KEY POINTS:
Silver Fern Farms says that an independent adviser's report has identified "significant positive benefits" for its shareholders in the proposed takeover by rural service company PGG Wrightson.
Shareholders will vote on September 8 on whether to accept the Wrightson bid of $220 million and issue new shares which
would give Wrightson a 50 per cent stake in the meat processor.
The vote has been scheduled by the company a month before a second special general meeting to consider requests by an industry lobbyist, the Meat Industry Action Group (MIAG).
MIAG is seeking increased cooperation in the red meat industry in the South Island, particularly with Silver Fern and its main rival there, Alliance Group.
Consultants Grant Samuel & Associates Ltd said in a 64-page opinion released today that the proposed Wrightson deal would increase the equity ratio of Silver Fern Farms to 80 per cent, making it the "financially strongest company" in the meat processing industry.
Such a robust financial structure would help the merged company develop a stronger in-market presence and invest in capital projects such as increased use of robotics.
Grant Samuel valued a 50 per cent shareholding in Silver Fern Farms between $205 million and $225 million, and said that Wrightson's resources and national coverage meant it could boost livestock procurement.
It said an integrated supply chain involving Wrightson would accelerate the change "needed at both the producer and in-market ends of the supply chain".
Wrightson is expected to tell farmers what genetics they should use in terms of both pasture plants and livestock to meet the specifications of Silver Fern customers.
Grant Samuel said that though a 50 per cent stake would normally give control to that shareholder, "significant influence remains with Silver Fern Farms existing shareholders".
It suggested that though Wrightson "will have significant influence" it would to a large extent be a locked-in shareholder with little scope to increase its stake.
"The loss of outright control is not material in Grant Samuel's opinion... ceding some control to PGW is a small trade off to pay for the benefits."
Similarly, Grant Samuel did not believe farmers would be disadvantaged by Wrightson taking over the meat cooperative's livestock procurement.
It said "market forces" would ensure that farmers got a fair price for stock, and that the prices would be set by Silver Fern rather than Wrightson.
Farmers would only receive 50 per cent of the profit available for distribution - but that would "substantially higher" than their existing rebates from Silver Fern.
Silver Fern Farms is projecting a net profit after tax of not less than $40m for the full financial year ending August 31, 2008, including expected non-recurring expenses related to the company's programme of axing of meatworks and workers' jobs.
The company has reduced debt by $80m to $105m for the financial year.
- NZPA
Grant Samuel Report:
GrantSamuel-Report.pdf
Silver Fern Press Release:
GrantSamuel-Release.pdf