By NZPA
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Friday 13th December 2002 |
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The last ended with a recent landmark High Court ruling, which has potentially cost PPCS $10 million in forfeited Richmond shares and tarnished its reputation over how it acquired them.
Accused of trying to control Richmond in a covert fashion, the court has ordered PPCS to either mount an open takeover bid, or lose the forfeited shares plus voting rights for its remaining 43 percent stake.
PPCS shareholders are a loyal lot, but after losing $10 million plus legal costs they may be tempted to cut their losses.
Said one southern shareholder: "The Richmond strategy is sound but nevertheless, (farmers) are concerned about the ongoing kerfuffle and irritated ... by the cost of the deal in terms of litigation."
Not many people will go on the record when it comes to the litigious and bitter feud. But one industry commentator felt PPCS had to go on and offer a face-saving bid.
"They've gone so far, it's almost past the place of no return. If you look at the history of the organisation, somebody said they don't seem to have a reverse gear."
However, the chances of a successful takeover are not rated highly. Ten to 15 percent of the company's shares are held by farmers, many of whom are hostile towards PPCS for what is perceived to be its high-handed attitude.
PPCS has stalked Richmond since 1997 when the Meat Board put its one third holding on Richmond on the market.
PPCS reasons that possessing a company in the North Island -- where the processing season is longer -- will extend its export season and cut costs in overseas marketing.
But it must overcome two major hurdles: its own finances, and the cultural differences between the two companies.
Richmond, a public company, puts emphasis on adding value and branding, and is widely perceived to pay its farmers more for their stock.
Its shareholders see PPCS as a lean, mean commodity-based co-operative, but Otago farmers view their company as being a solid performer and a heavy investor in research.
PPCS is regarded as an aggressive player, one which is partially blamed by some for pushing innovative meat exporter Fortex to the wall.
Its ambitions have no doubt been stoked by the fact that Southland competitor Alliance has just bought the Lakeview abattoir in Dannevirke, beating PPCS to the punch as a national meat processor.
"They're two fiercely independent companies," says Janet Tyson, co-author of Meat Acts, a history of the meat industry.
Should PPCS be successful, it is expected to sell off some of Richmond's assets to recoup some of its costs. These could include non-core business Gourmet Direct and possibly its beef operation, since PPCS is predominantly a sheep and venison processor.
One industry commentator also suggested Richmond's customers could lose out under PPCS' strategy.
Richmond "has a longer season and therefore it's developed markets for the products it gets over that longer season. If PPCS comes in and robs that and uses it for its customers, what the hell is Richmond going to do?"
The final straw for many Richmond shareholders was this year's protracted court battle between a group of staunch Richmond shareholders, Richmond itself and PPCS over alleged "warehousing" of shares.
The High Court has ruled that PPCS sold down shares to associated parties and breached the securities law, a decision which PPCS is appealing.
But it retains options to buy back a 36 percent stake owned by Hawke's Bay Meats, half-owned by itself and Active Equities, in February.
PPCS has until January 24 to make up its mind on a takeover bid.
But it has an uphill battle convincing the required 90 percent of Richmond shareholders that selling their shares is in their interests.
Much will depend on price.
"The possibility of it succeeding on $3/share might be pretty limited but if they somehow get up to $3.50 which they are apparently going to be paying Active Equities, that might be a different scenario," said the commentator.
However, former Richmond chief executive and shareholder John Foster believes the bad feeling is so high that it is unlikely to be successful.
"There is a widespread shareholding ... belonging to farmers, staff and investors, and only the investor sector is likely to be tempted."
However, Richmond may well need a friend.
It made a $6.5 million loss last year, compared to two profitable years, which it blamed partly on low livestock volumes.
PPCS, although it was also hit by a lack of stock, made a $8.4 million profit.
Richmond's shares have also been depressed of late, having careened from a high of $3.22 in June last year to a low of $1.55 at the end of October.
The possibility of a takeover bid has seen the share price climb off those lows to around $2.40 today.
Despite all this, Mr Foster believes Richmond is strong enough to continue on.
But he says it needs a good cornerstone shareholder, "one which will bring advantages to the company and one that the rest of the company could relate to."
Quite apart from the cultural divide, PPCS has to ask itself whether it can afford a takeover bid.
Richmond is expected to cost at least $60 million and PPCS would have to find an additional $50 million to honour the North Island company's capital notes issue.
A financial analyst says PPCS would struggle to find a friendly banker, even given its previous financial strength.
"If it does, it's a hell of a load," he said.
If a takeover bid does occur and fails, it is difficult to tell whether PPCS shareholders take out their wrath on their board.
"In terms of loyalty, I think it's something that's earned and can shift pretty readily," said the PPCS shareholder.
Janet Tyson thinks otherwise. "I don't think there's a track record of farmer shareholders holding their boards to account.
Meanwhile, insiders say Richmond may well be ripe for investment from another meat industry player, a question which may be answered when Richmond's own annual meeting takes place next Friday.
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