New Zealand Post's proposed sale of 45 percent of Kiwbank to the New Zealand Super Fund and ACC is a very, very, smart move.
Yes, there has been criticism of the deal. But given the circumstances, this is the best outcome that can be achieved in a less than ideal situation.
NZ Post is losing $20 to $30 million a year, while its subsidiary Kiwbank is making profits. But the bank needs more money so it can invest in itself and compete even harder against the big Australian banks.
We are all sending -- and receiving -- fewer letters. Businesses are doing the same.
Look at the banks. All of them, including Kiwibank, are encouraging us to do our banking online.
Fewer letters are being sent, but more and more parcels are being mailed because of all the online shopping we are doing. So a cash-strapped NZ Post is trying to transform itself into a parcels business.
If the deal's confirmed NZ Post will receive $495 million.
NZ Post chair Sir Michael Cullen told Paul Henry he expects around 45 percent of the money ($220 million) will be used by NZ Post to repay debt.
Some funds will be used to reinvest in NZ Post's parcels business. The rest will be paid to the Government as a "special dividend".
The Government will be hoping it is a very, very, special dividend. Figures of between $300 and $350 million have been suggested.
Of course if you add $220 million and $350 million together you get $570 million. That is more than the proposed sale price of $495 million, so it will be interesting to see how the funds are eventually allocated.
There has been criticism the sale price is too low. The 45 percent stake is being sold at book value, rather than market value.
That is what happens when you have a limited number of potential buyers.
The Government is committed to keeping Kiwibank 100 percent New Zealand-owned, so if you limit the number of buyers, you limit the potential sale price.
A share market listing might have attracted a higher price, but it would not be politically acceptable.
It is true that neither the NZ Super Fund nor ACC are guaranteeing they will stay invested in Kiwibank forever.
They are independently managed investment funds. They cannot guarantee they will stay invested forever. They have to be able to exit the investment if they decide that is the best thing to do.
If they promised to stay invested, they would insist on paying a very low price for their shares.
If either of them does decide to sell, they have to offer the Government the first right of refusal to buy back the shares.
This deal does not inject fresh capital into Kiwibank, but it means the bank will have two new shareholders with deep pockets.
The NZ Super Fund has assets totalling just over $28 billion (according to its February 2016 investment report).
ACC's investment fund totalled $31.4 billion at the end of the 2014/15 financial year (according to its 2015 annual report, issued late last year).
If the Super Fund and ACC believe putting money into Kiwbank is a good idea, they will do it.
If they inject fresh capital into Kiwbank then NZ Post must do the same, otherwise its shareholding will be diluted.
It is possible that the NZ Super Fund and ACC will one day end up owning the vast majority of the bank.
There is concern this deal opens door to a future partial privatisation of Kiwbank. Well, in reality that possibility is no greater than if the bank remained 100 percent owned by NZ Post.
Right now there is nothing stopping the Government from selling 100 percent of the bank, aside from the fact it would be a political non-starter. The Government has promised not to do it. It cannot risk the fallout from breaking that promise.
Sir Michael Cullen is realistic about the future for NZ Post. At best he hopes it can break even. That is not great, but it is better than multimillion-dollar losses.
The postal service is transforming itself from being a six-days-a-week deliverer of letters into a business that mainly delivers parcels, most of them in courier vans.
It is quite possible that NZ Post could one day end postie deliveries completely. Instead it would become solely a courier business delivering parcels and a few letters.
That day could be coming much sooner than we think.