Merger threatens to turn dirty

Last updated 05:00 26/01/2013

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The ghosts of old enmities are being revived as the Farmlands-CRT merger threatens to turn dirty.

I'm told the anti-merger camp is relying on anti-South Island resentment in rural Hawke's Bay to sink the merger.

Two Farmlands directors have resigned, saying they do not believe the merger proposal is in shareholders' best interests. It comes just days before Farmlands and CRT shareholders start receiving information and voting forms.

Strangely, the prospectus is signed by the two dissenting directors, former Federated Farmers leading lights Charlie Pedersen and Hugh Ritchie. But they have since changed their minds.

Both boards want the merger to happen and stress it is not a takeover. It would create a nationwide rural retail empire with sales of more than $2 billion. The 78 stores - 47 in the North Island and 31 in the South Island - would have a customer base of more than 54,000, all of them shareholders.

Gains of $38 million, mainly from the improved purchasing power of the combined companies, are forecast.

It is expected to be relatively painless for the more than 1000 staff, as so far each company has stayed in its home island. CRT shareholders are expected to solidly endorse the plan, which because the companies are co-operatives needs 75 per cent approval.

A worry for the Farmlands' board is voter apathy among its 28,000 shareholders - evident in the 20 per cent turnout in a recent election - combined with a lingering distrust of South Islanders that the anti-merger camp is encouraging.

This goes back more than a decade to the takeover of Hawke's Bay meat company Richmond by Dunedin co-operative PPCS. The merged company has since been renamed Silver Fern Farms.

Unsavoury tactics by PPCS were revealed as the takeover was dragged through the High Court and the Court of Appeal. PPCS was penalised for a breach of the Securities Amendment Act, but still managed to win enough of Richmond's shareholding to take it over.

Resentment of PPCS was strong in Hawke's Bay for the next few years. But a new board and management worked hard to win back support with the result that today Silver Fern Farms is well-regarded, particularly among younger farmers.

But some of the old hands who led the fight against PPCS will never forgive or forget.

One is David Ritchie, who is a former Farmlands' chairman. Hugh Ritchie is his son.

The elder Ritchie is against the Farmlands-CRT merger, saying that two competing co-operatives is good for business as they keep the cost of farm goods down.

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The two companies' boards' answer is that their combined purchasing power will lower those costs even more and that there is still enough competition in the market from rival chains PGG Wrightson and RD1.

It's also worth pointing out that Farmlands is the result of several previous mergers, some under David Ritchie's chairmanship.

The younger Ritchie and Pedersen urge shareholders to "carefully read and question the detail in the proposed merger documents before voting". They say they are worried at the lack of detail in the business case, at the high success fee for the consultant who has driven the merger if it goes ahead and that there is no agreement on how members will be represented in future.

They have been left with no choice but to resign so they can speak out, they say.

A clearly riled Farmlands' chairman Lachie Johnstone has immediately hit back. He questions the motives of Ritchie and Pedersen.

He talks of them having a personal agenda. Pedersen wasn't selected by his fellow directors to represent Farmlands in the merged entity, Johnstone says, implying the feisty former Feds president is acting out of pique. For Ritchie, his father's stand creates a family dilemma for an inexperienced director, Johnstone claims. "It must be challenging to have two people with opposing views when they are both passionate people."

Fighting talk. And an indication that the battle to win votes for the merger could be a dirty one.

With such a high standard to reach - 75 per cent of the votes cast - the result could turn on the choice of relatively few shareholders. Those angered by the bogy of another South Island co-operative coming north to take their company away from them could hold sway.

Then there are those who think the Ritchie and Pedersen resignations could work against them. Ritchie's resignation could be seen by the Gisborne and Wairarapa shareholders in the East Coast electorate as Hawke's Bay telling them how to vote, which they will not take kindly. Also, Pedersen's reputation as a hard-nosed, uncompromising Feds leader may turn people away from his views.

This is all highly speculative, but expect tensions to be high over the next month as meetings are held to discuss the plan.

- © Fairfax NZ News

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