Fran O'Sullivan: Left in dark over Agria takeover

PGG Wrightson's minority shareholders and farmers deserve to know Agria's plans. Photo / APN

"Dateline Beijing, China April 15, 2011 - Agria (Singapore) Pte is pleased to announce the New Zealand Overseas Investment Office has granted consent to Agria in connection with its takeover offer and shareholding in PGG Wrightson."

The Chinese company's announcement that it had gained OIO approval to take control of New Zealand's prime agricultural servicing company was also recorded on the NZX website at 5.01pm on April 15.

But five days later, the OIO has yet to record this fact on its own website.

It frankly stretches credulity that the OIO has been so slack when it comes to publishing its own decision first, given the controversy that has attached to this particular partial takeover.

Agria's bid for control of PGG Wrightson raised plenty of eyebrows in New Zealand's agricultural community. The takeover documents were virtually silent on Agria's intentions for the company and the seeds business (its prime asset) which has been built on the back of good public research.

PGG Wrightson's independent directors - led by chairman Sir John Anderson - did not even signal to their shareholders what they believed Agria would do with the company once it got over 50.01 per cent of the shares; the threshold which was set out in the formal takeover announcement on December 24 last year.

At Beehive level, Cabinet ministers have shied away from commenting on the Agria bid. Chinese investment in New Zealand is seen as a politically sensitive issue.

It is an issue ministers would rather not publicly confront this side of the election.

But informed sources suggest there has been plenty of behind-the-scenes discussion on what sort of conditions should be put on the Chinese move to ensure it is a "win-win" for New Zealand's pastoral farmers and the bidding company.

Surely, it is time to demystify exactly what is going on.

Yesterday, the OIO released to me a copy of its "decision summary" on the Agria partial takeover.

The summary is maddeningly opaque. It confirms that on April 15, Agria (Singapore) Pte Ltd/New Hope Group was given clearance to buy 60 per cent of PGG Wrightson - subject to NZX and Takeovers Code rules. Not 50.01 per cent as set out in the original partial takeover offer.

It also notes Agria Singapore comprises Agria Corporation which owns 80.79 per cent of the bidding vehicle; New Hope Group (12.12 per cent) and Ngai Tahu Holdings (7.09 per cent). Three days after the OIO gave its approval to the deal, the NZX was informed of Ngai Tahu's role.

And by close of play yesterday Agria Singapore held 57.68 per cent of PGG Wrightson.

But what takes the cake is the way in which the OIO summary has been so remarkably opaque when it comes to spelling out just why it had approved Agria Singapore's partial takeover bid.

It basically says the overseas transaction satisfied criteria in two particular sections (16 and 18) of the Overseas Investment Act 2005.

In essence the transaction would bring "substantial and identifiable benefits to New Zealand" through new technology or business skills and increased export receipts. The application also satisfied tests relating to "key person in a key industry" and "previous investments".

This is much less detail than the norm in a controversial transaction which has strategic ramifications for the New Zealand economy.

But at PGG Wrightson's annual meeting last year the company spelled out that the performance of its seeds and grain business was again a highlight "with a performance that is noteworthy in light of subdued international trading conditions".

Various PGG Wrightson slides went on to say the New Zealand business featured widespread adoption of endophyte technology AR37 and the commissioning of the Rolleston distribution centre.

The seeds business had seen progress in creating a strong team in Australia with some success in the adoption of new products. The international seeds business also experienced a good trading year, meeting or exceeding all revenue and ebitda targets.

On the R&D front, the Grasslands Innovation Shareholders Agreement was signed last June, increasing the PGG Wrightson Seeds ownership to 70 per cent and consolidating all "our grass and legume breeding into this joint venture".

In another slide, the company said PGG Wrightson Seeds continued to build and support the adoption of technology packages for our South American customers, including the farmers in Uruguay and Argentina.

NZ Ruralco, our new company in Brazil, gained traction in that market. During the year the company also finished the development of the Kiyu Research and Development farm facilities in Uruguay.

The prime strategic takeout was the particular slide spelling out that PGG Wrightson "had the opportunity to build an Asian, Australasian and South American-centric Global Seeds business by linking Australia and South America with China".

"The global financial crisis will present opportunities to add to our seeds footprint and expand our ability to take our intellectual property portfolio to market."

It is clear that at the time these slides were composed (last October) PGG Wrightson must have seen itself as a driving force in the ambition to set up a global seeds business.

But with Agria Singapore poised to take "partial control" there has still been nothing from Sir John and the "independents" which sheds light on why PGG Wrightson has allowed Agria to move into the pole position to drive the global strategy.

Agria chief executive Tao Xie (XT) was "rather busy" yesterday and unavailable to comment until next in New Zealand.

Surprisingly, given the public interest in this takeover, the OIO would not release the conditions which have been imposed on Agria Singapore. It says it will have to hold discussions with Agria first on the nature and extent of public disclosure.

Frankly this is not good enough.

The OIO clearly needs a few lessons when it comes to the political art of "fudge, smudge and nudge".

When Agria originally bought into PGG Wrightson - essentially to save the bacon of the company and its debt-ridden prime shareholders - a co-operation agreement was formed under which, according to the OIO, the parties agreed "to take certain steps in relation to agricultural research and development, investment and establishment of various joint-ventures internationally". That was more than two years ago.

PGG Wrightson's remaining minority shareholders - and the New Zealand farming community - deserve to be let into just what the new majority shareholders plan.