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PGG and Wrightson Announce Intention to Merge

5 July 2005

PGG and Wrightson Announce Intention to Merge

The Boards of Directors of Pyne Gould Guinness Limited and Wrightson Limited announced today that they have agreed on terms for a merger of the two companies and will put a merger proposal to their respective shareholders for approval as soon as is practicable.

The chairmen of both companies - Mr Bill Baylis (PGG) and Mr Keith Smith (Wrightson) - said both boards were unanimously in support of the proposal.

The merged company - PGG Wrightson Limited - will retain the operational strength and breadth of its predecessors, providing specialised services and products built on a long history of close involvement in the rural sector.

'Looking ahead, both of our companies see agriculture as continuing to play a pivotal role in New Zealand's economy,' Mr Baylis and Mr Smith said today. 'PGG Wrightson is founded on the premise that New Zealand agriculture must 'punch above its weight' if it is to succeed in the face of intense and growing international competition. The company's goal will be to deliver a new level of performance to help its clients respond to the competitive pressures they will continue to face.

'A strong national rural servicing business will be in a better position to achieve this than a highly fragmented industry. PGG Wrightson's prime purpose will be to make a positive difference to the profitability and sustainability of our farmer clients' businesses.'

Under the proposal approved by both boards, the merger will see Wrightson being merged into PGG to become PGG Wrightson, which will remain NZX listed. PGG will issue new shares to Wrightson shareholders to effect the merger. The share issue will be based on a formula reflecting the valuations agreed by the boards for the merging companies. Wrightson shareholders will receive approximately 1.028 PGG shares for every Wrightson share they currently hold, dependent on any capital changes or changes in equity.

A scheme of arrangement will be put to the shareholders of both companies for approval at special meetings, likely to take place in early September. There will also be other conditions that will need to be satisfied for the merger to proceed.

The cornerstone shareholders in both companies - Pyne Gould Corporation Limited (PGC), which holds 55.4 percent of PGG; and Rural Portfolio Investments Limited (RPI), which holds 50.01 percent of Wrightson - have indicated that they support the proposal in principle. They will respectively hold 22 percent and 30 percent in the merged company. If the proposal proceeds, PGC and RPI will have a Shareholders Agreement between them covering standard areas of governance and consultation, and including a pre-emptive right in the event that either party should desire to sell shares in the merged company. Securities to be issued as part of the merger are not guaranteed by PGC, RPI or any other parties.

PGG Wrightson will be represented throughout New Zealand, and also in Australia and South America. The Corporate Office will be in Christchurch, and there will be administrative centres in Dunedin and Napier and branches in centres throughout New Zealand.

All the businesses in the current operating portfolio are intended to be retained, so that the company will have leading positions in Livestock, Wool, Rural Supplies, Grain, Seeds and Nutrition, Irrigation, Finance, Real Estate, Insurance, Consultancy and Training. The strength of the merged company will support further investment in new technology and research directed at providing better products and more professional service to clients.

'Both boards recognise that the strength of each business will be based on the quality and commitment of the new company's staff, and their relationships with clients,' Mr Baylis and Mr Smith said. 'Accordingly, all field staff will be retained in the merged company. As the company develops and progresses, staff will gain the benefits of enhanced career and personal development opportunities, arising from business expansion and innovation.'

In total, PGG Wrightson will employ approximately 2,700 people. The strength of the merged company's New Zealand base will provide an excellent platform for development in key offshore markets.

Based on pro forma financial data, the company will have an initial turnover of $1.1 billion and total assets of almost $900 million. The merger is expected to result in synergies of approximately $10 million in the 2005-06 year, which is expected to be offset by a similar magnitude of associated costs. Synergies of approximately $20 million are expected to flow through to earnings in the second year.

Under the proposal, the merged company will have a 12-person board of directors, chaired by Mr Baylis. A search process for the Chief Executive Officer will be commenced immediately, with the existing CEOs of both of the merging companies expected to be leading candidates. Until that process is completed, Mr Baird McConnon will be Interim Managing Director.

