Wrightson South American management fee trimmed

Thursday 15th October 2009

PGG Wrightson has lost some of its ability to clip the farm management ticket at NZ Farming Systems Uruguay following pressure from institutional investors and Uruguayan bond-holders.

Wrightson manages NZS’s 18 farms established in the past three years, and the original Farm Management Agreement term was due to terminate on November 3.

The Farm Management Agreement term has now been aligned with the Fund Management Agreement, both of which run to December 15, 2011.

The review process which merged the two agreements also brought about a reduction in the management fee percentage from 1% to 0.75%. Wrightson will also, at NZS’s request, accept shares rather than cash for any future performance fee payments, while Wrightson has also waived its right to charge a margin for the provision of farm management services.

A formal annual review of management performance will now also be carried out.

NZS stock jumped 6.8% to 47 cents on this morning’s trading, while Wrightson shares lifted 3.2% to 64 cents.

A year ago NZS shares traded at $1.20, while Wrightson’s reached $1.84.

These changes to management fees follow a difficult year for NZS in Uruguay, caught by a one in 30 year drought at a time it was establishing new farms from relatively undeveloped land.

The price paid by Conaprole, to whom NZS sells all its milk also halved to US20.5c per litre from 40c at the beginning of the season.

Overall NZS posted a net loss of US$45.9 million for the year to June. Its first Uruguayan bond issue in July this year raised US$30 million and was heavily oversubscribed according to its website.

“The discussions between the NZS independent directors and Wrightson were initiated within the terms of the original agreements, and following feedback from institutional investors and the Uruguayan bond-holders on some key terms,” NZS chairman Keith Smith said.

“The review considered changes in capital markets and their impacts on investors’ expectations and perceptions, and the components and structure of the current agreements. We believe the changes to the agreements will be to the benefit of all stakeholders.”

Paul Robertshawe, who manages $250 million at Tower Asset Management, said NZ Farming Systems are getting a slightly improved deal under the new farm management fee arrangement.

“They have more control with the annual review, so structurally it’s a better deal,” he said. “Whether it is worth 3 cents a share is debatable,” referring to this morning’s jump in NZS’s share price.

Robertshawe said given the cross shareholding between Wrightson and NZS the value of fee payments in shares isn’t necessarily that attractive.Overall, “the outcome is neither massively positive or negative,” he said.

Businesswire.co.nz

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