Alliance says merger with SFF risks 'beached whale' 28 Sep 2015
Related articles
- NZ consumers grow more upbeat, may resume spending Business
- Knowles quits as CEO of KiwiBank Business
- NZ migration bolstered by British invasion Migration
- NZ manufacturing activity reaches highest since 04 Business
- NZ dollar hits 22-month high vs euro Business
- OceanaGold finds new gold deposits at Fraser mine Business
- Transpower gets go-ahead for $170m SI upgrade Business
- NZ home sales creep up in March, still subdued Property
- NZ economy expands at fastest pace in two years Business
- New Zealand food prices fall in February Business
Article - BusinessDesk
Alliance says merger with Silver Fern would risk creating 'beached whale' as rival tackles over-capacity
By Jonathan Underhill
Sept. 28 (BusinessDesk) - Alliance Group chairman Murray Taggart says any merger with Silver Fern Farms risks creating a "big beached whale" of the New Zealand meat industry because its rival needs the capital offered by China's Bright Food just to rationalise plant capacity and reduce its debt burden.
Bright Foods' Shanghai Maling Aquarius unit has offered to invest $261 million cash in Silver Fern Farms (SFF) to become a 50-50 partner with the Dunedin-based meat company in a deal that would leave the business debt free and with funds to upgrade plants, spend more marketing higher-value meat products and provide a new route into China.
The injection of funds has stoked speculation a stronger SFF could subsequently dictate terms for a tie-up with Alliance, something the two firms have failed to achieve in a decade of sporadic talks. Alliance says it made an offer to SFF prior to the rival embarking on its capital-raising process and had "worked hard to engage with SFF and discuss opportunities for industry consolidation" over the past 10 years.
SFF has called the Chinese deal an industry game changer and sector consultant Keith Woodford says it would leave Alliance more vulnerable, with its own surplus capacity in sheep meat. But Taggart says Alliance has already made progress upgrading and rationalising capacity, such as mothballing its Sockburn site in Christchurch and closing its sheep meat operation at Mataura while upgrading its beef lines to serve a catchment marked by dairy conversions. By contrast, SFF has more work to do in trimming capacity, he said.
"Unfortunately, the fact is when a company has been under a bit of financial pressure they don’t upgrade plants," Taggart told BusinessDesk. "A lot has to be spent on SFF plants. It is a commonly held view in the industry they are carrying more plants than they should."
The pro-merger lobby of farmer shareholders at both meat companies backed a merger "to try to achieve a step change in competitive position, but we’d still be a pip-squeak in the global market, and in New Zealand could be the big beached whale of the industry," he said.
SFF has some 22 meat processing plants to Alliance's eight sites, but by Alliance's estimate is killing only a third more stock, "meaning they are carrying a heap more overhead per kill than we are," Taggart said. Repaying debt was only one issue for its rival, he said.
SFF lifted sales by 16 percent to $2.28 billion last year but finance costs of $37.5 million contributed to a small net profit of $474,000, compared to a loss of $28.6 million a year earlier. Alliance's 2014 sales rose 5.3 percent to $1.46 billion, while it paid interest of $10.5 million and reported a net profit of $6.2 million.
SFF has made its deal with Shanghai Maling subject to approval of 50 percent of shareholders who will vote on it at a special meeting on Oct.16. It also requires clearance from the Overseas Investment Office, whose recommendation that Shanghai Pengxin's $88 million purchase of the 13,843 hectare Lochinver Station be approved was rejected by the government on the grounds that it didn't provide enough economic benefit to New Zealand
Federated Farmers president William Rolleston said the two deals aren't directly comparable because Shanghai Maling is buying into just one player in the processing industry, rather than building up farming capacity.
"If they aggregated a significant amount of land to supply into SFF then that message is there. But we’re not at that stage," he said.
Fed Farmers wanted to be seen not to be directing SFF's shareholders on how to vote, while urging them to consider the implications of the deal carefully.
"We've had 10 to 15 years of nothing actually happening and I don’t think that situation was going to last," Rolleston said. "Now we’ve got someone to come into the mix who provides immediate value and market penetration. The question is where will control lie and what’s the future of the meat industry."
"There would be an upward push, hopefully, in meat prices but you’ve got to be able to push deeply into the market to capture value further down the value chain," he said. "We need overall value to lift, not just for one company."
Taggart says he doesn't expect Shanghai Maling would subsequently try to drive a merger between SFF and Alliance, saying its behaviour as a shareholder of Synlait Milk has been hands off. But a bigger impediment is likely to be clearance from the Commerce Commission.
"The legal advice we've had, and anecdotally have heard SFF has been told too, is that it would be almost impossible to get a merger of Alliance and SFF through the regulator," he said. "Alliance has 85-to-90 percent of the Southland processing market. It is well above the safehaven threshold the regulator has. It would be very, very challenging to achieve regulatory approval for that type of dominance in the industry."
