PPCS Supported Merger Concept

17 September 2007

PPCS Supported Merger Concept

PPCS has given its support to the concept of a merger with Alliance Group Limited as part of a process of substantive reform within the meat industry to deliver sustainable and improved returns. PPCS Chairman Mr Reese Hart said: “The merger concept evolved from PPCS’ own strategic review combined with the recent PricewaterhouseCoopers analysis.

The PPCS Board concluded that the case for a merger concept was compelling, and would have been in the interests of the long-term sustainability of the sheepmeat industry.

“Regrettably, Alliance Group Limited has declined to support a merger at this time. While Alliance Group Limited has signalled to PPCS it supports a strong, merged single co-operative in the future, no timeline was indicated,” he said. PPCS believed action needed to be taken now to create the optimum supplier-owned model for the meat sector, said Mr Hart.

“In PPCS’ view we should not delay in implementing an immediate and long term vision for the meat sector which would capture significant benefits for farmers. While we acknowledge there are some challenges in a merger concept, PPCS believed a positive outcome could have been achieved.

“The short-term risks in relation to supply commitment, equity ratio and regulatory approvals were not insurmountable. “While obtaining Commerce Commission approval would have been a significant challenge it was not an impossible one. We believe the opportunity to lift the productivity of New Zealand’s second largest export sector would have found widespread support.

“PPCS will continue to seek and implement alternative business propositions to the merger and is keeping the door open to consider future opportunities for industry cooperation. /continues PPCS LIMITED PO Box 941, Dunedin, New Zealand TEL +64 3 477 3980 FAX +64 3 474 1087 www.ppcs.co.nz 2 “However, in respect of joint marketing initiatives these opportunities will be limited due to the diametrically opposed positions of attempting to market under a single entity offshore while competing aggressively in the procurement of livestock within New Zealand.

“Opportunities are further constrained by current Commerce Commission legislation which restricts our ability as an individual company to achieve best practice on-shore through greater co-operation, even though our market is international.

“A merger would have seen both ends of the value chain addressed. Any notion of capturing one aspect without addressing the supply base is commercially untenable. “We identified significant opportunities for cost reductions, optimisation of plants and a more collaborative approach to marketing and research and development.

Some aspects may be achieved independently of a merger, but the real and more sustainable benefits would have come through a merger,” said Mr Hart.

Mr Hart said PPCS will now focus its attention on independently working towards achieving improved returns from the market and at the same time as continuing to make progress towards a more productive and transparent livestock procurement model.

The PricewaterhouseCoopers analysis is a confidential Board paper and will not be released to protect the commercially sensitive information it contains.

ENDS

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