Positive vibes from China
Silver Fern Farms chief executive Dan Boulton says his recent visit to China has left him feeling optimistic about the situation there for the meat industry.
The board will unanimously recommend the plan to shareholders which would see a $261 million cash investment in Silver Fern Farms by Shanghai Mailing. Rob Hewett, chairman of Silver Fern Farms, says it will "turbo charge" the company's pasture to plate strategy.
A special dividend of $0.30 per share will be paid to cooperative ordinary and rebate shareholders at the time of the transaction. The deal would retain the supplier-controlled cooperative as a 50% shareholder.
"Under the proposed deal Shanghai Maling will invest $261 million in cash for half of Silver Fern Farms' business," says Hewett. "The investment will be into a company, to be named Silver Fern Farms, which will own all of the assets of the business, and be owned 50% by the existing Silver Fern Farms Cooperative and 50% by Shanghai Maling.
"In addition, the board of the cooperative plans to redeem the 5.5m Supplier Investment Shares it has outstanding and pay a $35m (30cps) special dividend to ordinary and rebate shareholders at the time of the transaction. This dividend will be a welcome return and one which will set expectations moving forward.
"Existing ordinary and rebate shareholders will retain their current shares in the Co-operative and supplier shareholders will continue to supply their livestock through the Co-operative," said Mr Hewett.
Hewett says Shanghai Maling is investing $261 million of cash into the business in return for 50%, the cooperative will own 50% of a business whose equity value has effectively doubled in size.
"The implied value of the transaction of $2.84 per ordinary share compares to a share price of 35 cents when the trading of shares was suspended in July."
Hewett notes that the intention going forward, subject to board approval at the time, is for Silver Fern Farms to return 50% of profits every year to its two shareholders.
"The board considered many options for new capital, both locally and internationally, but Shanghai Maling stood out for the enormous opportunities and ongoing benefits for the cooperative, its shareholders and supplying farmers.
"We are very excited by this partnership proposal with Shanghai Maling and believe they are the best partner for Silver Fern Farms. Our values are closely aligned. The proposed deal has many long-term benefits for the co-operative including full support for our global 'Plate to Pasture' strategy, and the means to accelerate the strategy in a number of key markets as a result of the investment of substantial new capital.
"This new partnership will see Silver Fern Farms in a cash positive position at year end, which will allow us to both reinvest more aggressively in executing our strategy but also to share profits via regular payments of dividends to the two shareholders and maintain competitive procurement prices for our livestock suppliers.
"The cooperative will receive 50% of those future dividends and intends, subject to the Co-operative Board approval at the time, to in turn provide regular payments of dividends and rebates to shareholders."
Dean Hamilton, chief executive, Silver Fern Farms says Shanghai Maling brings more than just capital because they provide the cooperative with a huge opportunity in China.
"This has the potential for us to establish a unique position in what is the fastest growing red meat market in the world. Shanghai Maling's integrated supply chain model will allow us to advance our product development and consumer marketing abilities in that market in ways we could not do ourselves, or with any other local or international investor," says Hamilton.
"Silver Fern Farms will continue to be responsible for its sales and marketing efforts in China just as it is in other countries around the world. Where it makes sense for all parties, we will be working with Shanghai Maling to create products in New Zealand specifically for China, and will leverage its (and Bright Group's) significant wholesale and retail networks. We expect the in-market relationship to build naturally over time."
Hewett says shareholders and suppliers will have the opportunity to hear more about the partnership over coming weeks.
"We expect to send shareholder materials out ahead of a shareholder meeting planned for October 16. The investment is subject to shareholder approval by both parties and regulatory approvals in both New Zealand and China. We expect the transaction to be completed in the first half of next year.
"What is clear is that the traditional industry model hasn't consistently delivered for farmers or processors over a sustained period of time. Our shareholders and farmer suppliers believe in our added value strategy, but the key missing link has been a strong financial position from which to execute.
"We have arrived at a position where we have a genuine game changing opportunity for our business. We have a partner who supports our strategy, wants us to accelerate, has the resources and relationships to help us specifically in China, and will provide us with significant capital to put us in a position of not only financial sustainability, but one of strength. It will enable us to reinvest in the business in a manner we simply cannot achieve by ourselves. The end result should be higher, and more stable, returns from the plate to the pasture.
"We are excited about what this partnership can bring to the business, to our shareholders and to supplying farmers.
"I truly believe this partnership will be a defining moment for our business and the cooperative as a whole. We will look back on this in 5 to 10 years' time and know it was the catalyst for us to propel our business forward in a way, even a year ago, we never thought possible," Hewett says.
