Directors quit over business case row

TIM CRONSHAW
Last updated 05:00 25/01/2013

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CRT shareholders voting on a merger next month with fellow rural service co-operative Farmlands are having to deal with two opposing directors handing in their notice.

Farmlands directors Charlie Pedersen and Hugh Ritchie, both former Federated Farmers leaders, resigned because they did not support the proposed merger with CRT.

Their departure came just days before members of both co-operatives received merger information details and voting forms.

CRT chairman Don McFarlane took issue with their criticism of the business case for the merger.

"The CRT board is unanimously recommending shareholders support it.

"The business case is really compelling and has been tested, we believe, to be very robust by internal management and several external independent parties."

The estimated $38 million savings in the first three years of a merger between the co-operatives was credible, he said.

"I think the business case is sound and our record of past mergers gives us confidence for shareholders to pursue it."

Both Pedersen and Ritchie disagreed, arguing the business case was short in detail and included deferred expenditure to create the $38m figure. Members would also need to invest $15,000 of capital to get the full benefit.

The former directors were the largest buying member-elected directors on the Farmlands board.

McFarlane did not accept the deferred expenditure argument.

"One IT system and an administration system will do what it takes for two systems for two companies. We don't regard it as a deferred expenditure. We regard it as a long-term saving and it stands to common sense that one system doing the work of two will halve your costs."

The gains, leading up to $18m in the third year, would enable the greater co-operative to maintain competitive pressure on farm costs and pay a healthy year-end bonus rebate, he said.

Additional income is expected to come from better buying terms, providing competitive prices, national coverage of services such as the CRT Card as well as cost savings in administration and information technology.

The combined business would have 54,000 members, more than 1000 staff, 47 stores in the North Island and 31 in the South Island and expected sales revenue of more than $2 billion.

The outgoing directors say the Farmlands board was not unanimous in supporting the merger proposal and had not received a formal resolution.

A consultant who had driven the merger process stood to receive a large success fee if the merger went ahead.

McFarlane said the early feedback from CRT shareholders was that they supported the merger.

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Both groups wanted to retain the "co-operative closeness", despite becoming a larger organisation and there would be no change at the counter with the same front people and stores.

Under the proposal, Farmlands' Lachie Johnstone would become the new chairman of the merged co-operatives, with McFarlane deputy chairman and CRT's Brent Esler chief executive.

McFarlane said the leadership shuffle showed it was a true merger and not a takeover.

CRT will hold 17 district meetings throughout the South Island and shareholders' meetings when shareholders cast their vote in Christchurch on February 12 and Invercargill on February 27.

Under quirky voting rules, 75 per cent support is required at the first meeting, and 50 per cent support is needed at the second.

- BusinessDay

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