PGG-W hints at deal death knell

Listed rural servicing company PGG Wrightson yesterday gave the strongest hint yet it was unlikely to complete its partnership with Dunedin meat co-operative Silver Fern Farms as proposed.

At its annual meeting in Christchurch yesterday, chairman Craig Norgate told shareholders that his belief in the partnership and its benefits to farmers remained, but "it was fair to say that we are now unlikely to be able to consummate the transaction in its current form within an acceptable time-frame to Silver Fern Farms."

PGG Wrightson's share price had tumbled along with almost every other stock, and Mr Nor-gate said it would now be more costly to raise the necessary finance.

The economic slowdown which prevented the company from raising $110 million towards its first instalment however, was unlikely to hamper PGG Wrightson (PGG-W) matching its finance goals.

There was a continued movement towards western diets in developing countries and supply constraints caused by climatic factors and competition for land use would benefit New Zealand agriculture.

Mr Norgate said the $220 million Silver Fern Farms (SFF) partnership was not conditional on finance and the search for the required equity did not begin until SFF shareholders approved the deal on September 8.

He told shareholders that roadshows to overseas investors and intermediaries went "extremely well," but the collapse immediately after that of Lehman Brothers and AIG shook financial markets.

"The decline in our share price made it much harder to raise the amount we required and meant that we had to issue more shares to do so."

PGG-W had finalised an equity package with the placement of $78 million in shares and a fully underwritten retail share offer of $22 million.

As part of that placement, PGG-W proposed buying from Rural Portfolio Investments, owned by the McConnon and Norgate family interests and interests associated with Murray Flett, shares in New Zealand Farming Systems Uruguay (NZFSU).

"Non-conflicted" PGG-W directors had approved the purchase on the basis that proceeds would be reinvested through the placement and would also have to be approved by shareholders.

But other investors were not comfortable and that deal was "unwound", Mr Norgate said.

The final structure of the $110 million package differed from that approved by banks, and while he was confident it would also be approved, the global financial crisis turned for the worse.

"In that environment, when it came time for the banks involved in our transaction to provide final approvals, not all did so, and we were thus unable to settle the first payment due on that date."

Mr Norgate said the economic slowdown would impact short to medium term, but longer-term international trends favoured agriculture producers.

"If anything, the current turmoil will provide greater opportunities for PGG-W as the focus turns to those who can actually execute well rather than just being in the right space."

The falling exchange rate and interest rates were an example of how producers would benefit.

He reiterated a net profit forecast for this year in the range of $50 million to $55 million, or $46 million to $51 million excluding the performance fee from NZFSU.

Last year, PGG-W reported a net profit after tax of $73.2 million, including one-off gains, compared with $40.6 million for the previous year.

Final distribution for the year was 11c a share, bringing the total dividend to 16c a share fully imputed, compared with 12c last year.



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