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Questions that farmers should be asking about WPC

General Questions that farmers should be asking about the WPC Prospectus and Publicity

Q. How can Wool Partners Co-operative use the Fonterra co-operative model for wool?

A. It can’t possibly be compared because it was formed out of the dairy co-ops and the model for wool has never remotely been similar to the model for milk.

Q. Is it normal for a company to have a clause that prevents a shareholder from speaking out against the company or its services, with punishment being the forced sale of his/her shareholding?

A. No. Whatever happened to freedom of speech and democracy ?

Q. Is it correct that if a shareholder is exited by the board for speaking out against Wool Partners Co-operative or its services in the first year, Wool Partners Co-operative doesn’t have to pay out the shareholding for five years and then has three years to complete the payout?

A. That’s what the prospectus says.

Q. Why has Wool Partners Co-operative needed to use compulsion where farmers must commit all of their wool and financially lock themselves up with one company for five years?

A. Because once they have growers’ money they have to perform. The same old Meat and Wool politicians are behind this show and just look at their track record.

Q. Isn’t this investment an enormous leap of faith in a business with a track record of losing $5.8 million dollars on its trading activities over the last two years?

A. Yes

Q. By having 50 percent of the clip, what makes Wool Partners Co-operative believe it can get better prices than the world market price?

A. They can’t, not even through their brand partners who have to be able to sell competitively into the market.

Q. Because Wool Partners Co-operative won’t have to compete for wool, why do farmer shareholders still have to pay a “procurement fee”?

A. This is traditional Wool Partners International and PGG Wrightson ticket clipping.

Q. Will the 2 percent be passed on to the buyers who actually market the wool?

A. More ticket clipping of little benefit to growers.

Q. We calculate that a 2 dollars increase would represent a massive 200 percent return on capital invested by farmers, so why is PGG Wrightson so keen to walk away from these sorts of profits?

A. Perhaps it is concerned that the numbers don’t (or won’t) stack up.

Q. Is the $23 million loan taken out by Bloch & Behrens an inherited debt that will need to be repaid?

A. Yes

Q. The prospectus says Wool Partners Co-operative is paying $1.9 million for shares in Bloch & Behrens. Does this price include the assumed debt of $24 million, and if so, what are the assets that make up the $25 million ?

A. The prospectus doesn’t tell us

Q. Did ANZ National Bank allow the loans to be drawn in anticipation of the liability being assumed by Wool Partners Co-operative?

A. The prospectus doesn’t tell us

Q. Is the “acquisition price” really $40.52 million (purchase price paid plus Bloch & Behrens and WRONZ debts assumed)?

A. That’s what we can assume from the prospectus

Q. Does PGG Wrightson currently guarantee Bloch & Behrens bank debt and is Wool Partners Co-operative relieving PGG Wrightson of a banking obligation?

A. There’s nothing to answer this question in the prospectus.

Q. Is it correct that the projected bank debt repayment of $6.7m is on inherited debt and will come from capital raised?

A. That appears to be correct

Q. If Wool Partners Co-operative pays $11.2 million to Wool Partners International and reimburses $1.8 million for the issue expenses, how much of the $13 million raised on Day 1 will stay as cash in Wool Partners Co-operative?

A. Nothing.

Q. If Wool Partners Co-operative fails, will farmers have to pay up the balance owing on their partly paid shares and would the ANZ National Bank have its bank debt repaid as a priority?

A. Yes to both points

Q. Can Wool Partners Co-operative call for farmers to pay for their unpaid shares earlier than is scheduled in the prospectus?

A. Yes – the liquidator can, in the event of failure.

Q. Bloch & Behrens is said to be currently buying only 12 percent of the strong wool clip but plans to end up with 50 to 60 percent market share. How will this be financed?

A. There’s no detail in the prospectus

Q. Wool Partners Co-operative is projecting to sell 8000 tonnes, but for the offer to proceed, Wool Partners Co-operative will be supplied with 65,000 tonnes. What are they going to do with the shortfall of 57,000 tonnes

A. Their website says they’re " going to collaborate with existing exporters ". But WIN, WPI and now WPC were all set up on the premise that existing exporters were doing it wrong. They have obviously learned that in fact, existing exporters do it very well and that they need them or they can't operate.

Q. How does this situation materially change the way wool is sold and achieve more money in growers’ pockets if only 8000 tonnes of wool are sold via the much vaunted co-operative model?

A. It doesn’t

Q. According to the prospectus the “Purchase Price” includes net assets of $15,271 million including goodwill. What is the goodwill figure and how did the directors arrive at it?

A. The prospectus doesn’t tell us.

Q. Of the $40.52 million acquisition price how much is goodwill?

A. We can’t tell from the prospectus

Q. The original Wool Partners International purchase price from PGG Wrightson was $37.5 million and included the NZ Wool Handlers asset. Why has NZ Wool Handlers being excluded from the sale?

Q. NZ Wool Handlers asset has been secured with a $250,000 option to purchase at a “fixed price”. Is it a fixed price or a pricing formula? What is the fixed price, or the pricing formula?

A. The prospectus tells us that the price has been agreed, but it doesn’t tell us how much. It seems Wool Partners Co-operative has a 10 year contract with NZ Wool Handlers and, if it exercises the option, will effectively buy its own contract. Three of the directors of Wool Partners International (the seller) are also directors of Wool Partners Co-operative (the buyer), yet this is said to be an “arms length” deal.

Q. Are these really arms length transactions, with three of the directors of Wool Partners International (the seller) also directors of the proposed Wool Partners Co-operative (the buyer)?

A. Well, the prospectus says arms length negotiations have occurred. It also says the majority of Wool Partners Co-operative’s Grower-appointed Directors are not WPI directors. The fact remains, though, that three of the six directors are also directors of WPI.

Q. Will farmers get paid for their wool on the same terms as they do at the moment i.e. 11 days after auction, or will they get paid when Wool Partners Co-operative gets paid?

A. The prospectus does not say either way. We believe it will be very difficult for Wool Partners Co-operative to get trade finance for 60 percent of the clip. Therefore, it could be that farmers will be paid only when Wool Partners gets paid. That would mean that it will be the farmer, not the exporter, that will carry the cost for the period between them selling their wool and it being delivered into the market – usually a minimum of 3 months - or longer if wool is held in stock. What will that do to farmers’ cash flows ?

Q. Wouldn’t that mean that farmers would effectively be financing WPC’s sales process?

A. Yes, if it happened. But worse still most will have their farm business finance arrangements and this would effectively become a double jeopardy for the banks. Long term it might reflect in the cost of the finance, or the overdraft limits might be reduced.


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