Time to bury the boardroom knives

Friday 13th July 2001

The blood-letting in the recent fight for control of the country's largest meat company, Richmond, has resembled a slaughter house more than a corporate boardroom as the warring sides took to each other with the deliberate thrust of a butcher's knife.

To say the bid by South Islander PPCS to control Napier-based Richmond was just a long drawn-out skirmish would be a gross understatement. This was a mother of all battles that was resisted over a long period of time.

Right from the start, PPCS has been portrayed as the "bad guy". The marauder from the mainland had tried to take over Richmond in the past but had been stymied by the wily East Coasters on two previous occasions.

A couple of years ago, an injunction obtained by Richmond and the Meat Board successfully thwarted the first attempt by PPCS to get on the Richmond board table.

A second attempt last year saw PPCS bungle another takeover bid and forced it to put its Richmond stake up for tender.

It is history how PPCS bought 16% of Richmond earlier this year, how Active Equities sold 49% of Hawkes Bay Meat to PPCS, thus giving it an immediate 34.3% stake in Richmond, and how PPCS has the option to extend that position to just over 52% by 2003.

The concerns of some factions over a PPCS-controlled Richmond are understandable.

It's not that PPCS isn't a good company. Far from it. It's an issue of different company cultures.

PPCS has been viewed as a company with a ruthless cost-cutting mentality. Richmond, on the other hand, is seen as having a more benign and consumer-friendly persona. PPCS is said to have an almost authoritarian, army-style of leadership while Richmond is perceived as possessing a more collegiate and consultative approach.

It's interesting to note, though, when pressed most suppliers were not negative toward PPCS as a company but more concerned some of Richmond's positives may be eradicated through a controlling PPCS.

The ultimate objective of a takeover is undoubtedly to pool the resources of two companies to create a stronger organisation. In other words, a synergy is created which makes both companies better off.

And whether we like it or not, so-called "hostile" takeovers are part and parcel of today's highly competitive markets and the business drive to consolidate. Throughout time we have seen how some of the biggest names in business are prepared to go down this route if they strongly believe in what they are trying to achieve strategically.

But it's important for those who have misgivings about the PPCS takeover of Richmond to pause and analyse the state of the meat industry.

An analysis of the individual total returns of New Zealand's top four meat companies for the past four years reveals the two South Island co-operatives (Alliance and PPCS) have shown a clean pair of heels to the North Island public companies (Richmond and Affco).

It's particularly interesting to note Alliance has comprehensively outperformed PPCS during the four-year period - probably largely due to Alliance operating on just seven sites compared with PPCS' 15, but still a reflection of the reconfiguration of the Alliance plants in relation to South Island stock numbers and location.

But what is especially compelling about the four-year figures is Alliance has made more money over this period than the combined revenue earnings of PPCS, Richmond and Affco.

In Shoeshine's view the real "enemy" for PPCS and Richmond is not any differences in their respective company styles or cultures but rather the strong competitor Alliance is, something that is likely to continue into the foreseeable future.

Alliance has, for the past four years, made a commanding total of $59 million after-tax profit compared with $23 million for PPCS and Richmond's $13 million.

But then Richmond is also undeniably destined for better things. It intends to spend $10 million on an additional lamb-cutting plant at its Oringi plant near Dannevirke and another $6 million on a new beef-cutting floor at Hastings. This is in addition to the recent completion of a giant $14 million cutting and further processing plant at Takapau.

Richmond will soon have the most modern export meat processing units in the North Island - upgrades made possible principally through the company's recent $50 million capital note issue. Perhaps it's little wonder why PPCS has been relentless in its bid to acquire a controlling stake in such an innovative company.

PPCS boss Stewart Barnett is now on the board of Richmond and, sure, some suppliers may still be wary where PPCS is concerned. But support will come as Richmond continues to perform well for those who have given it support over the years, and previous bad feelings about the takeover dissipate over time.

It is interesting to note since the PPCS acquisition of a majority shareholding in Richmond, there has been no drop from normal levels in stock supply.

A PPCS/Richmond partnership has created a $2 billion plus company. This will provide market synergies, lower costs and benefit suppliers in both islands. And the past is the past. Both organisations have had different focuses in the past but they have strengths that will complement each other in the future.

Ultimately, when the last of the boardroom knives are buried, the market will be watching to see whether the best of two warring sides can contribute to further positively positioning of New Zealand's meat sector as an innovative and growth industry.

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