Alliance Group chair Murray Taggart has held his seat on the board but Jason Miller has lost his to Don Morrison who was on the Meat Industry excellence (MIA) Group.
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:
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:|
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.
Silver Fern Farms is putting a positive spin on the decision to extend the deadline for farmers to take up its share exchange and cash issue offer.
The chairman of the meat co-operative, Eion Garden, said 37% of shares had been exchanged so far and “a significant number” of shareholders had taken up or exceeded their full cash issue entitlement.
The company had hoped to raise at least $80 million, but with a flood of applications arriving before yesterday’s deadline, more expected over the weekend and the clash with lambing, the deadline had been extended until October 9, Mr Garden said.
I don’t think lambing has anything to do with it. The company obviously didn’t get the support they hoped for. The Press says the maximum that can be raised is $128m but so far only 12 million new shares at $1 each have been bought by farmer-suppliers.
The extended deadline might pick up a bit more shahreholder support but it won’t deliver the amount the co-operative needs and the directors will have to look for a plan B.
It hasn’t been a good year for the company.
Alliance Group shareholders turned down the Meat Industry Action Group’s plan for a merger with SFF. PGG Wrightson couldn’t come up with the cash for the 50% buy in it had proposed; and the $10 million PGW shares SFF took as part of their compensation for that are worth little more than half that amount now.
The season ahead won’t be easy either.
Demand for lamb in export markets is firm which is holding prices up. But the strength of the demand is on the back of falling supply caused by drought in Australia and New Zealand and the large number of dairy conversions here.
Fewer sheep to kill exacerbates the over supply of killing space. SFF did some rationalisation last year but the industry as a whole still has excess capacity.
It has been a good season for lambing. The weather has been pretty mild and survival rates have been high. Spring grass growth has been good too but most of the east coast is very dry which will put pressure on feed and bring stock on to the market.
But farmers are spoiled for choice when it comes to meat companies and if they aren’t prepared to invest more in SFF it’s an indication they may well look elsewhere for killing space.
The Meat Industry Action Group isn’t happy that Silver Fern Farms won’t be calling a special general meeting until October 7.
MIAG chair John Gregan said that date was too late.
“They (Silver Fern Farms) kept fobbing us off and it’s only now that we have a court order that they decide to set a date.” Mr Gregan said it was critical the meeting was held on or before September 8 when shareholders voted on the proposed partnership with PGG Wrightson because farmer ownership could be diluted to 50 percent.
However, Silver Fern Farms chairman Eion Garden said it was not possible to hold the meeting before or on that date.
“Our primary concern is the confusion that would arise around a vote on two quite separate issues.” Mr Garden also dismissed Mr Gregan’s concerns about farmer shareholding being diluted.
“He (Mr Gregan) doesn’t understand the constitution criteria in place,” he said.
“Any shareholder resolution has got to be passed by 50 percent of farmer shareholders.” Mr Garden said the Silver Fern Farms board would be in a better position to comment on the issues to be considered in light of the outcome of the PGG Wrightson partnership proposal.
He’s right. The outcome of the shareholders’ vote on whether to accept the PGW offer could effect how they view MIAG’s proposal so it should be determined before the SGM is held.
The Meat Industry Action Group’s 11 resolutions, which will be presented at the meeting, were focused on industry consolidation and forming a market-led national champion with 80 percent of the sheep meat industry.
The Alliance Group has agreed to hold its special general meeting on September 5.
However, chairman Owen Poole said at a meeting in Gore last week that he was prepared for a “Gunfight at the OK Corral”.
He described the resolutions as “unrealistic and highly prescriptive” and said they compromised the ability of board directors to act in the best interests of the company.
If Alliance shareholders vote agains this at their SGM it makes the outcome of the SFF meeting irrelevant anyway.
It will take more than two to do MIAG’s tango. Alliance directors have made it quite clear they’re not wanting to dance with the other co-operative and if shareholders agree with them the dance will be called off.
