Global Horticulture: The kiwifruit venture that lost ‘friends and family’ tens of millions of dollars

Global Horticulture set out to make big money in China, home of the kiwifruit. Instead, writes Hamish Rutherford, the reality involved claims of deception and hefty losses for its well-connected investors.

At a time when New Zealand seemedspellbound by the opportunities available from doing business in China, the potential of Global Horticulture appeared as great as its grandiose name.

China’s kiwifruit industry is far older and many times larger than New Zealand’s, but the farms are much smaller and its growing technology is backward in comparison.

But China’s problem, said Global Horticulture’s backers, was the opportunity.

Authorities in Xi’an, an ancient city in Shaanxi province, China’slargest kiwifruit region, were so impressed by New Zealand’s growing technology, they were willing to let the company in.

A video to promote the company as part of the 2011 Deloitte Fast50 competition showed Regan Wood, an entrepreneur who had become a director and shareholder in Global Horticulture, excitedly talking about itspotential.

“We were invited in, saying ‘help us, we’ve been growing kiwifruit for a very long time and you people took it and commercialised it, and did a very good job of it’,” Wood said.

“‘So help us commercialise it, because we need a transfer of wealth to our farmers, we need to feed our people’,” Wood added, gushing about the monumental opportunityif the company could one day sell just half a piece of fruit to each Chinese person a week.

Before joining Global Horticulture, Wood and a business partner built up a retail chain, the Sunglass Store, which was sold to international eyeware giant Luxottica in 2004. He is now chief executive of the Auckland Tuatara baseball team. He is not the only person associated with the company with a public profile, at least within business circles.

A decade after the video was shot and 17 years sincethe company was formed, Global Horticulture caught the attention of the Takeovers Panel, the Crown entity that monitors New Zealand’s takeovers market.

In a short statement on July 23, the panel announced that it was holding a “section 32” meeting looking at changes in voting control as a result of events in 2014 and 2016.

Such meetings are held to assess whether a person, or people — in this casenot named — has breached the provisions of the Takeovers Act.

The Panel has since quietly announced that it has discontinued the inquiry after the complainant withdrew the request.

“Accordingly, the Panel has decided to discontinue the section 32 meeting and has not made any determination in respect of the matters that were to be considered.”

The Herald has been following a dispute at the company since early 2020, with directors conceding that they believe they were deceived about what the business was doing in China, leading to major losses for investors who were mainly their friends and family.

Many of the investors are respected figures in Wellington investment and banking circles.

A lawyer for the directors of the company put the losses for the largest shareholder in the “tens of millions of dollars”.

Although more than one investor is deeply frustrated at Global Horticulture’s performance, several have characterised the dispute as an episode in what they describe as a bitter divorce battle.

Grand plans come unstuck

Global Horticulture was set up in November 2004 by Patrick Watene, a former Zespri employee.

Initially based in Tauranga, Watene was for several months the sole owner.

According to media reports, part of Watene’s role with Zespri was to arrange visits for delegations to and from China. After being asked to provide an assessment of the Chinese industry and after delivering a difficult message, he was asked to help professionalise the industry.

“The Chinese sort of said to him ‘our industry’s in a bit of a shambles, we’ve got tonnes of it but we don’t do it anywhere near as well as you guys do; do you want to come and have a look at seeing what you could do to help us out?'” Craig Johnson, aGlobal Horticulture director, told the Herald in 2012.

Johnson joined the company several months after it was formed. He knew who Watene was from the time whenthey were both in the army, but did not know him well. However, he says he trusted him more than he might have otherwise because Watene was friends with the twin brother ofJohnson’s now-estranged wife, Maria.

As well as Craig Johnson being a significant shareholder in his own right,his father Bryan Johnson became a shareholder in 2006. Bryan Johnson was one of the leading figures in New Zealand stockbroking in the 1980s, one of the original “Jarden boys” who founded the investment manager of the same name. Within a few years an entity associated with Bryan Johnson had become the largest shareholder.

While Global Horticulture would effectively be exporting technology from New Zealand to China, the idea was one of mutual benefit that would ultimately help the New Zealand industry.

“A lot of people in the Bay of Plenty were very keen for us to succeed,” Craig Johnson told the Herald in early 2020.

Not only was the Chinese season at the opposite time of the year to New Zealand’s, the company could have helped grow the market and use post-production resources that sat idle for months of the year.

Instead of having to truck product to Tauranga and ship it to China, it could be put on a train straight to Shanghai.

“If you could just take a little bit of that supply chain … the opportunity was so big,” Simon Tyler, another director of Global Horticulture, said in February 2020.

But the venture required capital. Although the company raised little in the way of institutional backing, millions of dollars was raised over a series of funding rounds, with shares sold to investors for up to $200 each.

“Initially, it was just a small model farm of 25 hectares,” Tyler said. “Then it was 100 hectares. Then it was 200 hectares. They wanted post-harvest facilities. It became very capital intensive.

“During the time, it was relatively easy to talk to people about saying ‘this is a great investment opportunity’.”

