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Foodstuffs North Island has flown the co-op coop



Despite presenting itself as owned by hundreds of individual grocers, just four individuals hold all the power, experts warn merger inquiry.


Merging Foodstuffs South Island into the North Island entity’s corporate structure could have serious consequences, according to the latest academic to enter the debate. .Serviced through its North Island and South Island wholesale networks, Foodstuffs co-op members operate 530 stores nationwide: New World, Pak’nSave, Four Square, On The Spot and Raeward Fresh, as well as the wholesalers Gilmours and Trents.


However, as the companies seek Commerce Commission clearance to merge their South Island and North Island entities, academics on both side of the Tasman are casting doubt on whether the northern party is a co-op at all. University of Sydney researcher Lisa Asher, of Māori heritage, who fears it would result in a concentrated wholesale market fuelling poverty, raised the issue in her most recent submission.


Set up as a standard limited company, Foodstuffs North Island has three forms of shares: A class (voting), B class (non-voting) and C class, which have no voting rights unless a triggering event occurs, such as a takeover or attempt of ownership change. If a trigger event takes place C shares have votes equal to one third of A share votes cast plus 10 in a special meeting whereas in a regular meeting they have the voting power of all A votes cast plus 10.


A little over 92 percent of the A and B shares are owned by one company – Strategic Interchange Limited – while all 50 C class shares are held by Tetrad Limited, both non-trading shell entities that share the same four directors and shareholders. Of the four, who are listed as listed as Protection and Perpetuation Trustees of Foodstuffs North Island. three – John Francis Street, Murray Peter Jordan and Peter James Anderson – are former Foodstuffs executives while Martin James Wiseman is a lawyer.


Asher said this didn’t fit within the common definition of a co-operative in economic literature, saying it was unclear how the the typical ownership structure of a cooperative, and the democratic governance “which is a hallmark of a cooperative”, was aligned with the ownership structure of Foodstuffs North Island. “It is a private limited company with a concerningly distorted shareholding that appears to place the purported ‘owners’ of this company utterly at the mercy of four gentlemen who are not store owners.” Dr Robert Hamlin, University of Otago.


And while Foodstuffs South Island is listed as a co-operative on the Companies Office, Foodstuffs North Island is not. “Based on the limited time afforded to us, we were able to find in publicly available documents, that Foodstuffs North Island no longer appears to be a cooperative, unlike Foodstuffs South Island."


“Through this research, it appears the majority of ownership of Foodstuffs North Island sits with four individuals, where three have history with the organisation in a leadership capacity and bringing it to its current concentrated structure.”


Asher, who detailed a series of changes between 2013 and the current day that led to the situation, suggested the Commerce Commission should review whether Foodstuffs North Island should be able to refer to itself as a co-operative.


These sentiments were echoed in a submission to the Commerce Commission by University of Otago marketing lecturer Dr Robert Hamlin, published on Friday. Hamlin, who has experience working in food, agriculture and banking, said evidence supplied to support the merger or publicly available on the Companies Office supported that Foodstuffs South Island was a cooperative with shares evenly distributed among supermarket owners.


“Not only do these arrangements place the Foodstuffs North Island ‘owners’ entirely at the mercy of this quartet, it also places 65 percent of the population of the North Island in a similar position with regard to a system that supplies them with the essentials of life.” Dr Robert Hamlin. He said the same couldn’t be said about Foodstuffs North Island, which has a much more convoluted structure.


Hamlin couldn’t get his hands on the deeds governing the four trustees, but presumed they follow the same paramount principles as the wider business, to “preserve, perpetuate and promote the organisation and to work for the mutual benefit of all members of the organisation”.


Hamlin said this was “dangerously vague”, and could be weaponised, with any number of options able to be called the best way to “preserve and perpetuate the organisation” and “for the mutual benefit for all members of the organisation”. Although Foodstuffs South Island was a genuine store owner-held co-operative, he said the North Island entity was “no such thing”.


“It is a private limited company. Moreover, it is a private limited company with a concerningly distorted shareholding that appears to place the purported ‘owners’ of this company utterly at the mercy of four gentlemen who are not store owners, but who between them own and control more than 92 percent of one kind of voting share (A shares) and 100 percent of the other critical voting shares (C shares).


“Not only do these arrangements place the Foodstuffs North Island ‘owners’ entirely at the mercy of this quartet, it also places 65 percent of the population of the North Island in a similar position with regard to a system that supplies them with the essentials of life.” Hamlin said no matter who they were, putting the concentration of power into the hands of just four individuals reduced the future stability of the organisation.


A Foodstuffs spokesperson said the North Island entity was a co-operative because it operated according to co-operative principles enshrined in its constitution and capital structure. When asked why the organisational structures of the two businesses were so different, Foodstuffs said the two had some similarities, but also some differences as separate co-operatives that “have independently evolved over many years”.


If the deal is approved by the Commerce Commission on October 1 (the commission has pushed this date back four times), then Foodstuffs North Island Ltd and Foodstuffs South Island Ltd will merge, with North Island being the continuing entity. The thrust of Hamlin’s submission was that the South Island co-operative was the superior model for the merger if it did go ahead, while also seeking the publication of more documents relating to the function of the Protection and Perpetuation Trust, Tetrad and Strategic Interchange.


Hamlin and Asher aren’t the only academics to wade into the Foodstuffs merger debate – University of Auckland emeritus professor of economics Tim Hazledine wrote an opinion piece against the merger that was met with a defamation letter from Foodstuff’s lawyers requesting the piece be taken down. The piece, ‘Foodstuffs wants to merge its co-ops, but consumers need the opposite’, is still available on The Post’s website.



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