NZ's biggest meat processor, Silver Fern Farms, has confirmed that China's Shanghai Maling Aquarius - a Bright Foods subsidiary - would invest $260 million to form a 50/50 joint partnership with the Dunedin-based group.
Chairman Rob Hewett said the move would prove to be a "watershed" for both company and the meat industry, and would make Silver Fern debt free by the year's end.
Silver Fern, a hybrid farmer-owned co-operative, has for several months been looking at its capital structure with a view to paying down debt.
A number of parties, both domestic and foreign, are understood to have looked at Silver Fern at some point after the co-operative late last year hired Goldman Sachs to look at its options to raise up to $100 million.
The meat industry has for several years struggled with issues of overcapacity and competition for stock - made worse by a dwindling sheep population which has gone from a peak of 70.3 million in 1982 to 28.6 million today.
"A lot of money needs to be spent on Silver Fern Farms to make it efficient again," said one analyst. "Many of the Silver Fern plants are at the high end in terms of operating costs."
The industry suffers from overcapacity, much of it with Silver Fern Farms.
The ANZ rural economist Con Williams said profitability in the sector had been poor for an extended period, which had hampered reinvestment, weakening profits and balance sheets.
Pressure groups within Silver Fern and neighbouring Alliance Group have called for both companies to seriously consider merging before taking in foreign investment.
Finance Minister Bill English said last week that ownership of Silver Fern was a matter for its farmer shareholders to determine.
"The New Zealand farmers who are shareholders have total control over that business now, and it is in their power to keep control over it, so we can't really force them to own a business if they don't want to own it," he said.
John McCarthy, a former chairman of Meat Industry Excellence, a group set up to promote change in the industry, said: "This is a watershed for New Zealand, it is a crossroads for NZ inc and has the potential to change the face of our rural communities and to blur that unique point of difference and global opportunity."
McCarthy said English's comments around the Silver Fern Farm's "debacle" were disturbing.
"His comments are a cop out and are indicative of the Government turning its back on rural communities and New Zealand in favour of foreign control," McCarthy said.
"With the pragmatic cynicism that is the hallmark of this administration they have paid lip service to the concerns that have been mounting over the past years as farmers become increasingly worried as to the future viability of their farms and their inter-generational opportunities."
McCarthy said Primary Industries Minister Nathan Guy had been "missing in action" in the red meat sector.
"This Government is all about snuggling up to the Chinese opportunity and it appears they are prepared to do so at any cost, including, in this instance, a passive sanctioning of increasing sales of New Zealand family silver."
Silver Fern has already made inroads into its debt, having repaid about $100 million in the year to last September.
The company's debt problems arose in the 2011/12 and 2012/13 years when it chalked up big losses. It turned in a small profit of $500,000 in the year to September 2014.
Silver Fern rebranded in 2008 and went down the value-added route, supplying Silver Fern-branded venison, beef and lamb. China is its biggest customer.
Agribusiness group 'unable to connect' on rights issue offer
South Island businessman John Rodwell, who has been involved in the agribusiness industry for many years, confirmed to the Herald that a number of agribusiness companies had clubbed together with an offer to underwrite a rights issue, initially worth $40 million, to ensure that shareholders could continue to wholly own Silver Fern Farms.
"We have effectively advanced the idea that an underwritten rights issue to existing shareholders would give them the opportunity to continue to own and control their company," Rodwell said.
"We have been impressed with the value-add strategy of the company, and impressed with the job that the management team has done to improve the company's debt, balance sheet and in returning the company to profitability."
About a month ago Silver Fern Farms came back to the group and said the $40 million was insufficient. The group then went back with a higher offer but had since "not been able to connect with the company".
- by Jamie Gray
