Meat companies struggle after takeover stoush

By Chris Hutching

Friday 15th November 2002

The disruptive effects of the takeover battle between South Island meat co-operative PPCS and listed Richmond were apparent in the reduced profits posted by both companies.

Their lawyers were in court last week arguing about what, if any, penalties should be levied against PPCS, guilty of two breaches of disclosure rules relating to its raids on the Richmond share register. The outcome from High Court justice Willie Young is expected any day.

While PPCS continues its fight to integrate North Island processor Richmond and obtain year-round capacity, its southern rival, Alliance Group, last week bought its own North Island processing plant with the acquisition of the assets of collapsed sheep and beef processor Lakeview Farm Fresh at Dannevirke. This will give Alliance improved marketing penetration of northern Europe and North American markets because of the longer North Island season.

Co-operative-owned Alliance Group last week reported an after-tax profit of $26.1 million for the year ended September 30 ($67.5 million last year). Because many farmers are also shareholders, the effect of reduced profits is offset by farm earnings. Turnover was $1.18 billion ($1.22 billion last year).

Alliance's move also challenges the other main North Island meat company, listed Affco, which posted a half-year loss ending March of $14.7 million, recently raised $27 million from shareholders and has been restructuring.

Meanwhile, PPCS last week reported an after-tax surplus of $8.4 million for the August year ($36 million last year) because of the lowest stock numbers in 23 years hitting processing volumes and an appreciating New Zealand currency.

The performance of its takeover target, Richmond, was also well down. Richmond reported a loss of $6.4 million ($570,000 profit last year and $15 million profit the previous year). Performance was down in many business divisions and there were one-off costs, notably $1.3 million associated with litigation to stave off the PPCS takeover.

Ironically, PPCS is indirectly paying for the litigation costs because of its shareholding in Richmond (an option arrangement will give PPCS 51% of Richmond in January 2003).

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