PGW halts negotiations on NZS management contract

PGG Wrightson halts negotiations on internalising Uruguay company's management

July 30 (BusinessDesk) - PGG Wrightson Ltd. (PGW) has halted negotiations on internalising NZ Farming Systems Uruguay's management contract pending the outcome of Singapore-based Olam's 55 cents a share takeover offer which values the Uruguay company at $134.3 million.

In a letter to its shareholders, the Uruguay company's chairman John Parker says his company initiated negotiations with PGW well before Olam launched its bid on July 19.

“The expected outcome is that NZS would directly employ its management, and would enter into a preferred supplier agreement with PGW for the purchase of farm inputs and services in Uruguay,” Parker said.

“This would save money through the internalisation of management, and would simplify and enhance decision-making, whilst maintaining a strong working relationship with PGW as an efficient supplier of farm inputs,” he said.

Any proposal to internalise the management contract will be subject to shareholder approval.

Parker says his board would prefer to reach an agreement with PGW ahead of the Olam offer so shareholders can “make a fully informed decision on the offer” and because it believes internalising the management contract would be in the best interest of shareholders.

However, PGW has indicated it isn't inclined to enter into such an agreement until Olam's bid has been resolved.

“While we are not able to move to completion at this point, given PGW's current stance, we will continue to press for a resolution to the issue,” Parker said.

“Please note that PGW's decision regarding its shareholding was taken for reasons specific to PGW's own interests and circumstances and your board feels it should not be interpreted as guidance for other NZS shareholders,” he said. PGW owns 11.5% of the Uruguay company and has already agreed to sell Olam this stake at the bid price.

Parker reiterated the Uruguay company's advice that shareholders shouldn’t sell their shares until they receive both Olam's formal offer and his board's response, which will also contain an independent report by Grant Samuel.

The Uruguay company is working to finalise its annual results so they can be included in his board's Target Company Statement, Parker says.

Shareholders should feel no pressure to make a decision on Olam's offer because the earliest its offer can close under the timetable dictated by the Takeovers Code will be about Sept. 1, he said.

Shareholders should also note Olam's offer must take its stake above 50% to succeed because the Takeovers Code does not allow a takeover offer to result in the bidder ending up with more than 20% but less than 50%, he said. Olam currently owns about 18.5% of the Uruguay company.

“You should also note that any takeover situation is dynamic, and this means that circumstances relating to the offer could change materially between the time the offer is made and the nominated closing date (which could be extended in certain circumstances),” Parker's letter said.

Olam bought 14% of its stake in the Uruguay company in September last year at 41 cents a share from Australia's Hunter Hall Investment Management. It bought the rest in May this year, also at 41 cents a share, from the receivers of Rural Portfolio Investments, the company previously owned by the Dunedin-based McConnon family and former PGW chairman Craig Norgate who was the driving force in creating the Uruguay company.

The Uruguay company, which aims to reproduce New Zealand dairy farming methods in Uruguay where land is much cheaper, was floated in November 2006 after a $115.6 million share issue at $1 a share. A year later, it made a one-for-two rights issue priced at $1.50 a share.

(BusinessDesk)

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