Still questions on SFF PGW merger

The Grant Samuels report on the proposed merger between SIlver Fern Farms and PGG Wrightson is largely positive and includes the expectation that SFF will have a $48m profit for the year.

That’s a $90m improvement after a $42m loss last year.

The report also says the $220m PGW is offering for a 50% stake in SFF is at the top of the range.

The transaction was expected to increase cash-strapped Silver Fern Farm’s equity ratio to 80 percent and enable it to develop a stronger in-market presence and invest in capital projects…

Other benefits of the transaction would include the likelihood of success of Project Rightsize and the upgrade of remaining plants with state-of-the-art technology.

Grant Samuels says in the report PGG Wrightson’s resources and national coverage meant it was uniquely positioned to deliver more stock, and help farmers participate in an integrated supply chain.

However, Silver Fern Farms would have to pay at or above market price to attract and maintain stock supply, with half the company’s profits to flow back to PGG Wrightson.

One question the report doesn’t answer is the imbalance in voting rights between PGW and SFF because of unallocated shares held for new suppliers.

SFF is a co-operative, when new suppliers join they get a portion of unallocated shares which the company holds and can then exercise voting rights they carry.

If the merger goes ahead, PGW will have 50% of the shares and the voting rights which go with them, but SFF suppliers will have 50% minus the unallocated shares and so have fewer votes.

An alternative to that would be to allocate all the shares but then no new suppiers could join the co-operative unless existing shareholders left when they could take over their shares. That wouldn’t be sensible because the capacity for new suppliers would be limited by number of shares relinquished by retiring suppliers.

The only way to ensure that SFF shareholders always have 50% of the voting rights would be to start with them holding half the shares then increase the shareholding of both SFF and PGW with each new supplier so that PGW’s share goes up by the same amount as the new SFF shares.

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