30 June 2008
News release
PARTNERSHIP REPRESENTS NEW DIRECTION FOR MEAT INDUSTRY
Silver Fern Farms (SFF) and PGG Wrightson (PGW) have today announced a
partnership proposal under which PGW would purchase a 50 percent shareholding
in SFF and they would work together to lift the earnings of New Zealand meat
producers. The partnership would create an integrated supply chain "from
plate to pasture" - with every stage geared to meeting the needs of meat
consumers around the world.
On approval, the proposal will see PGW take a 50 percent stake in SFF for
$220 million, resulting in a hybrid company structure that retains the
governance and supplier benefit elements of a co-operative.
SFF will pursue market strategies targeting the growing international ranks
of consumers demanding high-quality and consistent meat products from
traceable and sustainable sources. The SFF and PGW chairmen, Eoin Garden and
Craig Norgate, said the market goal would be to reposition New Zealand meat
as the ethical protein source for this growing, and increasingly affluent,
consumer category.
Mr Garden and Mr Norgate say the heart of the proposal is the formation of a
truly integrated supply chain - on a ''plate to pasture'' model - with every
link in the chain geared to meeting the needs of international meat
customers. "There are very clear synergies, in terms of cost and performance
benefits, that both parties bring to the table. These translate to more money
in the pockets of SFF''s suppliers, and benefits to its international
customers in the form of year-round supply, grower identification and product
tracing, to name but a few."
Under the proposal, the relevant parts of the two companies will work
together on a complementary basis. PGW will provide access to advisory and
other services inside the farm gate, and procurement for prime and store
stock. SFF will provide its processing capacity, technology and expertise in
logistics, marketing and branding.
Short-term gains to suppliers will include:
- Increased information about customer needs - and thus a better basis
for farm decision-making
- Guaranteed-price supply agreements - short and long term - increasing
certainty and reducing risk
- Guaranteed processing space for commitment to supply
- Finishing programmes
- Finance on livestock - especially where it is committed under supply
agreements
- Store stock finance advance - especially where purchase is for supply
in winter months
- Access to on-farm check-up, reviewing current livestock policy and
financial outcome
- Access to an expanded set of specialist knowledge in fields including
animal breeding, nutrition, health, pasture, livestock finance and ancillary
services.
Mr Garden says the directors of SFF believe the proposal will be endorsed by
the company''s stakeholders, including the required approvals by rebate
suppliers, given its immediate and transparent benefits.
"An evaluation undertaken by PWC on behalf of the two companies has
identified prospective short-term gains of more than $60 million per year,
with longer-term financial benefits ranging up to $110 million per year," Mr
Garden says. "This does not factor in further gains anticipated to flow from
a more efficient procurement model, nor from the participation of other
companies, which would spread the improved economics across a broader supply
base. Benefits are expected to accrue to farmers as suppliers, to farmers and
PGW as shareholders in Silver Fern Farms, and to PGW directly."
Mr Norgate says both companies share the view that investment in an
integrated supply chain is the key to unlocking the value of high-quality New
Zealand meat. "There is clear growth in the global protein market, so we need
to build a structure to ensure that there is a stimulus to investment in the
meat industry on a par at least with dairy.
"SFF is on the right road already in the form of its marketing and
consolidation initiatives. We see our investment in SFF as an important step
towards consolidation of the industry, with the benefit of enhanced supplier
returns through rationalisation, marketing integration and a move to an
Annual Equity Value (AEV) share model.
"Just as Silver Fern Farms is making changes to its business, PGW recognises
that it needs to work alongside its clients to ensure their needs are met.
Our future strategies are very much aligned with SFF. They involve striving
to improve returns for agricultural producers by facilitating change - change
we must all embrace. Our investment can be seen as a substantial vote of
confidence in the future of the industry," Mr Norgate says.
Messrs Garden and Norgate believe the cornerstone of the venture will be the
fact that the two companies have highly complementary capabilities and
resources. "The partnership will allow the capabilities of the two
organisations to be combined in the most effective way and deliver the
integrated supply chain to the benefit of all participants."
See APPENDIX (attached):
- Transaction structure
- Operational integration
- Further industry consolidation
- Financial gains
Also released today:
- White Paper
- Media Briefing
For further information:
Eoin Garden Keith Cooper Craig Norgate Tim
Miles
Chairman Chief Executive Chairman
Managing Director
Silver Fern Farms Silver Fern Farms PGG Wrightson PGG Wrightson
64 3 477 3980 64 3 477 3980 64 9 303 3949 64 21 567 600
64 27431 0036 64 21 442 190 64 21 445 751
Media enquiries can also be forwarded to:
Barry Akers Brent Melville
Senescall Akers Group Communications, SFF
64 9 309 5656 64 3 474 6595
64 21 571 234 64 27 444 1322
APPENDIX
Transaction structure
The partnership is based on a mix of financial and organisational elements.
- The procurement operations of SFF and PGW will be integrated under an
agreement between the two companies.
- PGW will subscribe $220 million ($145 million on completion, and $75
million plus interest by 1 March 2009) for a 50 percent shareholding in SFF.
The funds invested by PGW will be used to provide SFF with financial
flexibility to fast-track the change programme already under way, invest in
process improvements and position the company more attractively to progress
industry consolidation.
The co-operative structure of SFF will remain, with the rights enjoyed by
suppliers protected in the Constitution. Board composition will balance the
interests of PGW and SFF suppliers - with a total of eight directors (three
elected directly by suppliers, one appointed by a Shareholders'' Council to be
formed and four appointed by PGW). Mr Garden will be the inaugural chairman
under the new structure.
The Shareholders'' Council will be established to represent supplier interests
through consultation on strategic, supplier and related issues and through
the director appointment described above.
PGW and SFF have signed a heads of agreement. The transaction remains subject
to completion of definitive documentation, banking approvals, approval by SFF
rebate suppliers and to other standard matters. Information will be made
available over the coming weeks, with SFF shareholders meetings expected to
be held in July and August ahead of the vote.
Operational integration
The integrated supply chain will be implemented through an operational
partnership of SFF and PGW.
PGW will provide access to on-farm advice and other inputs (extending to
animal genetics, nutrition, and health, agronomy, production technology,
livestock finance and farm supplies), and stock procurement (merging the SFF
procurement and PGW livestock functions).
SFF will provide processing and technology, logistics, marketing and
branding.
Collectively, the companies will offer commitment to research and
development, investment in technology and industry consolidation - in plants
in New Zealand and in marketing offshore.
Further industry consolidation
Both companies see this transaction as a precursor to further necessary
consolidation of the meat industry.
Both see the integrated supply chain as the best basis for further
consolidation - a model that is significantly stronger than consolidation
between processing companies only.
Financial gains
Analysis of the changes enabled by the proposal has identified three
categories of financial gain:
- prospective short-term gains of more than $60 million per year, with
longer-term gains ranging up to $110 million per year. These are expected to
accrue variously to farmers as suppliers, to farmers and PGG Wrightson as
shareholders in Silver Fern Farms, and to PGG Wrightson directly.
- further gains that cannot be quantified at this stage because they
will be identified (and increase) as the integrated supply chain takes effect
- eg. gains arising from farmer commitment to supply agreements
- further gains from the participation of other companies, spreading
the improved economics across a broader base of supply
PGW has supplied NZX with a presentation titled ''Creation of the Integrated
Supply Chain''.
A copy of this presentation can be requested by e-mailing lcr@nzx.com.
End CA:00166762 For:SFF Type:GENERAL Time:2008-06-30:10:53:19