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Crop & Food Research and HortResearch to merge

Hon Pete Hodgson

Minister of Research, Science and Technology


24 September 2008 Media Release
Crop & Food Research and HortResearch to merge


Two of New Zealand’s Crown Research Institutes (CRIs) have been granted shareholder approval to merge, Minister of Research, Science and Technology Pete Hodgson said today.

HortResearch and Crop & Food Research will merge on 1 December 2008 into a new CRI.

The Boards of the two companies initiated the merger to create a critical mass based on the combined strength in plant-based food research capabilities that are currently segregated in the two companies.

“This change is a bold and exciting step which will produce benefits for scientific endeavour and will enhance the contribution of the CRI sector to New Zealand’s economic, social, and environmental well-being,” Pete Hodgson said.

The merger will combine the two companies’ knowledge and expertise in nationally significant areas of sustainable production, elite genetics and smart breeding, and food and health, which will benefit wider national initiatives and strategies.

“The critical mass created through the merger will allow the combined CRI to better service key client needs, combine complementary skills, and share equipment,” Pete Hodgson said.

There are no proposed closures of sites, although Crop & Food Research and HortResearch staff members in some areas may be brought together in the same location. Jim McLean, current chair of HortResearch has been appointed as chair.

A name for the new CRI will be announced before 1 December 2008.

HortResearch currently has 541 staff and in 2007/08 earned revenue of $65 million. It is acknowledged as a world leader in integrated fruit research and is responsible for a range of successful cultivars including the ZESPRI™ GOLD Kiwifruit and ENZA JAZZ™ apple.

Crop & Food Research currently has 380 staff and in 2007/08 earned revenue of $56 million. Its key research focus is engaging with industry in producing and transforming high-quality raw materials into high-value foods.

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Questions and Answers re Merger of Crop & Food Research and HortResearch


1. Rationale


Why is the merger happening now?

The merger was initiated by the Boards of the two companies. The high-level rationale for the proposed merger is primarily based on combined strength in plant-based food research capabilities that are currently segregated in the two companies. The current industry environment seeks a broader approach to science applications across an integrated food value chain, which is different from the narrow industry approach that existed at the time the CRIs were established in 1992.


Who approved the merger?

The Boards of the two companies approached shareholding Ministers regarding a merger and provided a business case. The merger was approved by the shareholding Ministers of the two companies: the Minister of Research, Science and Technology and the Minister of Finance. Their decision was noted by Cabinet.


Does the merger breach any anti-competition law?

The two companies have met with the Commerce Commission and have not been required to seek clearance regarding any potential breaches of the Commerce Act. We consider that the merger does not result in a lessening of competition in any of the markets in which the two companies operate.


What financial benefits are expected from the merger?

The financial impact of the merger was only one criterion used by shareholding Ministers when deciding to grant approval. Due to the increased synergies created in the merged company it is expected that the new CRI will help grow the plant-based food and seafood sectors by an additional $6 billion (92%) over twelve years. Most growth is projected to come from established sectors ie, kiwifruit, seafood/aquaculture, wine and food processing.

The companies are projecting gross cost savings of $2.5 million per annum due to the sharing of facilities and equipment, and reduced corporate overheads.

What science benefits are expected from the merger?

The merged CRI is proposing three major strategy areas (sustainable production systems, elite genetics and smart breeding, and food for health) which combine the existing science strengths of Crop & Food Research and HortResearch. These three areas logically combine knowledge and expertise leading to gains through critical mass.

Future gains from the merger are expected to come from increased efficiencies and innovations, and broader knowledge of market needs and production systems (which are currently segregated in the two companies). Anticipated benefits include building greater critical mass in core plant-based food R&D programmes to form bigger teams. Unlike many other economies, New Zealand has few large firms, and this merger covers a significant proportion of the research capability that underpins plant-based foods in the country. Strengthening science outputs and uptake by industry are important outcomes of this merger.


2. Implications of the merger


Will there be any redundancies as a result of the merger?

The estimate at this stage is that out of a total staff of 921 there will be about 20-25 redundancies overall, which will affect mainly management and support staff.

What compensation will be made if staff members are made redundant?

