PGG directors give wary nod to takeover

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PGG Wrightson's shareholders should accept a takeover offer for the rural services company, but not just yet, say directors.

Chinese companies Agria and New Hope Group last month launched a joint partial takeover bid for PGG Wrightson at 60c a share, conditional on holding 50.01 per cent of voting rights and valuing the company at $454.8 million.

An independent adviser's report by Grant Samuel said the Agria offer was within a valuation range of 53c to 65c a share and was an 18.3 per cent premium over a volume weighted average price for the 30 trading days prior to the offer.

The 60c offer price was the outcome of a negotiation between shareholder Pyne Gould Corporation and Agria "and in Grant Samuel's opinion is reflective of PGG Wrightson's poor current earnings performance", the report said.

Independent director Keith Smith said that since receiving the Agria offer a committee of independent directors had been approached by another party which had indicated an interest in making a full takeover.

The directors had agreed to let the potential new bidder undertake due diligence, although there was no certainty of any bid being made.

"On the basis of the Grant Samuel valuation and in the current absence of any better offer eventuating the independent directors recommend to shareholders that they accept this offer from Agria," Smith said. "However, and because of the potential for an offer from another party which may emerge during the Agria offer period the independent directors recommend that shareholders wait until near the close of the Agria offer period, which is currently the 15th of April, to make their decision."

Agria is a 19.01 per cent shareholder of PGG Wrightson and has a pre-bid agreement from Pyne Gould Corporation to buy its 18.3 per cent stake

The Herald's Stock Takes column last month reported speculation that Canadian agricultural products and services company Agrium could make a bid.

Grant Samuel had advised that the earnings multiple implied by the Agria offer compared favourably with recent transactions for comparable companies, Smith said.

"Having said that this comparison in part reflects the negative near-terms earnings outlook for PGG Wrightson," he said. "The independent directors note that while the offer will have merits for shareholders with a near-term focus ... shareholders with longer term investment horizons may well conclude that the offer undervalues PGG Wrightson's longer term prospects."

One analyst said the Grant Samuel valuation was probably on the conservative side because it reflected a low point in the cycle in terms of earnings.

"I suspect shareholders will try and get Agria to second guess whether they need to raise their bid," he said.

Shares in the NZX-listed company closed down 3c yesterday at 59c.

PGG Wrightson yesterday released its results for the six months ended December 31 with a net loss of $5.9 million, compared to a profit of $4.3 million in the same period the previous year.

Earnings before interest, tax, depreciation and amortisation was $16.8 million, which was down 32.8 per cent on the previous year but better than guidance in December that it would be 40 per cent lower.

Managing director George Gould said that while losses were unacceptable the result had been impacted by a number of one-off items.

The company made a gain of about $4.6 million on shares in NZ Farming Systems Uruguay, while restructuring costs were about $5 million and impairment on an investment in a property in Brazil was about $5.9 million.

PGG Wrightson confirmed its guidance for the full year for operating earnings before interest, tax, depreciation and amortisation of between $58 million and $61 million.

Termination benefits for key management personnel at PGG Wrightson totalled $3.3 million for the six months ended December, compared to $289,000 the previous year.

PGG Wrightson's half-year report said the company intended to buy 2.5 million shares in respect of former managing director Tim Miles.

Miles had left employment on October 19 and under the terms of an executive share incentive scheme PGG Wrightson was required to buy the shares which would be cancelled upon acquisition.

The share acquisition was intended to be completed by the end of the financial year on June 30.