A full background paper on the business profile of PGG Wrightson is attached to this announcement.

ENDS

Background information
PGG WRIGHTSON

PGG Wrightson will be a rural servicing business with the critical mass needed to support the growth and development of its clients' businesses.

The Boards of both of the merging companies see agriculture as continuing to play a pivotal role in New Zealand's economy. PGG Wrightson is founded on the premise that agriculture must 'punch above its weight' if it is to succeed in the face of intense and growing international competition. The company's goal will be to deliver a new level of performance to help its clients respond to the competitive pressures they will continue to face.

A strong national rural servicing business will be in a better position to achieve this than a highly fragmented industry.

The company will retain the operational strength and breadth of its predecessors - providing rural services and products built on a long history of close involvement with farming in New Zealand.

These attributes will be further strengthened through investment to better meet the challenges and opportunities presented by changes in agriculture, science and commerce. The company will have the critical mass required for investment in new technology and research directed at providing better products and services to clients. It will have the capabilities needed to champion the development of specialised products and services in a variety of fields.

All the businesses in the current operating portfolios are intended to be retained - so that PGG†Wrightson will have leading positions in Livestock, Wool, Rural Supplies, Grain, Seeds and Nutrition, Irrigation, Finance, Real Estate, Insurance, Consultancy and Training.

PGG Wrightson will have revenues of $1.1 billion a year and total assets of about $900 million. It will be listed on the New Zealand Exchange, and will have approximately 20,000 shareholders.

It will have an initial Board of Directors of 12 people, chaired by Bill Baylis, who is currently chairman of PGG. Other directors will be Keith Smith, Sam Maling, Brian Jolliffe, Richard Elworthy, Baird McConnon, Craig Norgate, Murray Flett, Sir Selwyn Cushing, Gerald Weenink, Susie Staley and Bill Thomas.

A search process for the new Chief Executive Officer will begin immediately, with the chief executives of both the merging companies expected to be leading candidates. In the meantime, Baird McConnon will be Interim Managing Director.

The development of the merged company will provide benefits to staff in the form of career and personal development opportunities. The boards of both of the merging companies recognise that the strength of the business will be based on the quality and commitment of its people, and their relationships with clients. Accordingly, all field staff will be retained.

REASONS FOR THE MERGER

The rural servicing industry is as old as agriculture in New Zealand. Both Pyne Gould Guinness and Wrightson have proud histories of more than 150 years. Over that period the rural services industry has expanded and evolved to meet the needs of clients.

The need to change is now as strong as ever, to keep pace with changes taking place in farm businesses. Farmers have an increasing commercial focus in all aspects of their business, increased demand for specialised knowledge, a strong expectation of increasing service levels and a requirement for every service provider to demonstrate that it can genuinely add value.

A key problem has been the high level of fragmentation in the New Zealand industry, with a few full service players and a growing array of specialised competitors. At the same time farmers face increasingly aggressive and capable competition from agribusiness around the world, targeting what were once seen as traditional, stable markets for New Zealand produce. We believe that a fragmented industry cannot address the changes taking place, and consequently cannot provide the support needed by clients.

The creation of PGG†Wrightson addresses this issue, establishing an organisation able to champion the development of services and products needed to make a real difference to our clients' businesses.

WHY PGG AND WRIGHTSON MAKE GOOD PARTNERS

Our objectives in pursuing the merger are shared. Whilst the two companies have had different philosophies at times in the past, they are now very compatible. They have similar cultures at the farm gate, at the saleyard and in the community - competing hard, but underpinned by an abiding focus on clients.

The merger will create significant improvements in positioning in a number of key activities:

In rural supplies, the ability to pursue whole-value-chain solutions to reducing input costs
In Livestock, improved services available to clients, arising from national coverage and from the creation of systems that will deliver premiums to farmers
In Seeds, the ability to support research and development to meet nutritional and environmental needs
In Finance, the establishment of full-service specialised rural banking across a national network
In Livestock Export, the ability to take a strategic view of supply to key markets rather than be a commodity supplier.

