Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Opponent lays out alternative for Silver Fern Farms sale

Silver Fern could stay NZ-owned for as little as $25k per farmer, says Chinese deal opponent

By Jonathan Underhill

Oct. 9 (BusinessDesk) - Silver Fern Farms could be kept in cooperative ownership for as little as $25,000 per farmer and the meat company's board would be irresponsible not to consider a "plan B" if it fails to garner support for its proposal to sell half the business to Shanghai Maling Aquarius, says an opponent of the deal.

SFF shareholder John Cochrane this week circulated an alternative proposal to issue 250 million new shares that would have preferential status and be entitled to a preferential dividend for five years. The shares could be offered at 40 cents each on the basis of 2.5 new shares for each existing share held, and offer a return of 8.25 percent, Cochrane said in a flier titled 'The Facts Why Farmers will be better off if they vote NO'.

For an average farmer with 25,000 existing shares, that would mean buying 62,500 new shares for an upfront cost of $25,000, and receive an annual preferential dividend of $2,062.50. The rights issue would raise $90 million and could be underwritten by local agri-businesses, he said.

The alternative proposal is part of an ongoing war of words between the SFF board and shareholders who oppose the sale and have succeeded in forcing a second resolution, to consider a merger with Alliance Group, on to the agenda of a special meeting called for Oct. 16 to vote on the 50-50 venture with Bright Group's Shanghai Maling. The board has set a relatively low threshold of support at 50 percent of those voting.

SFF's board responded to the Cochrane proposal by reiterating its unanimous support for the Shanghai Maling deal and warning shareholders to ignore "the mystery underwrite" that is "a total unknown and should be treated with extreme caution."

The board has been on an extensive roadshow to farmers to promote the Chinese deal and chairman Rob Hewett says after meeting more than 2,000 suppliers and shareholders in the past 10 days, the feedback is "strongly in favour of the partnership." He also said Cochrane hasn't put his proposal directly to the board.

Cochrane argues that shareholders are being presented with no viable option other than to approve the sale of half their company to Shanghai Maling because the notice of meeting and independent adviser's report are peppered with references to the threat that lenders would withdraw their support if the deal fails, potentially forcing the company into receivership and liquidation.

Grant Samuel deems the terms and conditions of Shanghai Maling's $261 million offer fair, with the per-share value of $2.84 falling within its valuation range of $2.56 to $3.03. But Cochrane picks up on some counter-factuals in the Grant Samuel appraisal: that the scope of Shanghai Maling's investment "is in excess of the current requirements of the company" and that SFF had made progress on its own in bringing down its debt burden, which is projected to shrink to just $89 million by September 2016 from $287 million in 2014.

"As a result of an improved financial performance and other strategic initiatives, SFF has achieved a degree of deleveraging over the last two years and it is arguable that given time it will be able to achieve a more conservative capital structure without the need for new capital," Grant Samuel said in its report.

An earlier version of the alternative funding plan was rejected by SFF's bankers and Grant Samuel noted that "the time frame to arrange alternative debt finance, in light of the pending expiration of the current facility on 31 October, became too tight."

Cochrane said the threat of banks foreclosing was "hollow" but it was still irresponsible for the board to play that card without having an alternative plan. "The board has backed itself into a real corner here," he said.

He also questioned some of the 'sweetheart' aspects of the deal, including $7 million that would go toward directors' fees for a cooperative whose governance needs may well shrink with the reduced stake in the meat company.

"I'm not sure what the role of this new board is going to be. If it is just a shareholders' council, then that seems to be excessive," he said.

And he said farmers will lose control of the company, because Shanghai Maling's 50 percent stake comes with a casting vote for its co-chair on governance issues, including the appointment of the chief executive, and approval of the business plan and budget.

"That is control - I can't see it as anything other than control," Cochrane said.

The issue has also been raised by veteran fund manager Brian Gaynor, who noted in his New Zealand Herald column last week that Shanghai Maling insisted on the casting vote so that it could consolidate its investment for accounting purposes under the financial reporting standards applicable in China.

"This casting-vote agreement is a concern and could lead to serious problems in the years ahead," Gaynor wrote. "Joint venture arrangements are challenging, particularly when they involve two different cultures with one representing producers and the other owning distribution facilities in another country. In effect, Shanghai Maling has been given the opportunity to acquire a controlling interest in New Zealand's largest meat export company for just $261 million."

Cochrane wouldn't identify the agribusinesses that may be willing to underwrite a placement and said it was up to SFF's board to do the leg work on a plan B to the Shanghai Maling sale.

But he handed out compliments to SFF's leadership as well, saying of chairman Hewett and chief executive Dean Hamilton: "I think they've done a fantastic job in what they have managed to do" in restoring the company. "They need to stand up and back themselves."

(BusinessDesk)

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 


Government: David McLean Appointed As KiwiRail Chair

David McLean has been appointed as Chair of KiwiRail Holdings Ltd, the Minister for State Owned Enterprises Dr David Clark and Minister of Finance Grant Robertson announced today... More>>


Dairy NZ: ‘More Milk From Fewer Cows’ Trend Continues In A Record Year
Vodafone says it has 10,000 customers using its Wi-Fi Calling service. It took less than three months to reach that milestone; the service began operating in September... More>>

Statistics: Consents Remain At Record Levels
There were 47,715 new homes consented in the year ended October 2021, up 26 percent compared with the year ended October 2020, Stats NZ said today. "The year ended October 2021 marks another record for the annual number of new homes consented,” construction statistics manager Michael Heslop said... More>>



Fonterra: Lifts Forecast Farmgate Milk Price Range And Revises Earnings Guidance At First Quarter Update

Fonterra Co-operative Group today lifted its 2021/22 forecast Farmgate Milk Price range, reported a solid start to the 2022 financial year and revised its earnings guidance... More>>


Canterbury Museum: New Research - Bald Haast's Eagle Feasted On Moa Guts

New Zealand’s extinct Haast’s Eagle (Hieraaetus moorei), the largest known eagle, gulped down viscera like a vulture and may even have been bald, new research suggests... More>>

ABC Business Sales: Demand High For Covid-proof Businesses
Despite the continuing challenges facing businesses in this Covid environment, right now there are more buyers looking for a small-medium sized business than there are sellers in the market... More>>


PriceSpy: Producer Prices Increase
New Black Friday and Covid-19 Report* released by PriceSpy says people’s fear of stepping inside physical shops during big sales events like Black Friday has risen since last year; Kiwis are still planning to shop, but more than ever will do it online this year... More>>