Pyne's reverse takeover lifts stake in Reid Farmers

Friday 20th July 2001

By Chris Hutching

The partial reverse takeover of listed Reid Farmers by Pyne Gould Corporation (PGC) will merge the rural servicing activities of both companies and get around aspects of the new Takeovers Code.

The deal involves Reid Farmers issuing 44,010,006 shares at $1.10 worth $48 million to PGC in consideration for the shares of its rural servicing subsidiary Pyne Gould Guinness (PGG). The transaction will mean that PGC lifts its stake in Reid from 44% to 68.5%.

PGC managing director Richard Elworthy said the merger device was a way of retaining the loyalty of Reid shareholders, many of whom were also clients. PGC would also consolidate more of the profits of Reid.

The issue of shares by Reid gets around the requirement for PGG to make an offer to all Reid Farmers shareholders as would be required under the Takeovers Code. The timing is significant. With rural fortunes at a high the move looks positive and there will be savings in head office administration. But the two rural servicing companies operate in different areas - Canterbury and Otago/Southland - so there will be limited opportunities for rationalisation.

The move arguably gives the public unlisted PGC more flexibility to either increase its stake in rural servicing or sell down if it looks prudent. PGC will appoint five of the 10 directors on the renamed Pyne Gould Guinness Reid Farmers, which will retain its Stock Exchange listing.

The rural servicing activities will be managed from the Reid head office in Dunedin while the financing activities of PGC will continue to be based in Christchurch. Reid recently announced plans to build a new office, client service centre and wool store in Dunedin.

Rural servicing represents about one third of PGC group business with the bigger earning trustee and financing subsidiaries providing the bulk of its income and accounting for about $660 million of assets.

Pynes nearly doubled its financing division a few months ago with the purchase of Auckland finance company Marac for $41 million and Dunedin-based Frontline Finance from John Gilks for $20 million. It simultaneously bid for the remaining 49% of listed cash box, South Eastern Utilities.

Last year it merged two other finance companies, Allied Finance and Finance & Discounts, and increased the Auckland operations of those companies.

Reid Farmers reported a $4.6 million tax-paid profit for the year ended June 30, up 14.9% on the year before. PGC reported an after-tax profit in June 2000 or $12.2 million.

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