Tyler worked with Craig Johnson at the National Bank, now part of ANZ. Tyler, a former senior Reserve Bank official, is now the chief executive of the Government Superannuation Fund Authority, as well as the National Provident Fund, managing billions of dollars of pension funds for retired public servants, MPs and police.

Two other former National Bank employees recalled being offered the chance to invest in the company at the time.

Global Horticulture’s shareholder list includes a large number of names from Wellington banking and business circles as well as wealthy figures from around the country.

For a time it was chaired by Stu Nattrass, a former director of Fonterra, South Canterbury Finance and Pike River. He stood down at the start of 2012.

The shareholder group was described a decade ago as “friends and family”.

Those investors included Lib Petagna, one of the original employees of Morrison & Co, the Wellington asset manager behind Infratil; Trustpower chairman Paul Ridley-Smith; and former Chapman Tripp partner John Sproat, who is a director of both Kiwibank and NZ Post.

There are shareholders with deep investments in dairy, horticulture, seafood, property and more. One Australian investor apparently helped get the career of former Wallaby Kurtley Beale back on track.

But the biggest investor of all was Jarden Custodians, an entity controlled by Bryan Johnson and — at the time — finance industry veteran David Wale. The entity appears to have no direct link to Jarden, which remains one of New Zealand’s leading wealth managers.

By 2012, Jarden Custodians owned around 30 per cent of the company, while Johnson Investment Management,controlled by Craig Johnson, owned nearly 20 per cent.

Almost all of the shareholders contacted about their investment declined to comment, saying while it was disappointing the company had not been more successful, these were the risks of business.

Most conceded that they were reluctant to speak publicly about their investment because they were friends with those at the centre of the company.

“The way it was sold to me was, it was a way to have some fun and make some money at the same time,” said one shareholder, who said their investment was in the hundreds of thousands of dollars.

Precisely how much the company raised is unclear. In 2012, Craig Johnson said ithad raised about $60 million, mostly from friends and family.

In 2020, Johnson saidthe company had raised about$15m-$20m, beforethe problems began to emerge.

In 2011 and 2012, Global Horticulture was, according to the Deloitte Fast50 competition, the fastest growing primary sector business. But in 2012 the New Zealand-based directors realised they had a problem.

Tyler and Craig Johnson told the Herald they believethe company wasthe victim of what they claim was a substantial deception, alleging thathundreds of thousands of dollars had been spent creating false accounts to mislead them about the state of the business.

'A facade'

“Our chief executive had launched into other activities over there, which he hadn’t told the board about,” Tyler claimed.

“We went over and found out he had allegedly been lying to us and not giving us the truth.”

The board of Global Horticulture believed it had a large but silent Chinese partnerwho owned a third of its business.

The board members met the supposed partner, who even came to New Zealand, but Tyler alleged it was “basically a facade”.

“Patrick [Watene] had, effectively, a puppet,” Tyler alleged.

As well as discovering that they owned the entire Chinese business, the directors unearthed”a whole lot” of debt to Chinese banks and other lenders.

“We owned more land than we thought,” Tyler said, referring to long-term leases, rather than legal title as in New Zealand.

Tyler claimed Watene extended the company and bought an 18 hectare industrial site, “which we didn’t know we’d owned, and he’d accumulated a whole lot more debt that we didn’t know about”.

In a recorded interview, both Tyler and Johnston claimed they believedthe company had been the victim of a fraud. But not only did they make a conscious decision not to pursue Watene (choosing, they said, to attempt to rescue the business), Tyler complained ofthe difficulty they would have had enforcing their rights under Chinese law.

“It’s always Harry hindsight. You know, you should have seen the risks, but the potential reward …” Tyler said, trailing off.

“We spoke to Zespri, all of the big Bay of Plenty guys, they wanted to get into partnership, even back in 2014 when we had our problems. They’ve been up there, it’s all very exciting, because you can see if you could get a little bit of that supply chain.

“Everyone was very excited. It’s easy, with hindsight, to say, ‘what happens when you come to enforce your rights?’ And you’re right. It’s very risky.”

Watene has refused to comment when contacted by the Herald.

“No comment and bound by CA,” Watene said in a Facebook Messenger message, presumably meaning a confidentiality agreement, in January 2020.

According to the website of Finlays, a business-to-business seller of tea and coffee in China that is part ofthe privately-owned UK conglomerate Swire, Watene is now an executive based in the province of Guizhou.

After the Herald sought comment through Finlay’s website, Watene emailed to say it was inappropriate to contact the company about his former business dealings. Again, he did not respond to specific questions about his time at Global Horticulture.

Whatever exactly did occur, Global Horticulture directors said they received legal advice that Watene had not broken New Zealand law.

Their explanation of advice from a Chinese law firm was that many of the offences they believed he had committed were punishable by fines. Johnson said proving more significant issues would have been difficult.

Tyler told the Herald that Watene was fired in January 2013 and that the company’s original founder forgave his remaining shareholding at no consideration.

