Consolidation stalks the countryside

With a fistful of dollars and a bent for blitzkrieg acquisitions, Craig Norgate has cast a long shadow over the corporate rural world.

Industry analysts say the former Fonterra boss has sparked a wave of consolidation in the rural services sector, one that has long been expected.

First there was the hostile takeover of Wrightson, with Norgate's Rural Portfolio Investments securing a 50.01 per cent stake.

Then Norgate, through Wrightson, stumped up a few dollars more to grab a 19.9 per cent stake in Williams & Kettle at $4.67 a share. Its shares were down 1c at $4.63 in late afternoon trade on Friday.

Williams & Kettle is now subject to a full-takeover offer by Wrightson at $4.70 a share, yet to get Commerce Commission approval.

Wrightson and Williams & Kettle make a formidable duo in the rural services industry, the combined chain of outlets spanning the country.

Hamilton Hindin Greene broker Grant Williamson said Wrightson clearly had its eye on extracting strategic benefits from Williams & Kettle. 

The question becomes, what form further consolidation in the industry - renowned for its vipers' nest of competition - will take.

Among the key players are Hawera-based Allied Farmers and Christchurch-based Pyne Gould Guinness, both listed on the sharemarket.

Allied shares were unmoved at $2.50 near the end of Friday's session and Pyne Gould Guinness' were stable at $2.

Then there's rural sector behemoth Fonterra making rumblings in the wings.

Macquarie Equities NZ investment adviser Arthur Lim said the signs of co-operative consolidation were abundant. Town and Country Agri-Investments, a joint venture between Fonterra and Pyne Gould Guinness, oozed with co-operation.

There are likely to be benefits by merging Wrightson and Williams & Kettle in terms of cost efficiencies, but that can only be taken so far.

"This is a people industry," Lim said. "You cannot cut costs, particularly staffing costs, too far without starting to impact on your customer and business base.

"Where the real rationalisation can happen is where a lot of small stores are in one place, and you can rationalise it into one store, but still keep the people.

"There's something like 25 crossovers between Wrightson and Williams & Kettle. By merging the two you can immediately strip out a lot of costs."

This is probably what Norgate sees in Williams & Kettle, its strong North Island network complementing Wrightson's nationwide operation.

With the sector's big players each clamouring for market share, competition will increase and new niche markets will be sought.

It's something Pyne Gould Guinness chairman Bill Baylis touched on at the company's annual meeting in October.

He warned that the farm servicing sector was over-serviced and predicted some industry consolidation and restructuring.

Williamson said Fonterra and Pyne Gould Guinness were sure to be looking at other options after they had earlier failed to build a blocking stake in Wrightson.

There is possibly a Pyne Gould Guinness tie-up - or, at the least, co-operation - with Fonterra's RD1, while Allied Farmers and even Taranaki-based Farmlands are likely targets for acquisition.

- NZPA