The Meat Industry Action Group is taking Silver Fern Farms to the High Court to force it to name a date for a special general meeting.
MIAG collected enough proxy votes from shareholders to force both SFF and Alliance Group to hold sgms as a first step in MIAG’s plan to promote a merger between the two co-operatives.
Alliance has agreed to hold its meeting on September 5, but MIAG said SFF has delayed committing to a date, forcing it to seek a court ruling.
But it appears the meat companies are less than enthusiastic about calling the special meetings at which MIAG has 11 remits to put to shareholders.
MIAG says the remits would advance industry consolidation and help create a new farmer-owned entity, it calls the National Champion, to handle 80% of the country’s red meat industry.
Alliance chairman Owen Poole this week slated MIAG, saying the resolutions were prescriptive, divisive and counter to the legal requirements of directors acting in the best interests of the company.
SFF chairman Eoin Garden accused MIAG of being disruptive and misleading.
“It is more likely that history would record MIAG, by its actions in destabilising the governance of both companies, has in itself been the cause of slowing the progress of industry consolidation.”
MIAG has got the co-operatives agreeing about something – their opposition to the ginger group.
Mr Garden said the company had agreed to hold the meeting following its own special meeting on September 8. A promise to hold the meeting was communicated to MIAG on August 10 and he said the court action was a waste of time, resources and money.
It was important to get an outcome on the SFF-PGG Wrightson vote so the new board could hear issues raised at the special meeting initiated by MIAG.
“We have a firm option on the table to be voted on, whereas MIAG requirements are about a process, as opposed to a concrete transaction.”
MIAG is seeking proxies for the special general meetings. Farmers should be very careful about giving them until they understand exactly what their votes would be supporting.
The groups demands for industry consolidation are not a recipe for improved returns and as Poole points out they would breach directors’ legal responsibility to act in the best interests of their company.
Events have overtaken any ideas Silver Fern Farms and the Meat Industry Action Group have about a merger between SFF and Alliance Group.
The prediction that the sheep kill will be down by 9 million this season changes everything.
Even without that, although there were good reasons why SFF might to merge with Alliance, the case for Alliance joining SFF was much weaker; and something MIAG seems not to understand is that directors are legally required to act in the best interets of the company.
But now sheep numbers have dropped so steeply the meat industry is entering a new era.
There will have to be more works closures and job losses not only in the freezing industry but in allied areas such as shearing. That will be difficult for the many people involved but there is a silver lining to this cloud for sheep farmers because decreased supply is coming while demand is rising and that will mean better prices.
SFF lost any opportunity it might have had for joining others in the industry when it pulled out of discussions over Alliance’s plan for a mega merger. It now has its hopes set on shareholders accepting PGG Wrightson’s proposal to take a 50% stake in the company and says it there is no plan B.
But if that plan isn’t accepted SFF will have to come up with another, and the letter Alliance directors has sent to shareholders makes it clear it has its own plan which don’t involve either SFF or PGW.
In a strongly worded letter, Alliance chair Owen Poole pours cold water on both SFF’s desire to reopen merger discussions and its proposal to allow PGG Wrightson to take a 50% stake in the company.
He wrote, in response to one SFF chair Eion Garden wrote to Alliance shareholders, and lists the arguments against the PGW proposal and SFF advances.
Poole’s letter follows the break: Read the rest of this entry »
The Meat Industry Action Group has the shareholder numbers to force Alliance Group and Silver Fern Farms to call special general meetings and discuss a merger.
MIAG wants an independently-chaired joint working party to look at consolidation.
Group spokesman John Gregan said the proposed PGG-Wrightson purchase of 50% of Silver Fern Farms would have no impact on his group’s ultimate plan of creating an entity to handle 80% of New Zealand’s red meat procurement and processing.
The meetings were unlikely to be called until after September’s vote by Silver Fern Farms’ shareholders on the proposal to merge with PGG-Wrightson.
Alliance Group chairman Owen Poole said he had meetings planned with shareholders next month to discuss his company’s strategic plan and would not consider holding a special meeting until after those talks.
