Corporates wage battle for slice of apple pie

By PHILIPPA STEVENSON

The shocked apple industry has found itself ripe for picking by corporate raiders just four months after deregulation.

And so tasty is the treat that it is going to be fought over.

Last night the industry's grower-owned marketing company, Enza, said it was expecting an offer from a third party that would top the combined bid for a controlling 40 per cent stake by Sir Ron Brierley's Guinness Peat Group (GPG) and investment bank FR Partners.

Before Enza disclosed the possibility, GPG and FR Partners had declared unconditional their bids for shares in the apple marketer after each gained 6.4 per cent of its 20 million shares at $1.50 a share.

Surrendering control to corporate boardrooms was the fear of all other major primary industry groups as they struggled under the previous Government's instruction to split marketing from the ownership of production.

The kiwifruit industry, and dairying - which is in the throes of revamping its structure - are noting the lesson.

One observer picked that "the evolution" would spread to the kiwifruit industry, while another said the dairy industry had had a clarion call.

Kiwi Dairies chief executive Craig Norgate said the raid on Enza showed that "as soon as you break the linkage between supply and ownership in any manner you leave yourself exposed."

The apple sector example would reinforce the message to dairy farmers.

"From our point of view we did not need any more examples but it is good to have one close to home. There are those around who thought that as long as shares were owned by farmers the thing was protected, but this is another example of how that is not the case."

New Zealand Dairy Group chief executive Graeme Milne agreed.

"If growers or farmers want to keep control of their downstream activities then they have to keep the appropriate restrictions in place on shareholding."

Enza chairman John McCliskie, who got news of the raid in Europe, returned to Wellington yesterday morning to oversee the tumultuous events.

"It's a new era of the industry. I guess some people did not expect it to come along quite so quickly," said Mr McCliskie, who retires in September.

Zespri chairman Doug Voss was confident that despite the similarity of kiwifruit and apple company structures, other factors would deter raiders.

" You're comparing apples with kiwifruit, not apples with apples," he said.

Mr Voss said there had been a minute amount of trading in Zespri shares since it, too, was corporatised in April. Shares had traded at about $5.

Until GPG and FR Partners offered $1.50, Enza shares had been trading at between 50c and 75c.

"People value their shares for the control of their business, rather than their asset value," Mr Voss said.

"The only people that can allow it [a raid] to happen are kiwifruit growers and they have always been strong on having a controlling interest in their own business. That's not all, and some may wish to sell, but if there was any tendency that way you would expect it to be happening already."

Two days earlier, when GPG and FR Partners launched their foray for a combined 40 per cent of Enza, the pair had made it conditional on getting a minimum of 12 per cent each.

Last night, GPG chief Tony Gibbs and FR Partners executive director Bill Birnie were confident each company would get at least that.

They had gone unconditional at the lower level to assure anxious growers of payment, Mr Birnie said.

Meanwhile Enza, which became a grower-owned company only on April 1 and has yet to produce a set of financial accounts, has advised growers that it considers the bid valuing the company at $30 million to be under the mark.

The board advised growers in a letter to think carefully before selling and, Mr McCliskie said, "to think about grower control if that is what they believed in, because last year they marched in the streets to maintain grower control."

He said the corporate raid would also send a message to the kiwifruit industry which, like the apple sector, formed a grower-owned company with a cap on share ownership only after it lost an argument with the National Government on industry structure.

"Growers' first choice was, and still is, to be a cooperative," said Mr McCliskie. "We wanted a cooperative and fought for it but Government dictated that we could not be, so a public company with a 20 per cent cap on shareholding was a compromise common to both industries."

The move by GPG and FR Partners would be a salutary lesson, he said.

"I think it is good for growers to become aware they are part of the corporate culture. It's kind of a watershed which has brought home to our industry very quickly that shares can be bought and sold by parties within the constitutional rights."

A Hawkes Bay apple grower, Rob Walmsley, said growers and Enza had foolishly allowed shares to sell cheaply by creating a very narrow market.

"The shares should be worth an awful lot more than they are selling for. We are letting outsiders walk in, and what their motives are, who knows? One thing is for sure: they are getting a real bargain at our expense," he said.

Though disappointed, Mr Walmsley did not begrudge GPG and FR Partners their bid.

"I'd do the same if I had the money but I think it's crazy we are letting them go so cheap."

He said Hawkes Bay growers who keep a close eye on one another's activities were puzzled as to which orchards the raiding companies owned.

Enza shareholders have to be growers and Mr Gibbs confirmed that the two companies owned orchards in Hawkes Bay.

But Mr Walmsley said an orchard could be very small, almost a few trees in a backyard. "That's how silly it is."

Pipfruit Growers chairman Phil Alison said a number of growers were concerned that the companies might have qualified as growers on technicalities. "In essence they are after the company."

Mr Alison said the GPG/FR raid was the second significant move within the apple industry in a month. In June, a newly registered company, Hawkes Bay Apples, bought the country's biggest apple producer, Eastern Equities.

Shareholders in Hawkes Bay Apples include Grant Sinclair, the chairman of Grocorp, which has around 4 per cent of Enza, and Timaru millionaire Allan Hubbard.

Mr Alison said both moves indicated that a number of people now believed Enza was undervalued.

Mr Alison was happy with assurances from Mr Gibbs that he was in it to make money.

"If he gets his numbers, gets a seat on the board and can get the board to perform, I'm more than happy to ride on his coat-tails as a grower and a shareholder."

Mr Sinclair said he regarded the GPG/FR move as positive. "Because of the state of the industry, a lot of growers were under pressure to get their debt down."

"I think they [GPG/FR] are obviously very astute business people. I think it is a bit opportunistic but it's one of those things that is inevitable when you try to tie up an industry so that you can't have the maximum people out there bidding for the shares."

He rejected the description of GPG as a corporate raider. "It might be cheap, but it's only cheap if someone is out there prepared to pay more."

Mr Gibbs, also chairman of fruit trader Turners and Growers and a large-scale mandarin grower, predicted the move would be very good for the industry and said industry leaders had called to tell him "it was the greatest thing."

He was reluctant to give details on the companies' orchards, their size, or how long they had been owned.

He confirmed they were in the Hawkes Bay but his only response to queries about them was to say that to be classed as a grower "one has to be supplying fruit and we comply with what it is required under the constitution."

A turnaround in the fortunes of Turners and Growers, bought by GPG six years ago, was an example of GPG's positive influence, he said.

"We have invested a lot of money in the infrastructure of the industry - cool chain management, a new depot, trucks - people are paid better and get bonuses, and shareholders get dividends."

GPG and FR hoped to get two seats on the Enza board to be able to influence its direction and rid the industry of terrible politics which were tearing it apart. But it was premature to suggest what changes would be sought.

"If the growers make money, the company will make money and if the company makes money, the shareholders will, and that's what we will be - a shareholder."