Silver Fern Farms (formerly PPCS), which this week agreed in principle to sell a 50 percent stake to PGG Wrightson for $220 million, said today it expected to cut its interest bill by $16m as a result.
It said borrowing in the year to August 31 was expected to reduce by $100m from the $330m a year earlier, mainly as a result of plant closures announced earlier this year.
The debt reduction will see shareholders' equity improve to 48 percent from 37 percent.
If the PGW deal is approved, funds invested by PGW would be used mainly to further reduce debt, but also for working capital and capital expenditure purposes, chief executive Keith Cooper said.
Silver Fern would then have the resources and financial flexibility to fast-track the change programme already under way, invest in process improvements and position the company more attractively "to progress opportunities for industry consolidation".
If the company decided to invest more, it expected a 15 percent or better return on capital on any project.
The debt reduction benefits are in addition to those projected from integrating PGW's supply chain model of livestock procurement with that of Silver Fern.
"These benefits will accrue collectively to suppliers, shareholders and Silver Fern Farms," Mr Cooper said.
He said additional financial details would be announced in three weeks when the business case model was approved for release.
These debt reduction figures were inclusive of possible restructuring costs which are yet to be confirmed.
Silver Fern chairman Eoin Garden said on Monday an evaluation had identified prospective short term gains of more than $60m a year, with longer term financial benefits ranging up to $110m a year.
However, analysts are sceptical that all those financial benefits can be achieved.
Under the deal Silver Fern's co-operative structure would remain, with the rights enjoyed by suppliers protected in the constitution.
The heart of the proposal was the formation of an integrated supply chain.
Wrightson is to pay $145m on completion, and $75m plus interest by March 1, 2009.
In May, Silver Fern confirmed the closure of its Oringi plant near Dannevirke and its Dunedin Burnside plant with the loss of more than 600 jobs.