Silver Fern on collision course with dissident shareholders as OIO process stalls

Monday 20th June 2016

Time is running out for the proposed tie-up between Silver Fern Farms and a major Chinese investor as a June 30 deadline looms with no recent work on the application by the Overseas Investment Office and a July 11 special meeting called by dissident shareholders looming.

The tie-up between the country's largest meat processor and China's Shanghai Maling Aquarius has a deadline of June 30 and requires an OIO recommendation and ministerial approval before it can proceed.

However, the OIO downed tools on the application weeks ago, and said late last week that it was still waiting for the applicants to supply further information. Land Information and Associate Finance Ministers Louise Upston and Paula Bennett would then be required to make a final decision. The pair turned down an application last year by Chinese investor Shanghai Pengxin to buy the iconic Lochinver Station, a central North Island property.

The terms of the transaction contemplate a time extension, but delay would risk the deal becoming entangled in a special shareholders' meeting called by dissident members of the Silver Fern cooperative, scheduled for July 11.

A time extension would also require the agreement of Silver Fern's bankers, who are keen to see the deal proceed because it would allow the heavily indebted meat company to repay some $261 million of debt.

"The OIO is still awaiting information that will enable it to complete its assessment of the application," a spokesman told BusinessDesk on Friday. "Therefore we can’t give an indication yet of when the application will be sent to the relevant ministers for a decision."

In April, the office was saying the decision would be made before the June 30 deadline. The OIO ‘stops the clock’ on its approval period of 70 working days when it asks an applicant for more information. Regular timetable blowouts caused by applications generating numerous information requests have generated complaints from foreign investors and their New Zealand advisers.

The operation of the OIO is under close ministerial scrutiny, with a new deputy chief executive, Lesley Haines, appointed earlier this month to take special oversight of its operations, which are part of the government agency, Land Information New Zealand. LINZ officials insist this represents no change in the status of the OIO's long-serving manager, Annelies McClure.

Shanghai Maling Aquarius is 38 percent-owned by Bright Foods, which has a 39 percent shareholding in Canterbury-based Synlait Milk. The Chinese investor has bid for 50 percent of Silver Fern Farms in a deal that would give it effective control of the company through the use of casting vote powers on key issues.

The bid is already contentious because some owner-farmers of the cooperative have opposed both the outcome and the process, and have gained political backing from NZ First leader Winston Peters. John Shrimpton and Blair Gallagher, representing a group of 80 Silver Fern shareholders, have forced the company to hold a special shareholders' meeting on July 11 in an attempt to scuttle the deal, which gained 82.2 percent support from farmer shareholders at a vote last October. Silver Fern directors have said they intend to go ahead with the deal irrespective of the outcome.

The approval process is being closely watched after Chinese firm Shanghai Pengxin had its application to buy the iconic mid-Waikato Lochinver Station declined by ministers last year. That rejection caused a sharp cooling in trade relations with China and stoked concerns about the predictability and efficiency of New Zealand’s overseas investment vetting regime.

The OIO received the application from Shanghai Maling on Oct. 16 last year and accepted it for assessment on Oct. 23.

Silver Fern declined to comment on whether it thought a decision was likely by June 30, saying it can’t speculate on the OIO’s process. It also declined comment on the implications for the company if a decision wasn't made on the application before the deadline.

The conditions of the deal state the transaction has to be unconditional by June 30, unless the parties agree to extend the deadline.

Should it go ahead, the deal would see Shanghai Maling pay $261 million for half the company and allow it to repay all of its debt, removing a threat from its banking syndicate to withdraw support.

Shanghai Maling's supply chain and parent Bright Food's wholesale and retail networks offer distribution into China, allowing Silver Fern to ramp up its product development and consumer marketing.

Shanghai Maling is one of four Shanghai Stock Exchange-listed subsidiaries of Bright Food, which has expanded rapidly since being founded in 2006 to become China's second-largest food manufacturer.

The deal would be a game changer for Shanghai Maling, which is set to become the market leader in China’s beef market, according to a report on the website globalmeatnews.com.

The report cited Zhongtai Securities analyst Hu Yan Chao saying Shanghai Maling is going to be the “dragon head” and “market leader” in China’s beef market, and describing beef sales in China as a “blue ocean market”, a commonly used term in Chinese media to refer to sectors of limitless potential. The analyst said the beef sector in China is worth 500 billion yuan and is still at an early stage of development, with branding and chilled technology only getting started.

BusinessDesk.co.nz

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