Merger not answer for meat

July 6, 2015

A possible merger between Alliance Group and Silver Fern Farms is still on the agenda of some in the meat industry.

Disgruntled Alliance Group shareholders say they hope to have the support from 5 percent of their number within the next 10 days that’s required to force a special meeting to discuss the potential benefits and risks of a merger with Silver Fern Farms.

Last week Silver Fern Farms shareholders crossed the 5 percent threshold to force a special meeting of their meat cooperative to vote on seeking a full analysis of the benefits and risks of merging with Alliance, along with a comprehensive risk mitigation plan, verified by an independent firm. . .

Allan Barber explains why merger’s  not going to happen:

Silver Fern Farms have been forced to take what CEO Dean Hamilton calls a prudent approach to livestock procurement. This is code for being hard up against the company’s banking facility, directly as a result of greater livestock availability. A longer season in the North Island and pressure from drought in North Canterbury are responsible for this situation.

An in-house message to livestock buyers explains the company’s inability to handle all its potential livestock bookings and says it may be necessary to assist some suppliers in finding alternative slaughter capacity. . .

Clearly SFF has taken the sensible step of implementing seasonal closures at some large plants, such as Paeroa in the Waikato and Fairton in the South Island. Unfortunately the pursuit of cost savings has clashed with the longer than expected flow of livestock, but it would be financially unsustainable if not impossible to reopen these plants.

The other major factor is the state of the export market which is scarcely conducive to killing and processing more product than absolutely necessary at this time of year. As Hamilton told me, there is no point in filling up the chillers and freezers when the market is as soft as it is at the moment. He could well have added that the company’s bankers wouldn’t have allowed it anyway.

The internal communication to the buyers makes it plain SFF must live within its means which hasn’t been the case for the last three or four years. The hope is expressed that this will create more flexibility next season. However the $1.3 billion spent on livestock so far this year is greater than last year which indicates the company has yet again failed to live within its means.

Three years ago SFF suffered because it failed to meet the market which resulted in too much inventory having to be written down, causing substantial losses over two financial years.

SFF is suffering the ultimate meat industry conundrum: how to run all its plants at optimum capacity when its bankers impose facility limits which render this difficult or downright impossible in prevailing market conditions; another dimension of the conundrum is the conflict between satisfying supplier demand for slaughter space and the inability to turn this into cash.

Barber gives some history – this is what happened in the 1990s when Fortex and Weddel went into receivership.

SFF is faced with a similar set of problems which can only be resolved by a capital restructure. The shareholder group’s attempts to force a review of the potential for a merger with Alliance are doomed to fail, because the state of the balance sheet and bank constraints make a merger impossible. There are also rumours about the closure of SFF’s overseas offices. . .

It appears the result of the equity raising process carried out by Goldman Sachs will finally be available for communication to shareholders in August. Unless the shareholders can come up with a minimum of $100 million, and even this may not be enough, they will have no entitlement to influence the company’s future. There may be no alternative to bringing in outside capital to recapitalise all or part of the business. . .

The grapevine suggests several scenarios for the future of SFF none of which is a merger with Alliance.

Those wanting that to happen don’t understand directors’ legal responsibilities to work in the best interests of the company, which would rule a merger out.


This yes means no

November 10, 2010

Silver Fern Farms is trying to spin the news that  87% of the respondents to its poll supported the call for SFF and Alliance Group to consider a merger.

But they got only 517 responses from the 15,000 or more shareholders of both companies. That doesn’t necessarily even mean 517 people voted because if you had several supplier numbers, as many shareholders do, you could vote more than once on-line.

 Even if it was 517 individuals, that so few shareholders bothered to respond means the yes is a resounding no.

It’s also a vote of no confidence in SFF by its own shareholders.

SFF might have something to gain by a merger but it would be all risk with little if any reward for Alliance.

SFF made its first operating profit in years last year but hasn’t made a pool payout for at least five and its reduction in debt is due, at least in part, to the compensation from the failed merger with PGG Wrightson rather than good management.

Alliance by contrast has been making healthy profits and generous pool payments and has no debt.

The disastrous stock losses from snow in Southland and South Otago and rising demand for lamb will put farmers in a very strong position this season.

Meat companies will be seeking stock aggressively and Alliance’s far healthier balance sheet will put it in a much better position than SFF to pay for it.

Sharyn Price gave a very clear explanation of why SFF’s plan was flawed in All of a stew over lamb in Saturday’s ODT concluding with:

Farmers have a simple choice – build a historically profitable co-operative into something more powerful with further increases in equity and market clout, or create a clumsy, politically fraught co-operative that remains exposed to competitors.

Those wondering which to supply this season may want to keep in mind that after the last bad snowfall during lambing the weakest company – Fortex – collapsed.


SFF calls meeting with Silverstream meatworkers

July 17, 2008

Silver Fern Farms has called a meeting today of 300 workers at its Silverstream lamb cutting plant near Mosgiel, but the Otago Daily Times  understands the plant is not going to close.

Up to 300 people work at the North Taieri plant in the peak of the season, and while the exact nature of the meeting was not clear last night, its immediate future appeared secure.

Meatworkers union officials were in the dark as to the nature of the meeting, but were confident the former Fortex meat plant would not close. SFF chief executive Keith Cooper declined to comment.

The plant processes and packages lamb carcasses from SFF works at Waitane (near Gore), Finegand (near Balclutha) and Pareora (near Timaru) for shipment to international markets and has been fitted out with some of the latest robotic technology.

New Zealand Meat Workers Union Otago president Daryl Carran had no idea what was in store at today’s meeting.

“I’m not sure what we’re expecting. We’ll just have to wait and see.”

Workers were nervous given SFF had embarked on Project Right Size, which aligned processing capacity with livestock supply and looked at the way the company did business.

The project has seen the company quit some non-strategic assets, such as part ownership of its Dunedin head office and overseas businesses and offices, and the closure of deer processing plants at Burnside and the Waikato, the Oringi sheep meat plant in the Hawkes Bay and a lambskin processing business in Balclutha.

Plant closures have so far resulted in the loss of more than 600 positions, but Mr Cooper has said the project was coming to an end.


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