The fact that this is a negotiated merger, as distinct from a takeover, enables the benefits from bringing the companies together to be maximised.

BUSINESS PROFILE

PGG Wrightson will be represented throughout New Zealand, and also in Australia and South America. The Corporate Office will be in Christchurch, and it is anticipated there will be administrative offices in Dunedin and Napier and branch operations in centres throughout New Zealand. It will employ approximately 2,700 people.

Livestock
More than 500 representatives managing a wide variety of relationships between farmers, meat processors, livestock exporters, studstock breeders and buyers; facilitating the buying and selling of livestock on behalf of clients at auction and privately on-farm; and facilitating and developing supply contracts. Linking breeders and finishers to maximize the return to both. Specialist divisions include Dairy, Standardbred, Velvet, Studstock and Deer.

Our Livestock export business is an example of a small business that is at the forefront of expanding markets worldwide, for the sale of dairy cattle particularly to South America and China. Our own quarantine farm provides the potential to export up to 20,000 cattle per annum.

Wool
25 representatives providing onfarm advice, receipt, storage and shipping facilities; as well as development and coordination of supply contracts between growers and processors.

Rural Supplies
144 stores (including Fruitfed) throughout New Zealand providing a range of products from animal health and nutrition, grain, seed and chemicals to clothing, fuel, fencing, machinery and leisure goods.

Irrigation
A full service package of irrigation system design and construction, with a primary focus on the design and installation of 'turnkey' irrigation, pumping projects, for agriculture and horticulture. The staff and facilities to undertake projects from relatively simple lifestyle block projects to the largest rural or horticultural projects costing many hundreds of thousands of dollars.

Finance
A fully-developed set of products and services tailored to farmers, including seasonal finance and overdrafts, livestock trading accounts, wool and crop advances, machinery finance, term loans, transactional banking services and online banking, delivered across a national network.

Insurance
A range of insurance products, tailored to the specialised needs of farmers, delivered in conjunction with the leading insurance broker in New Zealand.

Real Estate
The largest presence in rural real estate in both the North and South Islands, with 60 offices and over 250 sales representatives with specialised knowledge of agriculture and rural markets. Services provided to local and international vendors, and buyers of all forms of rural, lifestyle and coastal property.

Seeds
An Australasian-based seeds business built around market-leading proprietary products, with expanding markets in other temperate climate regions including South America. Underpinned by a strong research base focused on plant genetics, seed enhancement and forage animal performance.

Animal Nutrition
The importation, processing and wholesaling of molasses, molassesbased liquid feeds, minerals, feeding equipment and veterinary products for animal nutrition and disease prevention.

Training
Agriculture New†Zealand Training is one of New†Zealand's largest private training establishments, delivering agricultural and horticultural training throughout the country.

MERGER PROCESS

The merger of Wrightson into PGG to form PGG Wrightson will occur by way of a Court approved Scheme of Arrangement.

PGG will be the surviving entity, and will be renamed PGG Wrightson. Wrightson shareholders will receive three PGG shares for every two PGG shares currently on issue. By definition, for every one Wrightson share held approximately 1.028 PGG shares will be received.

Separate special resolutions of the shareholders of both companies are required to approve the merger. Consequently, the merger may proceed only after 75 percent support is received from the shareholders of both companies who vote on the resolutions, and after Court approval is obtained.

CONDITIONS

Conditions precedent to the completion of the merger will include:

Commerce Act clearance
Standard regulatory exemptions, approvals and waivers (eg. Securities Commission, Takeovers Panel and NZX)
Due diligence to the satisfaction of both Boards
Shareholder approvals
Court sanction on terms satisfactory to both Boards
Approval from the Trustee for the Redeemable Preference Shares (RPS) issued by Rural Portfolio Investments Limited, and from the RPS holders

FURTHER INFORMATION

Detailed financial and other statutory information will be provided to shareholders of both companies prior to the special meetings called to vote on the merger proposal.

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