It is not known at this stage. Any redundancies will be in line with staff members’ contract provisions and, where relevant, the PSA will be consulted.


Will there be any loss of science capability as a result of the merger?

There is not expected to be any loss of science capability as a result of the merger.


Will there be any site closures?

No, there are no proposed site closures, although Crop & Food Research and HortResearch staff members at the same location may be brought together under the same roof. The merged company will have an increased number of sites throughout New Zealand. This means that the new CRI will provide clients in regional areas with access to a broader range of services


What will the merger cost?

It is estimated that there will be $2.6 million of restructuring costs in the 2008/09 financial year. There is no need for shareholder support for restructuring costs. This one-off cost will be recovered through increased future savings.


What is the effect of the merger on the other CRIs?

Shareholding Ministers believe there is sufficient boundary between the core focus areas of the new CRI and existing CRIs. The new CRI is not moving into new areas but rather, merging to benefit from the strong synergies between the current strategies of each company. Other relevant CRIs were consulted during the merger process.


Do any other CRIs want to merge?

We are not aware of any other CRIs wanting to merge at this stage. As was the case with Crop & Food Research and HortResearch, it is up to the CRI boards to propose any potential mergers to shareholding Ministers.


Will the merger affect contracts from the Foundation of Research Science and Technology (FRST)?

The merger is unlikely to have a significant effect on FRST contracts. Core FRST contracts for both companies are not up for reinvestment in the 2008/09 funding round and, therefore, this is a good time for the merger to occur.


Will the merger affect any commercial contracts?

It is not thought that will be any negative impact on commercial contracts as a result of the merger. Both companies have communicated with their major clients and received positive feedback regarding the merger.

3. Next steps


Who is the Board of the new CRI?

All members of the new Board were previously members of the Crop & Food and HortResearch Boards. Jim McLean, previously Chair of HortResearch, has been appointed as Chair. The new Board members are:
Person Designation
Jim McLean

Chair


Rodney Wong Deputy Chair
Patrick (Paddy) Boyle Director
Janie Elrick Director
Professor Anna Koltunow Director
Dr Richard Janes Director
Dr Kevin Marshall Director
Jim Scotland Director


Brief bios of directors on the new Board are attached to this document.


Who will be the CEO of the new CRI?

The CEO of the new company has not yet been decided, and is an operational matter for the new Board to decide. The new Board will now begin a process to appoint a new CEO.


When will a decision on the company name be made?

A new company name will be decided following the appointment of the new CEO. The new name will be announced before the 1 December 2008 amalgamation date.


Where will the head office of the new CRI be?

The head office of the new CRI has not yet been decided, and is an operational matter for the new Board to decide. Crop & Food Research currently has its head office at Lincoln, with the HortResearch head office at Auckland.

Biographical information on directors of new company

Chair

Jim McLean is the Auckland-based current Chair of HortResearch, a position he has held since July 2006, after joining the Board in 2003. He is a professional company director, who was the Head of Business Development at Genesis Research & Development Ltd until the end of 2003. Mr McLean has been a Member of the New Zealand Government Taskforce on Biotechnology, and is a Director of the Foundation of Research Science and Technology and the Chair of NZ Bio Incorporated. Mr McLean has both accounting and science qualifications, and spent a number of years as a Consultant and Partner with Ernst & Young.

Deputy Chair

Rodney Wong is a Palmerston North-based businessman and company director, and the current Chair of Crop & Food Research. Mr Wong has worked in a variety of positions within the food and dairy industries, including technical research and development, product process and development and project management. Previously he was Managing Director/CEO of Norske-Kaeser New Zealand Ltd and prior to that was the CEO of International Fine Foods, a position that he held for ten years. Governance roles include being the former Chair of Palmerston North International Airport Ltd, and Trustee of Te Manawa Museums Trust. He is also joint Managing Director of John N Couchman Ltd (Service Contracting), Director of Visual Footprints Ltd (Software), Chair of Speirs Nutritional Ltd (Biotech commercialization) and a business mentor.