Shanghai Maling president Weiping Shen said he expected Chinese demand for New Zealand red meat to grow, if the deal is completed, given his company's wide distribution reach.
Still, Taggart says the "huge opportunity" in China, where Alliance has sold meat for 16 years through its relationship with Grand Farm, has to be put in perspective.
"People need to realise that currently only lower-value cuts go to China," he said. "We don’t have chilled access to China - that's a government to government issue and we all know how long that takes."
(BusinessDesk)
News
Hilary Timmins' Award-Winning UK Documentary Series To Inspire NZ Students
29 Jun 2020 Education
Dream Catchers, produced and directed by Hilary Timmins, celebrates the success stories of more than thirty inspirational New... more
New Zealand reaffirms support for Flight MH17 judicial process
7 Mar 2020 News
Ahead of the start of the criminal trial in the Netherlands on 9 March, Foreign Minister Winston Peters has reaffirmed the need to... more
Business
NZ Government's Economic package to fight COVID-19
17 Mar 2020 Business News
The Coalition Government has launched the most significant peace-time economic plan in modern New Zealand history to cushion the... more
NZ Government announces aviation relief package
19 Mar 2020 Business News
Transport Minister Phil Twyford today outlined the first tranche of the $600 million aviation sector relief package announced earlier... more
Living
Diversity was Key at New Zealand Trade Tasting in London
6 Jun 2022 Food & Wine
New Zealand Winegrowers Annual Trade Tasting was recently held in London, on Wednesday 4 May, in Lindley Hall.
It was the first... more
Kiwi author stuns Behind the Butterfly Gate
12 Jan 2022 Arts
Hidden behind the Butterfly Gate is where the secret has been kept for 76 years...
New Zealand writer Merryn Corcoran’s... more
Property
Fairer rules for tenants and landlords
17 Nov 2019 Property
17 NOVEMBER 2019
The Government has delivered on its promise to the over one million New Zealanders who now rent to make it fairer... more
New Zealand Government will not implement a Capital Gains Tax
17 Apr 2019 Property
The Coalition Government will not proceed with the Tax Working Group’s recommendation for a capital gains tax, Jacinda Ardern... more
Migration
Boosting border security with electronic travel authority – now over 500,000 issued
19 Nov 2019 Migration
19 NOVEMBER 2019
We’ve improved border security with the NZeTA, New Zealand Electronic Travel Authority, which helps us to... more
Christchurch reinstated as refugee settlement location
18 Aug 2018 Migration
18 AUGUST 2018
HON IAIN LEES-GALLOWAY
The announcement that Christchurch can once again be a settlement location for refugees... more
Travel
Gallipoli Anzac Day services cancelled
19 Mar 2020 Travel & Tourism
The New Zealand and Australian Governments have announced this year’s joint Anzac Day services at Gallipoli will be cancelled... more
New Zealanders advised not to travel overseas
19 Mar 2020 Travel & Tourism
New Zealanders advised not to travel overseas
more
Sport
The Skipper's Diary: Sir Richard Hadlee honouring his father and NZ's Forty-Niners
27 Oct 2019 Cricket
NZNewsUK London Editor Charlotte Everett spoke to Sir Richard Hadlee about why he’s chosen to publish his father’s... more
PREVIEW: All Blacks v England semi-final
26 Oct 2019 Rugby
The two most convincing quarterfinals winners are set to square off in a semifinal showdown for the ages when the All Blacks meet old... more
Columns
Gordon Campbell on the Gareth Morgan crusade
11 Nov 2016 Opinion
Gordon Campbell on the Gareth Morgan crusade
First published on Werewolf
The ghastly likes of Marine Le Pen in France and Geert ... more
Gordon Campbell on the US election outcome
10 Nov 2016 Opinion
Column - Gordon Campbell
Gordon Campbell on the US election outcome
Well um.. on the bright side, there (probably)... more
Kiwi Success
Congratulations to Loder Cup winner
26 Sep 2018 People
25 SEPTEMBER 2018
The Loder Cup, one of New Zealand’s oldest conservation awards, has been awarded to Robert McGowan for 2018... more
Appointments to New Zealand National Commission for UNESCO
16 Aug 2018 Appointments
16 AUGUST 2018Appointments to New Zealand National Commission for UNESCO
HON JENNY SALESA
Associate Education Minister Jenny Salesa is... more
Recruitment
Historic pay equity settlement for education support workers
14 Aug 2018 Recruitment
14 AUGUST 2018Historic pay equity settlement for education support workers
RT HON JACINDA ARDERN
HON CHRIS HIPKINS
Prime Minister
The... more
Historic pay equity settlement for education support workers
22 Aug 2018 Recruitment
14 AUGUST 2018Historic pay equity settlement for education support workers
RT HON JACINDA ARDERN
HON CHRIS HIPKINS
Prime Minister
The... more