'Game changing' partnership for Silver Fern

Silver Fern Farms chairman Rob Hewett unveiled a “game-changing” partnership with Chinese food company Shanghai Maling at a press conference in Dunedin this morning.

Announcing the widely anticipated deal, Mr Hewett said the co-op’s board was unanimous in supporting a scheme to create a new joint venture and eliminate the meat processor’s chronic debt.

“We believe this has huge potential for our company,” he said.

Silver Fern was not just marrying money but creating a genuine partnership with Shanghai Maling.

“We have a meeting of minds in terms of our strategy and values.”

The transaction involves forming a new joint venture company owned 50/50 by Silver Fern and Shanghai Maling.

The Chinese company will pay $261 million to Silver Fern, while the New Zealand company transfers its operating business and assets to the joint venture.

Mr Hewett said $50m would be taken back from the joint venture to the co-op, part of which would be used to pay a $35m special dividend to ordinary and rebate shareholders.

Farmers will continue to own the original co-operative and receive ongoing dividends.

Mr Hewett said the transaction implied a value for the co-op of $2.80 a share, well above its last traded price on the Unlisted market of 35c.

Under the deal, the joint venture will have a ten person board with equal representation from Silver Fern and Shanghai Maling.

Three of Silver Fern’s representatives will be elected by farmers and two will be independent, while two of Shanghai Maling’s directors will be New Zealand resident.

When the deal is complete, the co-op would have zero debt and be in a position to pay out 50% of net profit as dividends, said Mr Hewett.

The head office will remain in Dunedin, chief executive Dean Hamilton would still run the company, and farmers would see the same rep coming up the driveway, he said.

Silver Fern has been seeking a capital injection to strengthen its balance sheet before bank debt falls due next month and help its international expansion. It hired Goldman Sachs to look at its options and suspended trading of its shares on the Unlisted platform in July.

The meat industry has been struggling for years with overcapacity and competition for stock as sheep numbers fall.

Shareholder groups in Silver Fern Farms and its neighbouring Alliance Group have called for both companies to consider merging in favour of taking in foreign investment but Alliance management rejected the idea.

Silver Fern Farms shareholder Allan Richardson has said there will be long-term repercussions for foreign ownership in New Zealand's red meat industry, including Silver Fern Farms getting the capital to pick off suppliers from other processors.

Wanaka-based businessman John Rodwell confirmed local agribusiness companies had clubbed together with an offer to underwrite a rights issue to existing shareholders instead of foreign investment but the company's bankers were understood to have deemed the $40 million offer insufficient.

The group had since boosted its underwrite ability "substantially" but had been unable to communicate with Silver Fern Farms because it had signed an agreement not to talk to other parties.

Mr Hewett said all avenues had been explored in New Zealand and overseas to find the best option.

“The net was chucked as wide as we could have hoped for,” he said. “What we see in front of us today is unquestionably the best opportunity for Silver Fern Farms.”

The Dunedin-based company last month told shareholders it was on track for 2015 full-year earnings before interest, tax, depreciation and amortisation in the range of $75 million to $85 million. Debt would be in a range of $140-170 million compared with $289 million last year, it said.

The company's value-add strategy has been gaining momentum and it has been selling branded products into China through Alibaba's Tmall electronic shopping mall. The company has a target of 10% of overall revenue from value-added goods by 2017, compared to 4% in 2014.

Bright Foods, which has a 39.1% stake in South Island milk processor Synlait through another subsidiary Bright Dairy & Food, has been on a buying spree in recent years. It is China's second-largest food manufacturing company, headquartered in Shanghai. Recent acquisitions include a 60% stake in UK cereal maker Weetabix which it is said to be looking to IPO, a 75% stake in Australia-based food processor Manassen Foods, which it is also looking to list, and a majority stake in Italian olive oil make Salov Group.

Its subsidiary Shanghai Maling suspended trading in its shares in China on August 25.

The firm, which is largely involved in slaughtering and canned foods, has been focused on global expansion, particularly in countries that export large amounts of beef such as Australia and New Zealand.