Directors

Paddy Boyle, of Auckland, was the Managing Director of Vertex Pacific Ltd, a leading supplier of plastics-based packaging products, until the company was taken over by a competitor in 2005. Mr Boyle previously held general management roles within Carter Holt Harvey as well as senior human resources roles in banking and consulting. He is currently pursuing a range of commercial activities and is a board member of the Ice Angels, a network of private angel investors brought together to facilitate investment in early stage new venture companies. Mr Boyle has broad commercial experience in merger & acquisitions, divestment and business integration. He has a particular interest in the science and technology area, and has a food/agriculture background. Mr Boyle holds an MA (Hons) in industrial psychology. He was originally appointed to the Crop & Food Research Board in
July 2007.

Janie Elrick is a Hamilton-based chartered accountant, who is currently the Chief Financial Officer for Livestock Improvement Corporation. Ms Elrick was previously the Chief Financial Officer for Synlait Group and Zespri International Ltd, held a range of project officer roles with Fonterra Co-operative Group Ltd, was the General Manager Corporate Finance for the New Zealand Dairy Group of companies and Taxation Manager for Deloitte Touche Tohmatsu. Ms Elrick’s governance experience includes the Anchor Superannuation Fund, Pacific Health Ltd/Bay of Plenty District Health Board, Jandrew Investments Ltd and New Zealand Currency Concepts Ltd. She was originally appointed to the Crop & Food Research Board in July 2005.

Dr Richard Janes is a Wellington-based professional company director. His current appointments are Deputy Chair of AsureQuality Ltd, Director of Gallaghers, Tech-Tonics Ltd, Ocean Design, TELARC and Centreport Ltd. Previously Dr Janes was CEO of the New Zealand Game Industry Board, and the Cervena Company Ltd, he also worked at the International Wool Secretariat (London, Melbourne, New York), was Deputy Chair of Landcorp Farming Ltd, Chair of Asure New Zealand Ltd and a Director of Merino New Zealand and Kapiti Cheeses Ltd. Dr Janes was recently announced as a member of New Zealand Fast Forward Ltd. Dr Janes was originally appointed to the Crop & Food Research Board in July 2007.

Professor Anna Koltunow is based in South Australia and is currently the Assistant Chief of CSIRO’s Plant Industry Programme. She is an accomplished science researcher, with experience in the commercialisation of plant science in Australian industry. Professor Koltunow has an international reputation in plant reproduction and her scholarly work has focused on fruit and seed development. She is currently involved in a gene discovery programmes for the Australian horticultural industry that focuses on fruit colour, size and shape. Professor Koltunow has extensive governance experience in roles that link science with the horticulture industry in Australia. Such roles include President and Chair of the International Society of Sexual Plant Reproduction, the Cooperative Research Centre for Viticulture and for Tropical Plant Protection, Provisor Pty Ltd for Grape and Wine Research, and Convenor of the 8th International Congress of Plant Molecular Biology. Professor Koltunow was originally appointed to the HortResearch Board in July 2005.


Dr Kevin Marshall is based in Wellington. He is a company director and biotechnologist/chemical engineer with management and practical experience in research and development. Dr Marshall has extensive experience in senior executive and governance roles in primary industry. He was previously the Managing Director of ViaLactia Biosciences Ltd where he led efforts to develop a research base in bovine and forage genomes as a platform for new products for the New Zealand dairy industry. Dr Marshall’s governance experience includes Seafood Innovations Ltd, Zespri Innovation Company Ltd, Wool Equities Ltd, cDNAk Enterprises Ltd, the New Zealand Dairy Research Institute, Ovita Ltd, Canesis Network Ltd, Keratec Ltd and Fonterra Research Centre Ltd. He was recently appointed as a director of New Zealand Fast Forward Ltd. He was originally appointed to the HortResearch Board in July 2005.

Jim Scotland is a Hawkes Bay-based business consultant who is the current Deputy Chair of HortResearch. He was also Deputy Chair of state-owned enterprise AgriQuality Ltd from 1998-2004, and a former Director of Landcorp Farming Ltd. Among his current governance roles are Chair of Port of Napier Ltd, Director of Seeka Kiwifruit Industries Ltd and Chair of Hawkes Bay Helicopter Rescue Trust. He was originally appointed to the HortResearch Board in July 2003.


ENDS

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