PGG Wrightson to buy 50% of Silver Fern for $220 million

Monday 30th June 2008

PGG Wrightson agreed to buy a 50% stake in Silver Fern Farms for NZ$220 million, opening up the meat cooperative formerly known as PPCS to a new, publicly traded investor as more consolidation of the industry is predicted.

The heads of agreement to create an integrated supply chain company needs approval from the 9,000 farmer suppliers that own Silver Fern Farms. The cooperative structure will be retained and the rights of suppliers protected under the constitution, the two companies said in a statement.

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

PPCS has closed plants this year as it seeks to cut costs and bolster returns to its shareholders. A plan to merge with rival meat processor Alliance Group faltered last September.

The two companies also said they plan to reposition New Zealand meat as the "ethical protein source" for affluent consumers who want to know the origin and sustainability of the products they buy.

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.

"PGW will provide access to advisory and other services inside the farm gate, and procurement for prime and store stock," they said. "SFF will provide its processing capacity, technology and expertise in logistics, marketing and branding."

Shares of Wrightson fell 2.7% to NZ$2.53. Pyne Gould Corp, which owns 22% of Wrightson, fell 1.5% to NZ$3.40.

By Jonathan Underhill

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