Credit crunch hits deal

The $220 million Silver Fern Farms-PGG Wrightson partnership looks to be over before it started, the victim of the global financial meltdown.

Directors and management of the two companies were yesterday trying to keep the deal on track, but brokers and observers doubted it would proceed, given a debt-raising proposal was contingent on the now cancelled $110 million placement of shares.

Silver Fern Farms chairman Eoin Garden said it was his intention to complete the deal, and PGG Wrightson chairman Craig Norgate remained hopeful, but admitted the current credit crunch had created some major obstacles.

Mr Norgate said the company could not meet Tuesday's deadline for a $145 million part-settlement payment after international banks, which had previously committed to the deal, were unable to give credit approvals on time.

As late as 2pm on Tuesday, the deal - in which PGG Wrightson was to pay $220 million for a 50% stake in Silver Fern Farms - looked like being completed, but by 3pm it was obvious the deadline could not be met.

Asked if the partnership was a jeopardy, Mr Norgate said it was difficult to say, but its future should be known in a couple of days.

He said there was no certainty financiers would be willing to front up again in the current financial environment.

Mr Garden said the agreement with shareholders gave the co-operative the month of October to complete the transaction, and he intended working towards implementing the original agreement.

"I know Craig Norgate has a really positive commitment to the proposal, and it's for him to fulfil that commitment.

"The agreement is still current and it is our intention to settle on that agreement," he said.

Despite this setback, Mr Garden said Silver Fern Farms would continue its plate-to-pasture integrated supply chain - where farmers supply product to customer requirements when needed.

There has been speculation the deal could be implemented in part, or that PGG Wrightson could take a smaller stake.

SFF's initial proposal was to contract stock procurement to PGG, but that idea grew into a more formal relationship, with PGG set to acquire a 50% stake.

ABN Amro Craigs broker Peter McIntyre said investors appeared to have had doubts about the SFF deal but had flocked back to the stock now the merger seemed unlikely to proceed.

PGG shares closed trading yesterday at $1.85, an increase of 25c for the day, on volumes of 1.3 million shares.

The stock had peaked at $2.95 in the past twelve months but had plunged in recent weeks to a low of $1.60.

The credit crunch has forced the postponement by a year of construction of a $90 million Mataura Valley milk processing plant near Gore.

Chief executive Chris Shelley said delays in closing funding meant there was a risk it would not be ready for the start of the 2009 milking season as planned.

Commercial production was now targeted for August 2010.