Companies' settlement 'pragmatic'

Craig Norgate
Craig Norgate
PGG Wrightson (PGGW) has paid dearly for reneging on a contract it signed last year to take a 50% stake in Dunedin meat company Silver Fern Farms (SSF).

After weeks of mediation, the companies yesterday agreed to a compensation package which has seen the rural services company hand over cash and shares worth more than $40 million.

That was made up of $25 million in cash paid yesterday, in addition to $5 million paid previously, plus 10 million ordinary shares at market value.

Shares closed yesterday at $1.20.

In addition, the two companies will continue to work on initiatives to integrate the supply chain.

In August, PGGW entered an agreement to buy 50% of SFF for $220 million, a deal that included PGGW taking over the livestock procurement role.

However, PGGW was hit by the international credit squeeze and was unable to complete the deal.

Last night, PGGW chairman Craig Norgate told the Otago Daily Times there had been no question his company was in breach of contract and the only issue had been what its compensation payment should be.

The settlement "reflected the times we are in", he said.

"Neither of us had the appetite to go through the courts."

The share package equated to 3% of PGGW's total shares, he said.

In a joint media statement last night, Silver Fern Farms chairman Eoin Garden said the company intended to remain a long-term shareholder.

PGGW's share price has taken a beating while the mediation has been under way, dropping as low as 68c.

Mr Norgate said the settlement would end the uncertainty about what the company's potential financial exposure over the soured deal might be.

"We've now paid our dues. That could well be a positive on our share price."

The settlement was paid by raising a loan through South Canterbury Finance.

In a statement, PGGW managing director Tim Miles said the immediate financial impact would be interest payments increasing by about $2.5 million this financial year.

The effect would be "significantly less" in future years because of falling interest rates.

Mr Norgate said the terms of the settlement had been approved by the company's banking syndicate and were well within the company's capacity to manage.

The company still planned to sell some non-core assets - mainly surplus land - to reduce debt by an agreed $125 million by December next year.

Mr Garden said the settlement provided "significant redress" for the failed transaction.

"The resolution allows both companies to focus on optimising outcomes in a challenging economic environment, rather than wasting resources on protracted litigation. This is a sensible and pragmatic outcome."

 

 

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