SFF chief executive Keith Cooper said the board would meet next week and consider the action group’s proposition.
Mr Gregan did not have any problem with delaying the special meetings, saying having them after the PGG-Wrightson-Silver Fern Farms vote would make the situation clearer.
A “no” vote by shareholders would add to the pressure to get the two co-operatives talking. A “yes” vote meant the industry still needed consolidation, he said.
The detail of the resolutions was still being worked on with the meat companies. Mr Gregan said another remit would try to ensure the committee reached a decision.
“It is all very well telling them to get around the table, but we need some teeth . . . we need to give the chairman some ability to make them toe the line.”
This presupposes the working party will conclude a merger is the best option.
It also ignores the legal requirement for directors to do what is in the best interests of their companies so no matter what the working party concludes unless it is in the best interests of each company it will not be acted on.
The proposal for PGG Wrightson to take a 50% stake in Silver Fern Farms is not a silver bullet for the meat industry and initial reaction to the concept isn’t very positive.
… yesterday’s announcement went down like a “cup of cold sick” with shareholders, who fear farmer-ownership of New Zealand’s largest meat company will be diluted.
Mossburn farmer Stephen Cullen said he was “bloody shocked” that Silver Fern Farms wanted to effectively sell its soul to outside interests and alienate itself from the rest of the industry.
Farmers feel very strongly about retention of farmer-control in the processing industry.
Meat Industry Action Group chairman John Gregan said he was “staggered” that PGG-Wrightson wanted, what he believed, was a controlling share in Silver Fern Farms.
“There’s no doubt the current structure is failing us, but the loss of farmer shareholding will be a sore point for some,” he said.
Mr Gregan believed it would be a “big ask” to achieve the 75 percent voter threshold required to advance the partnership.
“I’m a bit angry about it. They (Silver Fern Farms) didn’t dream it up last month. It takes a long time to put together something like this.”
MIAG is meeting SFF chair Eion Garden today. One of the questions they could ask is: why SFF let the Meat Industry Taskforce waste time and money starting the process of developing an industry strategy when they SFF must have already been planning the deal with PGW?
Garden believes shareholders will support the initiative becuase of the immediate benefits.
The new board of SFF would decide on the use of the $220 million, but a sizeable chunk would go on the upgrade of existing processing plants, including the use of robotic meat-cutting systems developed between SFF and Dunedin’s Scott Technology.
“This industry is starved of capital.
It’s one of the fundamental reasons we don’t have strong balance sheets and strong profits on a long-term basis,” Mr Garden said.
He is right that lack of capital is a problem, but it’s not the only one. The drastic drop in sheep numbers has resulted in an over-supply of killing space so whether or not the deal goes ahead there will be more works closures.
The other problem is marketing and SFF & PGW say more money would be spent on researching customers and stronger branding of New Zealand meat. But they also say the money won’t be used for reducing debt and high debt is one of SFF’s big problems.
I haven’t spoken to anyone who is wildly enthusiastic about the plan yet but perhaps I’m talking to the wrong people. The ODT found a more positive reaction from Otago Fed Farmers meat & fibre chair Rob Lawson because it involved Craig Norgate.
I am cautiously optimistic. I can see some really positive things, and one of those is the business acumen of Craig Norgate and the PGG Wrightson team.”
Other factors the Merton farmer saw as favourable were the injection of $220 million from PGG Wrightson; the move to an integrated supply chain linking consumers with farmers; the potential for industry rationalisation; and the market focus the investment would encourage.
All these are fair points and there is no doubting Norgate’s abilities, nor his powers of persuasion. If he fronts a road show to sell the concept he may be able to change the minds of at least some of those who aren’t enthusiastic about it.
The loss of total farmer control of SFF was a possible concern, but Mr Lawson said farmers had to ask themselves what farmer control of the meat industry had achieved so far.
That’s a fair question but as Fonterra found when they tried to persuade their shareholders to open up the company to outside investment that farmers aren’t keen to lose control.