankfully, not literally) - it is rather less dramatic than the auto club's commercials, where patrol men and women appear from hillsides and glens to come together in an impromptu chorus singing "You've got a friend".

In a few minutes, he comes upon the stricken Figaro coupé parked at the roadside and its young female driver. The problem is, after a few cursory checks, quickly apparent: she forgot to put the automatic car in "park".

Vincent gently informs her of the problem. She chuckles meekly, signs a few papers, and just like that the job is done - another satisfied customer of the UK's so-called fourth emergency service.

Before she has even turned the corner, Vincent is punching a code into the computer to request the next job. By that time, the AA has already answered 3,315 roadside-assistance calls throughout the UK - well on the way towards the daily average of around 10,000.

But on this morning after the Easter bank holiday, there is no response to Vincent's request. So it's off to Starbucks.

As we sip coffees in the yellow van, the streets are eerily still. Watching the occasional jogger or dog-walker pass by amid the beeps and bleeps of the onboard computer, a couple of minutes turn into an hour, and Vincent reveals a few insights that he has gleaned on the job.

On dead batteries: "The husband blames the wife, the wife blames the kids."

On differences between the sexes - especially where stricken vehicles are being pulled on a towpole and the motorist has to steer in the same direction as the rescue van: "Women are the best to tow as they read the instructions. Men assume they know what they are doing and end up making the most mistakes."

On motors: "You buy a German car if you want something flashy. Get a Honda if you want something reliable."

It is a bubble of early-morning serenity, and it could not feel further removed from the firestorm that has raged over the AA in the past two and a half years. In 2004, private equity firms CVC and Permira bought the company for £1.75bn from its previous owner, Centrica.

Since then, it has been held up by unions as Exhibit A for everything that is wrong with private equity. These firms, claim trade unions, buy companies and then strip the assets with little regard for workers or customers. And then they sell them on for huge profits.

Long before the public furore over private equity erupted in the wake of the failed takeover of J Sainsbury earlier this year, the AA was the unions' cause célèbre. Nowhere is the clash between the two sides more emotionally charged.

It is not hard to understand why. Soon after the 2004 takeover, new management led by chief executive Tim Parker instituted a restructuring. As a result of redundancies and the disposal or closure of AA businesses such as garages and tyre-replacement services, 3,400 jobs were eliminated. The GMB union, which had represented the company's workers since the 1980s, was marginalised. In its place came the AADU, the group's newly recognised union which was set up by former GMB officers and took most of that union's members with it.

The GMB claims the AADU was welcomed by its private equity owners because it was weaker, making it easier for them to "bully and harangue" employees into longer hours and worse conditions.

Meanwhile, CVC and Permira loaded the company with debt and paid themselves a £500m special dividend.

However, some three years on, profits have nearly doubled and turnover has increased. An aggressive marketing campaign, including the "You've got a friend" commercials, has succeeded in increasing membership.

But the AA did recently lose its position as preferred breakdown service to rival RAC, as ranked by researcher JD Power. The GMB says this is further evidence of the company's decline.

Indeed, since the takeover, a very public and vicious debate has raged about the AA, with both sides rolling out wildly diverging numbers to back their arguments. At times, it is as if they are speaking of different companies. The GMB, for example, says that 1,400 patrols have been eliminated; the AA says there are only 600 less than before the takeover. The GMB says waiting times have increased; the AA says they are slightly less. The GMB claims it represents around a third of the company's 7,200 workers; the AADU says it only has a handful on its rolls and thus its claims, motivated by bitterness at losing hundreds of thousands of pounds in union fees, should be summarily dismissed as "complete rubbish".

Rumours bubble up regularly about CVC and Permira looking to float the company or sell it for as much as £3.5bn. Finance director Paul Woolf said, however, that the company does not plan to look at such options until next year. But what will the next owner, or the stock market get - a hollowed-out husk of its former self, or a leaner, more efficient group thanks to a much- needed dose of tough love from its private equity backers?

The AA earnt £251m on £794m in turnover last year. Those numbers are up on the £129m profit and £742m in turnover delivered before the 2004 takeover.

The view of the GMB is decidedly different. Paul Maloney, the GMB national secretary who has led the union's campaign against private equity, says: "They have got 1,400 patrols less than when they bought it, but they have a bigger customer base. Members are having to wait longer and pay more for services. The AA is a failing company. Despite the best efforts of its staff, that's what it is."

In an effort to tell its side of the story, the company invited The Independent on Sunday to ride with a typical patrol to get a better sense of how things truly are at the company. To avoid accusations that the AA had hand-picked a patrolman to represent the firm, it was agreed that the AADU should select the driver.

The early-morning Starbucks reverie is interrupted by the next call: Brompton Road, Seat Ibiza, Black. Won't start. Vincent Rod- riguez puts his now-empty latte in the cup holder and is off to help another of the group's 15 million members. This time it's a dead battery. He attaches jumper cables from a suitcase-sized charger, and waits as the contraption breathes life back into the battery.

He has been at the AA for five years. A former GMB member and current AADU member, Vincent is an earnest employee who clearly loves his job. He paints the changes that have swept through the company as a necessary house-cleaning. "Hand on heart, I think that most of the [workers made redundant] couldn't be bothered. You have two types of people, the 'can't dos' and the 'won't dos'. The patrols that moan are the ones that preferred the old ways, where they could sit in the caff all day drinking tea. I don't understand all the screaming and crying. Now people are having to earn their wage, and that's what I tell the lads," he says.

On this day, Vincent has a light load. But he admits that generally he works harder.

"Those old eight-hour shifts used to take for ever. But in the last 18 months we have been so busy. Now it is job after job after job. I just get on with it. It is more financially rewarding now. There is more opportunity for bonuses."

One way to hit bonuses is to try to recruit new members to the rescue service. Patrolmen are encouraged to spend down-time between jobs in petrol station forecourts or supermarket car parks pitching memberships to passers-by.

Vincent says cold-selling isn't his strong point, but he has caught on. "I picked up on it pretty fast."

It is little surprise that the AADU chose him to represent the company: he is extremely dedicated. A trainer of fellow patrolmen, he tells his team of 55 workers that they can call him any day, holiday or not, from 6 am to midnight on the mobile if they ever have any questions.

Paul Maloney at the GMB describes Vincent as a "stooge" and alleges that inviting along a journalist to shadow a member of the AADU on a traditionally slow day is part of an elaborate ruse to craft a falsely positive image of the AA.

"They set you up with an AADU stooge patrol on a cushy day to show that everything was relaxed. We don't believe in fiction," he comments.

Whatever the truth may be, CVC and Permira are in line to trouser what will surely be a massive profit when they decide to unload the business. That is based purely on the willingness of a buyer, or the public markets, to value the company at more than what it was worth before.  For now, that is exactly what seems likely will happen.