$220m meat industry shake up

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The battling sheepmeat industry may be headed for a major shake-up with farmer supplier PGG Wrightson announcing a $220 million proposal to buy 50 per cent of New Zealand's biggest meat processor Silver Fern Farms, formerly PPCS.

The shares in PGG Wrightson and 22 per cent shareholder Pyne Gould Corporation were placed in a trading halt this morning ahead of the announcement.

The proposal will have to get the green light from Silver Fern Farms' farmer shareholders. PGG Wrightson chairman Craig Norgate and Dunedin's McConnon family have a majority stake in PGG Wrightson.

The two companies said the deal could be the precursor for more needed meat industry consolidation.

Norgate has been a strong supporter of meat industry consolidation. However Silver Fern Farms has up till now rejected a meat companies megamerger proposal in the form put forward by rival Alliance Group, based in Invercargill.

The reason appears to be its priority has been the deal with PGG Wrightson.

The cooperative's chairman Eoin Garden said an evaluation by PricewaterhouseCoopers had identified short term gains of more than $60 million a year with longer term benefits of up to $110m.

The result of listed PGG Wrightson taking a 50 per cent stake in the meat co-operative would be"a hybrid company structure" that retains the governance and supplier benefits of a cooperative, the two companies said.

Garden and Norgate said the heart of the proposal was the formation of a "truly integrated" supply chain  - on a "plate to pasture" model - with every link in the chain geared to meeting the needs of international meat companies.

The "partnership" of the listed company and the cooperative would see the stock procurement operations of Silver Fern Farms and PGG Wrightson combined.

PGG Wrightson would pay $220 million for the 50 per cent holding - $145m on completion and $75m plus interest by March 1 next year.

The funds from PGG Wrightson would be used by Silver Fern Farms to fast track the change programme already underway and invest in process improvements.

A new board would be formed of eight directors. PGG Wrightson would appoint four, three would be elected by farmer suppliers and one would be appointed by a new Shareholders' Council to be formed.

The two companies had signed a heads of agreement. The transaction was subject to completing documentation, securing banking approvals and farmer supplier backing.

Information would be made available to farmers in the next few weeks and Silver Fern Farms' meetings with suppliers were expected to be held in July and August before a vote.

Garden said the directors of Silver Fern Farms believed the company's stakeholders including farmer-shareholder-suppliers, would back the deal given its immediate transparent benefits.

Norgate said both companies shared the view that investment in an integrated supply chain was the key to unlocking the value of high-quality New Zealand meat.

"There is clear growth in the global protein market, so we need to build a structure to ensure that there is a stimulus to investment in the meat industry on a par at least with dairy."

"SFF is on the right road already in the form of its marketing and consolidation initiatives. We see our investment in SFF as an important step towards consolidation of the industry, with the benefit of enhanced supplier returns through rationalisation, marketing integration and a move to an Annual Equity Value (AEV) share model, " Norgate said.

- © Fairfax NZ News