Chinese firm may take 50% of Silver Fern Farms

Chinese interests may be close to acquiring 50% of Silver Fern Farms (SFF), in a deal that would increase the dominance of New Zealand's biggest meat exporter and erode farmer control of the industry, say shareholders pushing for a merger with Alliance Group.

Dunedin-based SFF has been seeking a $100 million capital injection to strengthen its balance sheet before banking facilities expire in October. It  hired Goldman Sachs last year to assess options.

The company's shares were halted from trading on the Unlisted platform last month and SFF has been briefing influential farmer shareholders around the country this week, ahead of an expected public announcement next week.

Shareholder Allan Richardson, who heads the SFF merger group, says the word from farmers attending those meetings is that a foreign-owned company is looking for a 50/50 joint venture and equal boardroom control in addition to making a $100 million investment.

Mr Richardson says he was invited to yesterday's Dunedin meeting but chose not to attend so he could continue to mobilise opposition to foreign investment, understood to be Chinese, in the cooperative.

A spokesman for SFF declined to comment, citing commercial confidentiality, and instead released a newsletter sent out to farmer shareholders last week that says the cooperative expects to conclude the capital raising process in the next two to-four weeks and "if a compelling proposition is tabled, recommend that to shareholders."

New Zealand First leader Winston Peters said this week the Chinese will get a "buy one, get one free deal" with SFF, gaining access to New Zealand's know-how and research and development funded by taxpayers through the Primary Growth Partnership.

Mr Richardson, along with Jeff Grant, who heads Alliance Group shareholders pushing for industry collaboration, says the deal as outlined to them would spell the end of farmer control of the red meat sector.

"This is not a hostile takeover - they're inviting them in the front door rather than the back door," Mr Richardson says. "Unless red meat farmers understand the long-term ramifications, there will be repercussions," including a better-funded SFF over time being able to pick off suppliers from other processors.

"Once they have more than 50% of the processing industry under their belt they'll be able to easily pick off the other guys by delivering bigger cheques than other companies, particularly North Island companies," he says. "Once they have the majority they can then pick and choose and dictate what price is paid."

Mr Grant says his objection isn't to foreign investment as such, because New Zealand has been built on that, but rather the influence it will have on the industry.

"We're at a tipping point where a decision over this investment will have influence over the entire processing industry," he says.

Peter McDonald, chairman of the Meat Industry Excellence group pushing for a merger between SFF and Alliance, says SFF continues to have a lot of over-capacity that it will be looking to fill.

He said it is ironic SFF chairman Rob Hewitt told a suppliers conference in January that foreign ownership will leave the meat industry "standing in a swimming pool with the water just below your nose", meaning farmers will get paid just enough money to keep putting the rams out each year.

"The question for farmers is a decades old question," Mr McDonald says. "Is our collective future better by working together as one cooperative or continuing to battle against each other?"

Mr Richardson and Mr McDonald say SFF shareholders will probably be offered "sweeteners" to vote for the Chinese deal, including one-off bonuses.

"The big risk for them is that farmers will not support this and take their supply elsewhere, so to get that supply in place there will be sweeteners," Mr Richardson says.

He wants to bring forward the special general meetings shareholders have voted for at SFF and Alliance to discuss the benefits of more cooperation between the two farmer-owned cooperatives.

Mr Richardson says by the end of the year SFF will have paid down another big chunk of debt which puts it in much better shape to sit down at the table with Alliance.

SFF arranged new bank facilities last year after missing scheduled repayment on two tranches of bank debt totalling $41 million. In its recent update SFF says its year-end debt may reduce to a range of $140-170 million, compared with $289 million at year end last year.

SFF remained on track for earnings before interest, tax, depreciation and amortisation of between $75-85 million for the financial year ending this month.

(BusinessDesk)