New “game-changing” investment will turbo-charge Silver Fern Farms

Silver Fern Farms logoA new operating company, Silver Fern Farms Ltd, is proposed from a 50:50 joint venture with Chinese company Shanghai Maling Aquarius investing alongside New Zealand’s largest meat processing company, the hybrid cooperative, Silver Fern Farms.

Shanghai Maling is China’s leading meat processor and distributor, a listed meat company based in Shanghai, 38 percent owned by the Chinese government-owned Bright Food Group The two companies will invest $261 million each in the new operating company. By Shanghai Maling investing in the business, in return for 50 percent of SFF, the cooperative will own 50 percent of a business whose equity value has effectively doubled in size.

According to SFF, the proposed deal means that the SFF cooperative will still be able to remain operate independently, pay off its debt, unleash its added-value branding strategy and provide more opportunities for its 7,000 people.

Announcing the results of its capital-raising exercise at a media conference this morning alongside chief executive Dean Hamilton, Silver Fern Farms chairman Rob Hewett described the announcement as a watershed moment, with “huge potential for the company, moving forward.”

He said the SFF board will recommend unanimously to cooperative shareholders that a 50:50 partnership is formed with Shanghai Maling to work together to grow a profitable long-term global business providing sustainable returns to shareholders. The Chinese company’s values are closely aligned with SFF’s and the proposal has many long-term benefits for the cooperative including full support for its “Plate to Pasture’ strategy, he explained. The board had no doubt that the strategy was the right one and will see unrelenting progress in the company’s brand strategy.

There were three objectives from the capital raising exercise, which been in play for the last few months: to pay down debt; to accelerate the company’s added value strategy; and to optimise operations.

Goldman Sachs were appointed last year and cast their net widely, both domestically and globally, for suitable courtiers of the SFF hand. It suspended trading of its shares on the Unlisted platform on 24 July and trading in Shanghai Maling’s shares was suspended on 18 August.

“This was the best opportunity put in front of us,” said Hewett, adding that he believes SFF’s people and added-value strategy will be unleashed as a result.

“It will turbo-charge our operations. We are a food company, which is all about creating inspirational food, which is created by passionate people,” he said, adding that this aligns with Shanghai Maling’s values.

What is proposed means that the cooperative will have no debt at the end of the year, will have more money in the bank and be able to improve returns to shareholders through dividends.The company will also be investing in the processing plant network, said Hewett.

“We have been doing what we need to, not what we want to.”

The transaction values Silver Fern Farms’ equity at $311 million. This equates to $2.84 per ordinary share, which compares to the $0.35 share price prior to their suspension in July. The cooperative plans to redeem the 5.5 million supplier investment shares  it has outstanding and pay a $35 million (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,” said Hewett.

“We will have the best balance sheet of any meat company in New Zealand,” he commented, stressing that Shanghai Maling is investing alongside Silver Fern Farms, not buying it.

“It’s about investing in New Zealand to grow, not to take money out of New Zealand,” he said.

The proposed new company would have a 10 person board co-chaired by Rob Hewett and President Chen from Shanghai Maling. The board will comprise five members from the Silver Fern Farms cooperative (three producer and two independents) and five from Shanghai Maling (two of which must be New Zealand resident and the other three Chinese). Around $7 million has been ring-fenced for governance of the jointly run operation, while $50 million of SFF assets will be transferred to the new entity.

While the proposal does not necessarily need formal farmer shareholder approval, the SFF board believes that shareholder support will be critical. This this will be sought via a SFF shareholder roadshow over the coming weeks followed by a vote, requiring over 50 percent to support the proposal. An information pack will be sent to shareholders over the next few days and they will be asked to vote on the proposal at a Special General Meeting in Dunedin on 16 October.

From that point, Overseas Investment Office and Chinese regulatory approval will take six to nine months and the company is looking to conclude the deal in the first half of 2016.

Insatiable demand in China for high quality protein

China is Silver Fern Farm’s biggest market. The company saw unprecedented growth between 2011 to 2015 and its beef sales there, to customers such as Shanghai Maling, have grown from $15 million in 2011 to $170 million this year to date.

“There is insatiable demand there for high quality protein from New Zealand and SFF is positioned well,” said Hewett. Shanghai Maling want access to high quality New Zealand protein, which occupies a “special place” in China because of New Zealand’s high reputation for food safety and security, noted Hamilton. The cooperative will leverage opportunities with the Shanghai Maling team in China, but is also planning investment in its marketing around the globe particularly in Germany and its second largest market, the US.

“It’ll be more of the same, but enhanced with more capital to make it work,” said Hewett.

Morale boost for staff

Dean Hamilton, chief executive Silver Fern FarmsStaff, who were given the news in a meeting earlier this morning, were said to have given the duo a standing ovation. It provides job security, helping staff morale, and also offers more opportunities for staff to move into positions in market in the future, explained Hamilton.

Both Hewett and Hamilton gave an assurance that there will be no difference to the way the cooperative goes about its day to day business for beef, sheepmeat and venison suppliers and customers.

Rejected courtiers

Other courtiers of the company’s hand have been rumoured to include Brazilian firm JBS and also a group of New Zealand agribusiness investors, led by businessman John Rodwell, which had raised over $40 million, but reports suggest that offer was insufficient.

In addition, farmer pressure groups have been motivating shareholders of SFF/Alliance to consider merging before opening up to offshore investors. According to Hewett, the offer on the table does not preclude any “sensible discussions regarding a merger/amalgamation.”

While the company has been focused on its own position, it will be good for the New Zealand meat industry to have a good, strong sustainable red meat main player for the future, noted Hamilton.

Political opposition to the deal has been fierce with NZ First leader Winston Peters suggesting that the Government put in funds to support the company. This was discounted by Prime Minister John Key. He and Finance Minister Bill English have both said that ownership is a matter for the company’s shareholders to decide.

 

 

 

 

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