The future of rural services company PGG Wrightson (PGW) could be decided by an interpretation of New Zealand's takeovers code.
In the meantime, though, it's business as usual while the company's biggest shareholder, Agria, considers a takeover offer from one of its major owners, PGW chairman Alan Lai.
It would be a breach of the code if Lai was successful in taking over the Cayman Islands-registered, New York-listed Agria without first complying with the code's requirements. Unless he is granted an exemption, the code means Agria could be compelled to take over the rest of PGW that it does not already own.
"We are liaising with Mr Lai's New Zealand lawyers about his stated intentions to comply with the New Zealand takeovers code," Takeovers Panel chief executive Margaret Bearsley told the Weekend Herald.
Lai's ambitions for Agria would be considered an "upstream" takeover and PGW would be seen as a "downstream" takeover.
Agria indirectly holds 50.22 per cent of PGW through Agria (Singapore). At yesterday's prices, taking out the rest of PGW would cost Agria $155 million, on top of the $144 million it paid to controversially gain effective control of the company in 2011.
The panel assumes that any acquisition of more than 50 per cent of the voting rights of an upstream target - in this case, Agria - would result in the upstream acquirer obtaining effective control over the downstream company.
However, an acquirer may be able to establish that the Panel's assumption about obtaining control would not apply to its circumstances.
"Alan has made a non-binding takeover proposal to the Agria board and Alan and the board are working on that," said PGW chief executive Mark Dewdney. "At this stage it is not clear if it would have implications for PGG Wrightson," he said. "For us, it's business as usual."
Agria notified the New York Stock Exchange in January that a non-binding takeover proposal had been received from its biggest shareholder, Guanglin "Alan" Lai.
PGW's independent directors Bruce Irvine, John Nichol and Ronald Seah have formed a committee to assess the implications, if any, that the proposal may have for the company.
In this country, PGW rarely features on investors' radar, despite being a reasonably substantial company with annual turnover of about $1.3 billion and 2200 staff.
The company is very big in grass seed and is well represented across the agribusiness spectrum, from horticulture to real estate.
PGW has had a chequered history, which includes an ill-fated foray into farm ownership in Uruguay in 2006 under the late Craig Norgate, but Dewdney said there had been a "significant transformation over the last three or four years". PGW still has business in Uruguay but no longer owns farms there. It also has investments in Australia.
"PGW has been in speculative territory for so many years now that it's not been on our radar," said Mark Lister, head of private wealth research at Craigs Investment Partners. "Being small, not very transparent, and in a tough industry, it's been one to ignore - so we ignore it."
In its latest half-year result, PGW posted a $3.7 million decline in net profit to $16.1 million.
New York-listed Agria describes itself as a global agricultural company involved in areas such as seeds and grain, crop protection, nutrients and merchandise and rural services.
In its latest filing for the first half to December 31, Agria said revenue was $420.2 million, down 22 per cent from the year-ago period. Net profit was $2.5 million, down 80 per cent.
Lai, who is also executive chairman of Agria and vice-president of the New Zealand Chinese Chamber of Commerce, said Agria's first-half results were disappointing, "but not necessarily surprising, given the challenges faced by the global agriculture industry".
Agria (Singapore) is jointly owned, directly or indirectly, by Beijing-based Agria Corp and China's New Hope. Agria's Singapore offshoot was supported by a $10 million loan from New Zealand's Livestock Improvement Corp in 2011, with other funds from China agribusiness giant New Hope and South Island iwi Ngai Tahu.
Agria said in January that it had received an offer from Lai, and a British Virgin Islands company wholly owned by him, at US60c per ordinary share, or US$1.20 per American depositary share, against their last traded priced of US$1.01 a share.