Wrightson's Silver Fern offer 'at top end of range'

Wednesday 20th August 2008

PGG Wrightson's NZ$220 million offer for a half stake in meat cooperative Silver Fern Farms is at the top end of its valuation range, according to Grant Samuel & Associates.

The valuation report, released today, may help convince shareholders in the co-op formerly known as PPCS to support the transaction, which opens up the equity of the business to outside investors for the first time.

Grant Samuel valued 50% of Silver Fern at NZ$205 million to NZ$225 million and said the transaction has positive benefits for the target's shareholders.

Silver Fern has closed plants this year as it seeks to cut costs and bolster returns to its shareholders, while at the same time attempting to re-engage rival Alliance Group in merger talks. Its 9,000 farmer-owners are scheduled to meet on September 8 to consider the deal.

"Post transaction, Silver Fern would have a very robust financial structure, enabling it to develop a stronger in-market presence and invest in capital projects," Grant Samuel said in its report.

The deal would also give Wrightson more leverage in the farming sector after it posted an 80% jump in full-year profit yesterday, helped by increased sales and a fee for its Uruguay dairy venture. Wrightson's sales rose to NZ$1.3 billion from NZ$1 billion.

The deal could yield short-term annual gains of more than NZ$60 million a year, Silver Fern chairman Eoin Garden has said. Longer-term benefits may amount to NZ$110 a year. Garden would be chairman of the merged business.

The proposal would create a "hybrid company structure that retains the governance and supplier benefit elements of a co-operative" they said.

The companies would create a Shareholder Council to represent the interests of suppliers, with the eight directors of the new board to be split 50-50 between suppliers and Wrightson.

"Ceding some control to PGW is a small trade off to pay for the benefits the proposed transaction is seeking to deliver to suppliers," Grant Samuel said.

By Jonathan Underhill

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