KEY POINTS:
Early reaction to a proposed partnership of meat processor Silver Fern Farms with rural services company PGG Wrightson has been positive but farmers need more information, says chief executive Keith Cooper.
The first of 10 meetings due this week was held by the co-operative in Christchurch yesterday and
was attended by about 100 farmers.
"We had a good series of questions and we didn't have anybody speaking against it," Cooper said. "Obviously they need a lot more information of course."
PGG Wrightson this week agreed to buy 50 per cent of Silver Fern Farms for $220 million, with prospective short and long-term gains of more than $60 million and up to $110 million a year, respectively.
"The general tenor of the meeting people said that finally we've got leadership in the industry and a strategy," Cooper said.
The deal was promoted as a platform for further industry rationalisation and integration, with more benefit to come from an integrated supply chain stretching from the paddock to the plate.
Southland-based co-operative Alliance Group was the obvious party to get involved, Cooper said.
"Alliance rebuffed our intentions for merger [last year] because they thought our debt was too high and that we hadn't addressed our plants' restructuring," Cooper said.
"Well we think right today if this proposal goes ahead we've fixed both those two impediments to a merger as they identified at the time."
Alliance chairman Owen Poole said the proposal could potentially act as a platform for wider industry rationalisation.
"Farmers will have to reconcile their desire to own and control the industry against the potential for aggregation but with a hybrid or corporate ownership," Poole said. "Alliance would, as is their style, go out and talk to our own owners and ask them how they wish to proceed."
The concept of product re-positioning, branding and paddock to plate integration was nothing new, he added.
"At least four companies in this industry are doing that now."
Affco chief executive Stuart Weston said the company would watch developments with interest but was frustrated at the failure of earlier initiatives.
"We'll look for Alliance going in first before we believe anything more because twice bitten three times shy," Weston said.
Last week a taskforce set up by Meat & Wool New Zealand to develop a sector strategy was shut down lacking consent. In April an Alliance concept for an industry merger failed without agreement from Silver Fern Farms, while last year Alliance turned down a offer to merge with Silver Fern Farms.
"Some of these farmers will be furious ... because whether or not you agree with the mega merger or you agree with co-operatives or corporates I'm sure most farmers would like to have seen some effort going into an industry-wide strategic review given that relative to their dairy counterparts they are the poor cousins," Weston said.
PGG Wrightson said it would fund its $220 million investment in Silver Fern Farms through a combination of debt and a capital raising of about $75 million.
Forsyth Barr analyst John Cairns said the market needed to see more financial information on Silver Fern Farms and the nature of the synergies.
"It's certainly in a sweet spot in respect of the sector that it's in ... everyone's looking for exposure to soft commodity prices," Cairns said.
"They've put this out there as a first step in terms of encouraging other players to get on board because from my perspective the real benefits will only accrue once you've got the large players in there."
Another market source said more analysis on the balance sheet and profit and loss statement changes for PGG Wrightson was needed.
WHAT NEXT
* The deal needs 75 per cent approval from shareholders in co-operative Silver Fern Farms at a vote expected in September.
* New company would be in place by October 1 with a structure aimed at retaining the benefits of a co-operative.
* PGG Wrightson and the co-operative owners of Silver Fern Farms will have an equal stake and four directors each on the board.
