Historic day for red meat sector with Silver Fern Farms $261m deal approved
The approval by shareholders for a Chinese food giant to take a 50 per cent stake in Silver Fern Farms marks a historic day for the New Zealand red meat sector, says chairman Rob Hewett.
Silver Fern Farms (SFF) is the country's largest processing company and is owned by 6200 farmer shareholders.
Those shareholders were offered a $261 million injection by Shanghai Maling, a listed subsidiary of Bright Food (Group) Co, China's largest food company.
Voting closed on Wednesday and the last of the meeting votes were counted on Friday, with the result announced by SFF chairman Rob Hewett at Forsyth Barr Stadium in Dunedin.
The resolution was approved 82.2 per cent in favour, following a 67 per cent turnout.
Hewett said he always knew the support was there following a series of roadshows around the country.
"We will be looking back at this date and saying this was the genesis of the change in the red meat industry in New Zealand, certainly for Silver Fern Farms.
"Everybody wins out of this. I think the red meat industry has been lost over the last few years. Principally because all the entities are under capitalised."
The deal would be put to Shanghai Maling's shareholders on October 30 then would go the relevant regulatory authorities, including the Overseas Investment Office (OIO), which would take 6-9 months.
The deal did not need shareholder approval, but the co-operative sought support of its shareholders.
The Kiwi and Chinese deal had major ramifications for the $8 billion meat export industry and was confirmed after midday when the last farmer shareholders from SFF cast their vote.
Around 150 shareholders were at a special meeting at 10.30am to hear the resolution seeking approval for the joint venture.
Prior to that confirmation, SFF chief executive Dean Hamilton told shareholders the deal would give the company a "unique opportunity in China" the fastest growing red meat sector in the world.
Under the company's plate to pasture strategy the company was committed to being "100% made of New Zealand" and scotched calls to invest in offshore plants.
"We are not going to be building plants in those offshore markets."
The company did not have the current capital structure to achieve its ambitions, and "It takes a long time to build a global red meat brand".
Paying down debt meant the company struggled to attract and retain good staff and could not invest in research and development to the desired level.
"We said publicly a year ago that we would like to introduce at least $100m of equity to get that balance sheet down . . . we have been pleasantly surprised that not only will we go to a position of financial stability but this transaction takes us to a position of financial strength," Hamilton said.
A year ago the company set out to raise new equity to transform the company.
Hewett said Shanghai Maling, which had a market capitalisation of NZ$3.2billion, gave them capital and market access.
The Chinese company owned 750 retail stores, 56 speciality meat stores and 19 wholesale facilities, with Bright Food Group owning 800 Hyper market and 6000 retail stores across China.
Hewett said shareholders throughout the country had shown enthusiastic support for the Shanghai Maling proposal since its announcement, with many calling this 'the breakthrough initiative' the business had been seeking in recent years".
"This is a very exciting day for Silver Fern Farms. The board believes this partnership will be a defining moment for our business, the co-operative as a whole, and our supplying farmers.
"It is gratifying shareholders agreed."
Shanghai Maling had similar values, and the partnership would be based around "trust and respect".
Several shareholders expressed concern over a deal with the Chinese, while others indicated their support for the proposal.
Shareholders were told if Shanghai Maling wanted to exit the deal they would have to offer the shares to the co-operative, but if that price wasn't accepted they could go to the market.
Hewett, commenting on a second resolution on the potential benefits and risks of a merger with Alliance, said the board believed the Shanghai Maling deal was "far superior".
The board did not believe there was any merit in spending resources to conduct analysis looking at the merger, and recommended shareholders voted against that resolution.
Otago farmer Allan Richardson, a supporter of the second resolution, conceded it was a "dead rubber".
"Perhaps farmers from both co-ops needed to step-up and make this happen."
He shook hands with Hewett after addressing shareholders, and wished the board and management success in the venture.
That resolution was voted down by 76.01% of shares cast.
Hewett, addressing media after the deal, said a merger with Alliance wouldn't solve the problem, but "collaborations and opportunities still exist and we look forward to that discussion".
Shanghai Maling president Wei Ping Shen was in Dunedin on September 25 to talk over the deal which was unanimously recommended by the Silver Fern Farms' board.
Shen, speaking via a translator, allayed any concerns that the deal was anything other than an equal partnership and promised to "maximise return for both partners".
"We are very confident that we can bring some additional values to the farmers because they are the key suppliers."
New Zealand red meat was the best in the world and the Silver Fern Farms' brand had the potential to become "the leading brand in New Zealand, China and globally".
He wanted the company to have the same sort of brand recognition in the red meat sector as Coca Cola did for beverages.
"That is the key agenda for both partners, to increase the value of this brand."
Shen would be "delighted" by the news, Hewett said.
Alliance Group acknowledged the vote by SFF shareholders to accept an investment by Chinese company Shanghai Maling gives clarity to the industry but stated the co-operative's strategy to increase returns for farmer-shareholders was not reliant on the ownership structure of SFF.
"Alliance Group will be the only major red meat co-operative in New Zealand and our focus is on ensuring we make the right decisions to benefit our farmer-shareholders and increase their returns," Alliance Group chief executive David Surveyor said.
Farmers would continue to have a choice of where they send their livestock, and as the major red meat co-operative in New Zealand, Alliance is an attractive option for co-operatively minded farmers.
"This is a decision that has been made by SFF shareholders. We will run our own race and we have a strategy that will deliver significant value to our farmers.
"We have of course extensively evaluated the potential for merger with or acquisition of all or part of SFF just as they have no doubt looked at us over the years. "