Climate change risk key to deals

The Foster’s deal to buy Beringer would look different today.

Former Goldman Sachs investment banker Keith Tuffley’s signature deal was Foster’s $2.6 billion acquisition of Napa Valley wine producer Beringer in 2000 that saw a company known for its eponymous beer brand become the world’s biggest premium winemaker.

Almost two decades later, in a new role at Citi as international adviser on sustainability and vice-chairman of its Australian investment banking business, Tuffley agrees that today’s volatile climate in California would have demanded a different approach to the Beringer deal. “The growing concern about climate change, droughts and bushfires in California is an issue,” Tuffley tells The Australian.

“So you’d now be taking into account the long-term impact of climate change on the reliability of quality wine production in that ­region.”

Without doing the detailed analysis, Tuffley says it’s unclear if such considerations would change the valuation of Beringer or affect the bidder’s willingness to take on the risk.

Indeed, the risk could turn out to be manageable.

One thing is clear, though, and that is Tuffley’s unshakeable belief that the big systemic issues of climate change, destruction of bio­diversity and sustainability in general need to be examined in pretty much every significant deal a company undertakes.

That’s where his global role for Citi comes in.

Back in 2000, Citi’s current head of corporate and investment banking in Australia and New Zealand, Tony Osmond, reported to Tuffley at Goldman Sachs.

In one of those twists of fate, Tuffley now reports to Osmond, having joined Citi in February.

In the intervening years, Tuffley left Goldman in London to complete a master’s degree in sustainability leadership at Cambridge University.

British billionaire Sir Richard Branson, one of his former Goldman clients, recruited him to lead a non-government organisation he had established called The B Team. The name reflected Sir Richard’s assessment that capitalism’s Plan A — to maximise shareholder value — was not going to resolve the sustainability challenge.

While climate change and the related field of biodiversity can create massive dislocation, Tuffley believes there are huge opportunities for companies to benefit from innovation and the application of technology.

This could also trigger transaction activity, as capitalism adapts to the challenge.

There’s a growing awareness in corporate Australia of climate-change risk and the danger of valuable assets suddenly becoming stranded.

Wesfarmers, for example, has quit coal and is pivoting towards electric vehicles and battery storage, while Woolworths has become the first retailer in the world to issue green bonds to fund energy efficiency initiatives such as the installation of solar panels on the roofs of its stores.

The company raised $400 million last month in an issue that was more than five times oversub­scribed.

However, in an economy heavily dependent on fossil fuels and with coal as its biggest export, the nation lacks an economy-wide ­approach.

“What risks do we face in the next 10-20 years when we know that the world has to dramatically reduce its reliance on fossil fuels when we’re one of the countries that’s most exposed?” Tuffley asks.

Word on the street

Funky fintech it’s not, but the long quest for a banking licence by Kim Cannon’s $11 billion “super-prime” home-lender Firstmac is reaching a denouement.

If it weren’t for Canberra going into caretaker mode for this weekend’s election, Cannon, a former mortgage broker from Queensland, would probably have secured approval from Josh Frydenberg.

He would then have joined the ranks of recent licensees including neobank Volt, and the Melbourne-based SME challenger bank Judo co-founded by Joseph Healy, the former head of National Australia Bank’s business bank.

Cannon is using the same model that convinced then-treasurer Scott Morrison to rule in 2017 that Firstmac’s purchase of the budding digital bank Goldfields Money was in the national interest because of the extra competition it would create.

This qualified Firstmac for an exemption to legislation that puts a 15 per cent cap on any single bank shareholding.

The acquisition of Goldfields and its banking licence ultimately failed to proceed, forcing Cannon to cool his heels until this year’s proposed $7m acquisition of Queensland credit union MCU.

MCU members approved the deal last week, with a Federal Court hearing on June 10 to determine the final outcome.

“We got approval (for a banking licence) with Goldfields so we’ve asked for the same approval with MCU,” Cannon said.

Firstmac is wholly owned by Cannon and his wife.

It’s possible that any licence could be conditional on a selldown to create a more dispersed ownership structure.

This would help alleviate concerns that Firstmac would struggle to raise capital in a crisis.

Cannon said he didn’t know if the licence would come with conditions. “There was something in the original approval about selling down, but I don’t expect we’ll be 100 per cent-owned forever,” he said.

“We’ll do something at some point, like getting a big brother.”

By securing a banking licence, Firstmac and its $6bn digital operation loans.com.au will broaden funding options by offering deposit products.

Cannon said loans.com.au was heavily focused on “super-prime” lending, with an average loan-to-valuation ratio of 62 per cent.

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