Agribusiness: Fresh moves to get Alliance with Silver Fern

Rob Hewett, chairman of Silver Fern Farms.

Farmers have been assured that Silver Fern Farms' plans to raise up to $100 million in new equity will not threaten its status as a co-operative.

Silver Fern's chairman Rob Hewett says "we have talked about $100 million. [But] It is not a fixed sum. It is a line in the sand in terms of what we have aspirations for. We want to be a co-operative at the end of this."

Struggling under a mountain of debt, Dunedin-based meat processor Silver Fern earlier this year enlisted the help of merchant bankers Goldman Sachs to come up with a plan to recapitalise the $2 billion turnover business.

The move has unsettled some farmers who fear it will undermine farmer control and open up A previous attempt in 2008 to raise capital from farmer shareholders fell woefully short of its intended target, and it had been assumed that any new equity would have to come from outside the co-operative. And given the tepid reception to previous suggestions to consolidate the meat industry's domestic players, it had been further assumed that any new capital would come from offshore -- most probably from Asia, North or Latin America.

Meat Industry Excellence spokesman John McCarthy says a survey conducted by his group showed farmers did not support the industry moving into foreign hands.

"There is no doubt that Silver Fern is short of capital. Maybe a foreign investor would alleviate that in the short term but you only have to look what is happening in Australia to know what foreign control would look like," he says.

According to figures from Beef and Lamb NZ, the average return for Australian chilled lamb exports was 24 per cent below those for the same cuts of New Zealand lamb last year.

McCarthy says bringing a foreigner on to the Silver Fern share register would "probably take the legs out" from Meat Industry Excellence's proposal to combine the co-operative with its Invercargill-based rival Alliance Group.

Meat Industry Excellence had commissioned research from independent business consultants that showed such a merger would create annual gains of $100 million, costs saved from closing under-utilised meat plants and other efficiencies.

"We know that if the co-operatives can put a proposal to farmers that will offer a renewed and reinvigorated model around the principles of committed supply, transparency, and scale, we think that farmers will buy into that as an alternative to bringing in foreign capital," says McCarthy.

With Silver Fern due to report back on its recapitalisation plans at the end of the month, several shareholders connected to Meat Industry Excellence succeeded in forcing the cooperative to hold a special meeting.

We have talked about $100 million. [But] It is not a fixed sum. It is a line in the sand in terms of what we have aspirations for.

Rob Hewett

Alliance shareholders have also set about gaining the 5 per cent required for a meeting to discuss identical resolutions. Both resolutions call on Alliance and Silver Fern's respective boards to disclose at the meetings their long-term plans for their respective businesses, and that independent analysis be carried out on the merits of amalgamating the two.

Northern Southland farmer Jeff Grant, a former National MP and producer board veteran, was one of two shareholders to put his name to the Alliance resolution.

Grant says he is not necessarily in agreement with all of Meat Industry Excellence's ideas for industry reform or even on the need for a full merger of the two co-operatives. He says the resolution was aimed at bringing into the open as much information as possible on the merits of a closer collaboration. That could include a full merger or merely working together more closely together in one of the three main areas in which they compete -- livestock procurement, processing and marketing. "I literally do not know if there is $30 million to save in processing or $100 million, or $30 million in marketing or $100m... I have no idea," says Grant.

"Having done all that they come back and say 'well actually there is no real benefit and we should continue until the last man is standing and see what comes of that' then at least as a landowner I can make a more informed choice about what I do with my farm."

Alliance chairman Murray Taggart has previously said the co-operative is prepared to look at a merger if it could be shown to be commercially viable, but he had yet to see evidence that it would be. He has said plant closures from a merger could increase the time taken for stock to be processed and potentially leave farmers stranded with animals they did not want in the event of a drought.