Wrightson Seeds suitor DLF cites research capability, export growth

Tuesday 2nd October 2018

Danish producer DLF Seeds says its research capability makes it a strong potential acquirer of PGG Wrightson’s grains and seeds business.

The firm is seeking clearance from the Commerce Commission for the $421 million purchase announced in August.

DLF says there is limited overlap between the Wrightson seeds business and its own Canterbury-based offshoot. DLF Seeds NZ was set up in 2004 and now employs 12 people.

The Danish seeds company says its research background makes it a better prospect than other potential suitors to develop and expand Wrightson's export capability.

“DLF understands that PGW Seeds’ business is in a capital-constrained position. PGW Seeds’ ongoing research and development programme is significant, with a high demand on investment capital. The current capital structure places demands on the business to yield dividends at a level which restricts its capacity to invest in the business adequately to maintain its market position,” the firm says in its 78-page application.

PGG Wrightson Seeds is one of the largest producers in the southern hemisphere, with operations here, Australia and South America. It accounted for almost a third of the Wrightson group’s $1.19 billion of revenue in the June year and more than half its $45 million of operating earnings.

DLF was formed in 1872. It operates in 20 countries and is among the world’s 10 largest seeds suppliers with revenue in the June 2017 year of about $740 million.

When the deal was announced in August, Wrightson noted it would retain a close working relationship with the seeds business, which would benefit from being part of a larger global operation. Wrightson also expected a gain on book value of more than $130 million.

DLF says Wrightson has conducted a sales process and didn’t identify any suitable local purchasers. Other potential purchasers could include Australian firms Elders and Ruralco and Dutch firm Barenbrug.

“DLF believes that it has a much stronger scientific focus than Elders and Ruralco as potential purchasers, particularly in areas such as genomic selection and endophyte technology, meaning DLF will be better positioned to progress opportunities arising from this.

“In relation to Barenbrug, as the owner of Agriseeds in New Zealand it would face more competition issues than DLF due to its much larger existing presence in New Zealand for forage seeds.”

DLF says it is the market leader for turf seeds and cool season forage in the northern hemisphere, while Wrightson has that position in the southern hemisphere.

Putting the firms together will create a unique global supply chain, combine two leading genetic resources and increase investment.

“The combined strength of DLF’s and PGW Seeds’ businesses will result in increased seed production and exports from New Zealand, including utilisation of counter season production opportunities in the southern hemisphere to speed up potential shortages within DLF’s network in the northern hemisphere.”

Five-year projections of the expected increase in exports within the southern hemisphere and to Europe, North America and China were redacted from the application on the Commerce Commission’s website.

(BusinessDesk)

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