The Herald is in no position to assess the claims.

'We're bust'

“At that time [2013] I thought, we’re bust. We didn’t have enough money,” Tyler said.

Global Horticulture’s largest shareholder, however, saw things differently, Tyler recalled.

“Craig’s father and his partners said ‘hey, don’t be so quick. If we decide to continue with funding, an extra five or ten million, do you think you can get it going? Because you’ve got a lot of land and assets over there which other people would have given their right arm to get. So even though you’ve got liabilities, so, you’ve certainly got assets as well’.”

The company did, though, have to go back to the Takeovers Panel, to make a disclosure to shareholders that information it had provided a year earlier was incorrect. While the problems were inadvertent, the directors acknowledged they could have faced legal action from investors.

“We were vulnerable for that period,” Tyler said. All of the shareholders could have taken legal action, but none had done so.

But what followedcaught the eye of the Takeover Panel.

Its brief statement that it was investigating said it waslooking into changes involving control in March 2014 and October 2016.

Companies Office records show that on March 3, 2014, 18 shareholders were removed from the share register, as were the corresponding share allocations.

At the same time, three shareholders had their shareholdings increased by a corresponding amount.

As well as a significant increase in the number of shares held by Tyler, the register showed an increase in the numberjointly held by Todrick Taylor, a director of the chartered accountancy firm Hudson Taylor (whose address is the registered address for Global Horticulture) and Rakau Properties, an entity whose sole director is Sproat.

This saw the number of shareholders cut to below 50, the threshold at which the company would automatically be considered a “code company”, meaning it was automatically covered by the provisions of the Takeover Code.

Then, in October 2016, a number of updates were made to the Companies Register. This saw most of the shareholders that were removed in 2014 reinstated.

At the same time, the number of shares in the company expanded by close to 700 per cent. Several shareholders took on more shares, but by far the biggest allocation went to Jarden Custodians.

This took the entity’s control from roughly 40 per cent to almost 87 per cent.

Meanwhile, shareholders who did not take part in the recapitalisation had their holdingsdiluted.

Tyler confirmed that the changes were as a result of a debt-for-equity swap, under which some shareholders recapitalised the company at $15 a share, implying a transaction worth another $24.7m.

The Herald has seen documents from Wellington lawyer Michael Wigley which claim the steps taken in 2014 were a sham, designed to get around the directors’ obligationsunder the code.

Wigley, who is acting for Maria Johnson, appears to have been attempting to bring the matter to the attention of the Takeovers Panel since at least late 2019.

Tyler and Johnson saidthey believed they were entitled to take the actions they had to avoid the compliance costs associated with obtaining an independent valuation for Global Horticulture.

Asked why they hadpulled out of the Takeovers Panel process, Maria Johnson issued a short statement suggesting she still intended to pursue the matter through the courts. “I am very disappointed with how the panel has handled this matter, so I pulled out. I am relying on court proceedings instead.”

Marital dispute

They, like several shareholders, attempted to cast the issue as a marital dispute.

“Craig and his wife may have problems,” Tyler said. “But as a company, there have been some serious allegations made, but they’re unfounded.”

As part of the interview, Tyler released to the Herald a letter from their lawyer, Heimsath Alexander special counsel David Jones, to Wigley, which claimed the Takeovers Panel had regularly accepted that code companies were free to organise their affairs to avoid the compliance costs associated with code company status.

“It is relevant that the largest investors in [Global Horticulture] who have lost tens of millions of dollars have not, as we are advised by our clients, viewed the failure of the company as attributable to the actions of the directors or a failure to comply with the Takeovers Act, the Companies Act or company laws generally,” said the letter.

Jones knows the workings of the panel better than most. A member of the advisory committee when it was established in 1991, he attended more than 800 meetings, serving as deputy chairman and chairman before stepping down in 2016.

“David’s contribution to the development and success of the Panel and the Code, and consequently the confidence of New Zealand’s capital markets, cannot be overstated,” the Takeovers Panel itself said in a “farewell letter” to Jones.

In a statement to the Herald in March, Jones dismissed Wigley’s actions. “Michael Wigley is very aware that his claims on behalf of his client have been rejected absolutely as being wrong, both factually, and at law,”it said.

Since the Takeovers panel’s July 23 announcement, Tyler has not responded to a request for comment.

The exact status of Global Horticulture is now unclear. Both Craig Johnson and Tyler said the investment had turned out to be a poor one.

While several investors said they had effectively written off their stakein the business, others were hopeful that a sale might help recoup at least part of the original investment.

Craig Johnson said the company was now the minority owner in the Chinese business, majority owned by an investment fund fromShaanxi province.

In early 2020 Johnson had been trying to agree the sale of the business but had not been able to settleon a valuation with the Chinese directors who now have majority control of the business.

For the directors, the initial hype of a decade ago had been replaced by the difficulty of losing money for people who were all friends and work contacts.

“Of course it’s been difficult,” Craig Johnson said. “Everyone’s very disappointed.”

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