Psa doubts end merger

The EastPack-Satara merger, which would have created one of the largest kiwifruit post harvest companies in New Zealand, has been called off because of the outbreak of the kiwifruit vine disease Psa.
EastPack Chairman Ray Sharp said this week that as a result of the uncertainty over the long-term impact of Psa and a possible future reduction in crop volumes, the proposed merger of the two companies would not proceed.
EastPack, the second biggest integrated post harvest operator in the country and a leading handler of gold kiwifruit, has been hard hit with 23 of its supply orchards affected by the bacterial vine disease Psa (Pseudomonas syringae pv actinidiae).
Three of those orchards, including two which supply EastPack with around 100,000 trays, have had a large proportion of their orchard vines removed.
"Given the current uncertainties it was unwise to go ahead with the deal at this time," Mr Sharp said. "The prudent approach at present is to preserve the capital base and make sure that the resources are there to support growers. Taking on more debt to pay out Satara's investor shareholders is not good stewardship of our growers' investments."
The proposed merger, announced just before the discovery of the kiwifruit bacteria, would have created the leading, fully grower owned co-operative if it won 75 per cent support from the shareholders of each entity.
"We are very disappointed as a lot of time and resources have been invested into the merger, but at all times we have to act in the best interest of our grower shareholders," Mr Sharp said.
"Psa has undermined our confidence in the metrics on which the merger was approved and made it very difficult for EastPack to accurately forecast future volumes and financial projections in the proposed capital raising prospectus."
He said that EastPack has suggested to Satara Directors that once the long- term effects of Psa are known that fresh opportunities that are mutually beneficial to grower shareholders may be able to be explored.
Mr Sharp said that EastPack was due to report its full year results early in 2011 and was currently tracking ahead of budget with profit before tax and rebates expected to be up 10 per cent on prior year at around $9 million. It aimed to pay a full year rebate to transactor shareholders of 25c per tray supplied and up to 14c per share dividend to investor shareholders. This would allow EastPack to retain significant earnings to further consolidate its financial position.
Directors have agreed to pay another 10c per tray rebate this month, bringing the total to 20c per tray for the 2010 harvest. The decision to pay the remaining 5c per tray rebate and any dividend is dependent on the directors' review of the long-term outlook for the business.
"We are in good shape and aim to stay that way," Mr Sharp said. "We have a strong balance sheet, sound assets which we will retain and the nous to exercise financial prudence because no one knows the long-term implications of Psa."