SFF looking desperate

Silver Fern Farms had a half-page advertisement in Saturday’s ODT and Southland Times.

It was an open letter to Alliance Group and SFF shareholders promoting a meger of the two companies:

Dear Shareholder

Notwithstanding the impact the recent weather has had on livestock numbers and the potential further exodus from the sheep and beef sector, Silver Fern Farms remains convinced a strategic direction and supporting structure needs to be advanced for our industry.

Our recent $67m commitment to Farm IQ Systems Limited is evidence of our commitment to make a difference by achieving superior market place returns that are transparently linked back inside the farm gate. We believe that a different ownership structure, and consolidation within the industry, is important to capitalise on a strategy that is market focussed.

It is our view that putting our two co-operatives together as a first stage will create scale and financial strength to under-pin such a strategy. If shareholders of the co-operatives have commitment to support that merged business, then further consolidation can follow.

However, a lead needs to be taken. It should not be a lead about self preservation but a lead about creating a “NZ Inc” strategic approach to the marketing of New Zealand red meat and associated products.

We have exhausted direct attempts to achieve such an objective and now look to the shareholders of our two NZ farmer controlled co-operatives to have a direct say and to give direction as to how they would like their industry and co-operative to advance.

This is not a vote, nor a mandate, but an opportunity for you as shareholders to give your view. It is then over to the respective boards to accept or ignore your view.

It was signed by SFF’s directors.

Shareholders are then asked to tick yes or no to the following proposition:

I support the Alliance Group Limited and Silver Fern Farms Limited to:
  • Appoint an independent facilitator to Chair a joint evaluation committee to:
  • Create a strategic plan for the future of NZ meat products and by products.
  • Agree on the appropriate governance structure to support that strategic plan.
  • Oversee the independent analysis of the financial outcomes of an amalgamation of the two companies
  • Publish a report on these matters to be distributed to shareholders, excluding confidential and commercially sensitive details.

It is only two years since Alliance shareholders turned down an attempt by the Meat Industry Action Group to merge the two co-operatives.

In those two years SFF”s market share has declined and Alliance’s has increased making it even less likely Alliance shareholders would entertain a merger now.

Any chances of shareholders showing any interest in the proposition aren’t helped by the unusual method SFF has chosen to get its message across.

Why use an open letter in newspapers rather than writing directly to shareholders?

Why advertise in newspapers on the Saturday of a long weekend when there’s no mail delivery? Most farmers won’t get the papers until Tuesday and will pay mroe attention to Monday’s and Tuesday’s than the three-day-old one from the weekend.

Why not speak to Alliance directors before writing the open letter?

Why didn’t SFF accompany the advertisements with media releases?

Why wait until after Alliance has finished its road shows for shareholders at which no-one raised the question of a merger?

Why require the form to be returned by November 8 when the company’s annual report isn’t expected out until the middle of the month?

What has SFF to offer Alliance shareholders when SFF hasn’t paid a dividend or pool payout in the last five years and Alliance has paid both every year?

The outlook for the 2010/11 season was for increasing demand and falling supply before the disastrous losses after last month’s snow in Southland and South Otago which means competition for stock will be even greater.

This letter isn’t going to give farmers any reason to choose SFF over other companies with better balance sheets and more confidence in their own future.

It’s designed to show SFF taking the high ground over a strategy for the whole industry but it looks more like a last ditch attempt to ensure its own survival.

This may be only the opening salvo in SFF’s campaign but it looks more like the prelude to surrender than a winning battle plan.

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