Silver Fern Farms’ directors want to resume merger discussion with Alliance Group.
They have written to Alliance directors with their request and to Alliance shareholders explaining what they are doing.
I don’t fancy their chances because just this week Alliance chair Owen Poole told Rural News the opportunity for meat industry consolidation had passed.
SFF chairman Eoin Garden and PGW chairman Craig Norgate have both made it clear they would like Alliance to be part of the partnership.
Poole says he has had a ‘brief, high-level discussion with them’ about that possibility but it remains unappealing.
He has ‘a whole page’ of reasons for that, but the key concerns are loss of farmer control, the corporate/cooperative hybrid model, and that Alliance is already vertically integrated.
One of SFF’s selling points has been that there is no Plan B. But Alliance begins three weeks of shareholder meetings next week and that will provide the opportunity to show they have an alternative.
The letter to shareholders follows:
Dear Alliance Shareholder
Introduction
“We appreciate it is unconventional to write to you directly, but the Silver Fern Farms directors believe the topic of industry consolidation and our strategy is too important to ehar second-hand, hence our direct approach.
This week we have written to your directors to formally request they re-enter meaningful discussion, in good faith, to merge Alliance group and Silver Fern Farms. We would like to start this as soon as possible after Silver Fern Farms shareholder approcal is gained for our partnership with PGG Wrightson.
Objectives of Silver Fern Farms
Our recently announced proposal to form that partnership, which sees PGG Wrigthson subscribing for $220 million of shares in Silver Fern Farms, achieves three objectives:
* Commencement of industry consolidation IPGW is in the meat industry by virtue of its extensive on farm offerings including its livestock business).
* Formation of the integrated supply chain strategy “plate to pasture”.
* Introduction of new capital and expertise into the industry.
It also preserves the co-operative principles on which our two companies are based. Full details of the proposal will be available in late August, including information on how we have protected governance and decision making for our comapny and farmer shareholders – grhough our board structure, shareholding structure, our agreements with PGG Wrigthson, a new Shareholders’ Council and most imortantly voting disciplines which protect farmer control.
As part of the partnership proposal, it is clearly envisaged that PPG Wrightson’s shareholding would be reduced upon future industry consolidation through Silver Fern Farms.
Silver Fern Farms has previously signalled that it supports the formation of a single co-operative. Whilst Alliance Group declined to pursue this initiative in 2007 due to our debt and our plant structure, we have no addressed both these points, with debt reduction of $150 million and our announcemed plant restructurings. there have been achieved prior to the porposed $200 million cpaital injection into our company.
However, to bring this partnership together, obtain the capital and subsequently advance the initiative to merge with Alliance Group, we require Silver Fern Farms shareholder support. If not obtained, the important next step in industry consolidation will again be deferred or stalled. We see it as a great opportunity to make real progress in not only adopting a strategy, but also progressing consolidation in an organised and structure manner. Craig Norgate and his board, along with the Silver Fern Farms board, share a clear commitment to, and strategic vision for, the rural sector.
Proposed Merger Process
If the partnership with PGG Wrightson is approved, we want to immediately commence the process of proving the concept of a merger with Allinace Group, compiling the business case, seeking statutory approval and ocmpleting a caluation exercise. At the outset we would wish to discuss and agree the process to be followed with your directors.
the valuation exercise would determine the relative values of each group going int a merged co-oeprative that would manage approximately 50% of NZ meat exports to markets caross al species and incorporate PGG Wrightson with its nation-wide livestock management. Based on the most recent published information, we would see the combination fo Silver Fern Farms (post PGG Wrightson partnership) and Alliance Group having estimated shareholders’ funds of over $800 million, an estiamte equity ratio of approximately 80% and turnover of close to $3 billion.
The outcome would potentially see farmers holding 65% of the combined entity and PGG Wrightson with a shareholding of approximately 35%.
Conclusion
We encourage you to give your support to this industry consolidation platfrom and make your views known to your Alliance directors. this is an opportunity that we should all embrace to make a real change to the future. Yes there will be issues; however, such issues can be addressed within commercial negotiations, particularly if we all share a common vision for the long term viability of our industry.
As shareholders you will ahve the final say by way of a vote if a merger proposal is put before yo by your Alliance Group directors.
Further information on the proposed partnership can be found on our website www.silverfernfarms.co.nz …
Together, we can get our industry back on track.
Yours sincerely
ERH Garden
Chairman
