NZFSU cuts more ties with PGG Wrightson

NZ Farming Systems Uruguay's operations. Photo / supplied

New Zealand Farming Systems Uruguay (NZFSU), the dairy farm developer now majority owned by Singapore's Olam International, is cutting more ties with former shareholder PGG Wrightson.

Chairman John Parker told shareholders at the annual meeting yesterday that under a new deal, PGG Wrightson will not be a preferred supplier for NZFSU.

He said Olam wanted to internalise the management agreement but did not want to enter into a preferred supplier agreement (PSA) so subject to NZFSU board ratification and other approvals from its bank syndicate and bondholders, a PSA would not be entered into.

NZFSU has agreed to support the continuation of a close working relationship with PGG Wrightson, including the purchase of farm inputs where PGG Wrightson is competitive.

"In summary, the PSA no longer exists in any formal form but the management contract will be internalised as envisaged, albeit at a slightly higher cost and any monies due to PGG Wrightson will be paid before the end of this calendar year," Parker said.

Parker outlined payments to PGG Wrightson, which consisted of an outstanding performance fee, plus interest of $14.2 million, the fee for the management agreement termination $4.6 million, outstanding management fees of US$1.7 million ($2.2 million) and on charged costs $3.5 million for a total of $24.6 million at current exchange rates. The $4.6 million figure is up from $4 million previously negotiated.

Two motions were withdrawn from the meeting relating to a PSA and a transaction implementation agreement with PGG Wrightson.

"The reasons they were before shareholders were that the value of transactions envisaged in the PSA was material, were with a related party, and exceeded the threshold for directors to determine.

"The parties will no longer be related but more importantly the internalisation of the management agreement falls well within the directors' decision making powers and therefore the changes will be considered and agreed at a board meeting to follow this annual meeting," Parker said.

NZFSU was established by PGG Wrightson, which has a complex history, but for a number of years had businessman Craig Norgate and the McConnon family as shareholders.

Mr Norgate and Murray Flett both retired as directors of NZFSU yesterday and Keith Smith retired immediately after the meeting.

No candidates stood but Olam, which became the company's majority shareholder on September 20, has advised it intends to nominate four directors.

"In the end, the acceptance level of 78 per cent speaks for itself.

"I am pleased to note that there remains a significant New Zealand-based minority shareholding to benefit from what I continue to believe will be a very strong business platform over the long term," Parker said.

The meeting also heard that milk production volumes were about 10 per cent below budgeted levels, and were likely to continue to remain so.

- NZPA