Wrightson, PGG merger forecast 'disappointing'

Baird McConnon

Wrightson and Pyne Gould Guinness shares lost ground yesterday after they forecast the rural services giant arising from their merger will generate $30 million in profits next year.

Wrightson shares were down 11c at midday, before recovering to close at $2.40, a 3c decline. Pyne Gould Guinness shares were down 3c early in the day to close flat at $2.45.

Most analysts attributed the loss to a price correction - the market pulling back slightly after both stocks' rally in the past few weeks.

But Hamilton Hindin Greene partner Grant Williamson said the profit forecast was "a touch disappointing".

The stocks hit highs a little over a week ago when the Commerce Commission approved the merger, setting to rest shareholders' concerns of competition hurdles.

Meanwhile, accounting firm Ferrier Hodgson, in a report prepared for Wrightson's independent directors, said the $586 million merger offer was fair and reasonable for all shareholders.

PGG Wrightson, the new entity, will generate the earnings on sales of $912 million.

The profit forecast, which includes goodwill amortisation of $9 million, takes into account 12 months of Pyne Gould Guinness' earnings and nine months from Wrightson.

Wrightson doubled its net profit for the year to June 30, to $20.5 million, while PGG's annual profit fell 4 per cent to $17 million.

Williamson said although the profit forecast was lower than he hoped, the negative was outweighed by the merger's long-term benefits.

Mark Lister, an ABN Amro Craigs analyst, said "the share prices have not fallen because of disappointing information. The merger has [had] so much press coverage, the market may have gotten ahead of itself leading up to this."

He said the true benefit of creating the largest rural services company in New Zealand would not be fully realised until the next fiscal year.

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.

PGG Wrightson will rank in the stock exchange's top 30 companies. In the interim, Baird McConnon will be managing director of the new entity until a new chief executive is found. McConnon is chairman of Rural Portfolio Investments, Wrightson's majority shareholder.

Chairman-elect of the new company will be Bill Baylis, Pyne Gould chairman.

Pyne Gould shareholders will be sent the mailout tomorrow and will find the same conclusion was reached by its independent adviser, Grant Samuel & Associates.

The merged company will pay a 4c a share dividend in March. However, its long-term dividend policy has yet to be disclosed.

Wrightson shareholders will receive 1.028 Pyne Gould shares for each Wrightson share.

The merger has unanimous support from the companies' directors and from Pyne Gould Corp, which holds 55.4 per cent of the voting shares in Pyne Gould Guinness.

Rural Portfolio Investments will control the merged entity, with a 30 per cent stake, leaving Pyne Gould Corp with 21 per cent.

During the first three years, neither party can increase its stake without the other's written consent.

The pre-emptive rights say if Pyne Gould Corp wishes to sell any of its shares it must first offer them to Rural Portfolio Investments, which in turn must have consent from Pyne Gould Corp to sell its stake.

Wrightson shareholders vote on the merger on September 21 in Auckland. Pyne Gould shareholders will meet in Dunedin on September 23.

- additional reporting agencies