Farmers may not be sure how much they will benefit if Silver Fern Farms accepts PGG Wrightson’s offer to take a 50% stake in the company and one of the reasons is questions over what’s in it for Craig Norgate and PGW.
In the past year, the Auckland businessman with his wealthy Dunedin backers Baird and Allan McConnon have, via the rural servicing company PGG Wrightson, invested in the ailing wool and velvet industries and this month caught everyone by surprise by adding the equally vulnerable meat industry to their portfolio.
Investment capital has been rare for these three sectors and the returns far from guaranteed, so why is Mr Norgate pouring in money and assets?It certainly is not philanthropy.
Publicly, his reasoning is that if sheep and beef farmers are doing well and are more viable, they will spend more with PGG Wrightson (PGG-W), a view which has some validity. But there is also a view that it would shore up PGG Wrightson, where its livestock and wool divisions in particular were losing market share in the face of stiff competition and declining volumes.
Livestock traders established after Pyne Gould Guinness merged with Wrightson have eroded PGG-W’s share of livestock broking, while the South Island rural retail co-operative CRT last year reported a 20% increase in revenue, which many believe came at the expense of PGG-W stores.
PGW’s loss of business to its competitors might be even worse if the grape vine is correct about the number of people who are showing their opposition to the proposed investment in SFF by taking their business elsewhere.
In the deal with Silver Fern Farms (SFF), PGG Wrightson would be responsible for procuring stock to the meat company’s requirements, a role stock firms have been largely locked out of in recent years as meat companies favoured their own stock drafters.
For that role, PGG-W would be paid a commission which would boost revenue but also potentially give it access to new clients.
But SFF has said PGW wouldn’t be commission agents – bound to get the best price for the vendor – they’d be procurement agents working for SFF.
The SFF deal would be not a money-making venture in its own right. PGG-Wrightson would share in half the profits, but Mr Norgate described those as “large enough to wipe your face”.
The main benefit would be growing equity and share price in PGG-W, but if successful it could turn around ailing industries which generate nearly $6 billion in exports.
There is a view that what is needed is someone from the outside. Equally, there were those who see Mr Norgate as an opportunist, picking up major agribusiness assets for a song.
The value of SFF as measured by the PGG-W offer has been contentious, with some shareholders feeling $220 million for a half share of a company with a $2 billion turn over was too little.
This view was on the back of widespread belief that the meat industry was about to enter a prosperous period on the back of food inflation and soaring demand for meat protein from new markets such as China.
Maybe it was too little, but the capital-starved and debt-laden company was hardly in the strongest of bargaining positions.
But one of the reasons for lack of capital is because SFF capped shareholding to retain equity amongst supplier shareholders. It is difficult to understand why it was inequitable for farmers to have a bigger share in their own company when SFF is now prepared to allow outside investors to take a 50% stake in it.
There is a view among observers that Mr Norgate was satisfying an ego, an ego that was dented when he was pushed from the top job at Fonterra.
But his is not an artificial ego but one, many said, that was firmly grounded by intelligence, vision, ability and the capacity of seeing the bigger picture and relating that to people from all walks of life.
If anyone can pull off the SFF deal, many said, it would be Mr Norgate.
The agribusiness sector is all about personal relationships and the approachability of Mr Norgate will be the key if he is to succeed. But, of more importance, he has to take and retain key staff with him, those who deal with farmers on a daily basis.
That is half of the equation, and the grapevine suggests that neither PGW nor SFF agents, the ones who work with farmers, are yet convinced about the merits of a merger. The other half of the equation is the 75% of SFF shareholders who have to vote for the proposal if it is to succeed and that is a very high hurdle.