Wrightson, Pyne Gould get clearance to join forces

The Commerce Commission yesterday approved the merger of Pyne Gould Guinness and Wrightson, settling lingering concerns among investors and propelling their shares higher.

Shares in the two largest rural services companies surged. Wrightson rose 11c to $2.51, and Pyne Gould Guinness jumped 14c to $2.40.

Mark Lister, ABN Amro Craigs analyst, said the share price rise was unsurprising.

"Before it [approval] was confirmed there was always some risk that it may not happen or that there may be restrictions on it and the market knows that."

He said that until yesterday the market had only partially priced in the benefits of merging the companies.

"I guess with confirmation you see all the risk is gone now. We know it's going to happen unless shareholders vote against it, but I imagine that's quite unlikely."

Pyne Gould Guinness chairman Bill Baylis said reaction from inside the company was "very happy".

"As we interpret that, that means it's a full clearance," he said.

"That's the last of the regulatory matters we needed to get ticked off before we go to the shareholders."

Merger prospectuses will be sent out to shareholders next week before meetings later this month.

Lister said the documents could provide more information on cost savings, financials and the new company structure.

"More detail that the market can digest and decide if it likes it and where it sees the most value, and then you'll see a corresponding movement in the share price. But you'd imagine the majority of that is priced in now."

Lister is expecting a positive reaction from investors to the merger.

"If I was a Wrightson shareholder I'd be accepting it," he said.

"Based on what we know now, it looks like it will be a pretty strong and large company."

Commission chairwoman Paula Rebstock said it had examined the impact of the merger on the agricultural sector, including livestock trading and wool services, retail supplies and grain and seeds.

"Having regard to the degree of existing and potential competition in each of the relevant markets, the commission is satisfied that the proposed merger would not have, or would not be likely to have, the effect of substantially lessening competition," she said.

The proposed merger, announced last month, would create a company called PGG Wrightson, with annual revenue of $1.1 billion.

It would rank among the top 20 companies on the stock exchange, with a market capitalisation of $510 million.

The merger is expected to generate savings of $10 million in the first year, offset by costs, and at least $20 million in the second year.

Baylis said cost cutting would be focused on back-end administration and retailing operations but was adamant all field staff would be retained.

Pending shareholder approval, legal completion of the merger is expected in early October.

What's in store

* Commerce Commission approves merger.

* Shareholders to get prospectus next week.

* Legal completion expected in early October.