Farmlands chairman stands up for merger

21:26, Jan 22 2013

Farmlands chairman Lachie Johnstone says he is disappointed at criticism of the proposed merger of Farmlands, a North Island rural supply company, with its South Island counterpart CRT.

But he says open dialogue is part of the process and it is up to shareholders of both farmer-owned co-operatives to make the final decision.

Two member-elected directors of Farmlands have resigned from the board in protest at the proposed merger. Charlie Pedersen, who represented West Coast, North Island, and Hugh Ritchie, East Coast, North Island, have quit just days before merger details and voting forms are due to go out to members.

In a joint statement, Pedersen and Ritchie said that as the two largest transacting directors on the Farmlands board they did not believe the proposal was in the best interests of members.

They set out four key areas of concern, which they urged all members to consider before voting.

Johnstone said a lot of work had gone into seeking to address the concerns of the two men in recent weeks, and some of the changes they had requested had been made.


He believed the merger proposal was robust and would bring a range of benefits to members including economies of scale, increased efficiencies and improved returns.

Professional advisers had reviewed and validated the proposal.

''But in the end, it's about what the shareholders decide.''

Pedersen and Ritchie said their first area of concern was that the Farmlands board was not unanimous in supporting the merger proposal.

Second, the business case was short in detail and included deferred expenditure to create a $38 million figure quoted as expected benefits to members. Members would also need to have $15,000 of their capital invested to get the full benefit entitlement.

Third, a consultant involved in the merger stood to receive a significant success fee if the merger went ahead, they said.

Fourth, no agreement had been reached on how members would be represented in the future, with the ward and voting system not clear in the merger documents.

''To vote on a merger without this knowledge is a risk to the control and direction of your co-operative,'' Pedersen and Ritchie said in their statement.

''We have not taken this step lightly, but seek to enable members to make a fully informed decision.''

Responding point by point to the criticisms, Johnstone said Farmlands had never said the board was unanimous about the merger proposal itself - only that it had been unanimous to present a merger proposal to shareholders, ''subject to amendments on these sorts of issues''.

The information pack, which would be posted to shareholders this week, would clarify the expected merger benefits in relation to deferral of expenses and the share cap, he said.

Terms and conditions for the advisers and consultants involved in the merger process followed standard commercial practice.

''There is nothing untoward, and the quantum is not material,'' Johnstone said.

The rules for director representation had been written to allow for the two different election processes that currently existed in the two organisations, and to ''maintain the flexibility Farmlands has''.

Farmlands' directors include board-appointed shareholder directors, while CRTs' directors do not.

An undertaking had been given to consult shareholders of both co-operatives on election processes after the merger proposal had been voted on, Johnstone said.

''It is clearly stated in the documents who will represent which co-operative and for what period of time, then we will consult in terms of the process going forward.''

Johnstone and CRT chairman Don MacFarlane announced in September the two boards had agreed to investigate a merger.

The two chairmen then wrote to their respective shareholders in December, outlining a merger proposal, subject to approval of shareholders of both co-operatives.

Updated information packs will be posted to shareholders tomorrow and Friday.

Regional meetings will be held from January 31, followed by special general meetings in February at which final votes will be cast on whether the merger will go ahead, Johnstone said.

If it gets the nod, the Farmlands-CRT hybrid would have a customer base of more than 54,000 members, 47 stores in theNorth Island and 31 in the South Island and, based on recent trading, sales revenue of more than $2 billion.

The hybrid's main competition would be expected to be rural supply businesses, PGG Wrightson and Fonterra-owned RD1.