The deed has been done and the New Zealand red meat sector re-shaping is underway. Over 82 percent of Silver Fern Farms’ shareholders voted last Friday in favour of the 50/50 partnership proposal with China’s leading meat processor Shanghai Maling, a listed company based in Shanghai, owned 38 percent by Bright Food Group.
SFF chairman Rob Hewett said that shareholders throughout the country had shown enthusiastic support for the Shanghai Maling proposal since its announcement, with many calling this the ‘breakthrough initiative’ the business had been seeking in recent years.
It was a very exciting day for SFF, said Hewett.
The Board believes this partnership will be a defining moment for our business, the co-operative as a whole, and our supplying frarmers. It is gratifying shareholders agreed.
“We have a partner in Shanghai maling who will invest $261 million in cash for a 50 percent share of Silver Fern Farms’ business, in partnership with the existing Silver Fern Farms co-operative. The investment will provide significant financial capability to accelerate our global ‘Pasture to Plate’ strategy. In addition, with the extensive retail and distribution assets of Shanghai Maling and the broader Bright Food Group in China, we will have a unique opportunity to establish Silver Fern Farms as the premium red meat brand in what is the world’s fastest growing protein market.”
He says the new partnership will allow the company to invest in the things they want to, not just the things that are needed, which has been the position in recent times. “The investment will see Silver Fern Farms has no debt and a positive cash position at the next year end.”
Hewett said growth in the ‘Pasture to Plate’ strategy will generate higher returns over time for shareholders and suppliers into those programmes. “With higher returns and lower debt, we expect to be able to share profits via regular payments of dividends to the two shareholders and maintain competitive procurement prices for our livestock suppliers.
“The co-operative will receive 50 percent 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,” said Hewett.
SFF chief executive Dean Hamilton says Shanghai Maling brings more than just capital because they provide the company with a huge opportunity in China. Describing it as a “genuine, life-changing opportunity for our business”, he said that Shanghai Maling’s integrated supply chain model will allow the company to advance its product development and consumer marketing abilities in China in ways we could not do for itself for with any other local or international investor.
The next rung on the ladder for the deal is Shanghai Maling shareholders approving the partnership on Monday 30 October. Bright Food Group, owner of 38 percent of Shanghai Maling, has already indicated it will vote in favour of the proposal. Regulatory approvals will then need to be gained from both New Zealand and Chinese authorities and the transaction is expected to come into effect between March and June 2016.
New Zealand’s other meat companies are now assessing their options.
Alliance Group acknowledges SFF vote, but says it is in ‘no way game-changing’ for it
Alliance Group has acknowledged that the SFF shareholder vote gives clarity to the industry but stated it’s own co-operative’s strategy to increase returns for farmer-shareholders was not reliant on the ownership structure of SFF.
“Alliance Group will be the only major red meat co-operative in New Zealand and our focus is on ensuring we make the right decisions to benefit our farmer-shareholders and increase their returns,” said Alliance Group chief executive David Surveyor.
“We have a strategy in place which aims to create more value from the marketplace and improve the co-operative’s operational performance. Over the course of our annual road-show, farmers are telling us they think it’s important they retain ownership of the industry, they want to be in control of their destiny and their membership in our co-operative fulfils this need.
“They also support the co-operative’s purpose that every cent we make is either re-invested back into the business or delivered back to them.”
Farmers will continue to have a choice of where they send their livestock, and as the major red meat co-operative in New Zealand, Alliance is an attractive option for co-operatively minded farmers, says Surveyor.
“This is a decision that has been made by SFF shareholders. We will run our own race and we have a strategy that will deliver significant value to our farmers.
“We have of course extensively evaluated the potential for merger with or acquisition of all or part of SFF just as they have no doubt looked at us over the years.
“In developing our own strategy, we reached the conclusion that SFF is not critical to the co-operative’s plan to grow the business or deliver returns to our farmer shareholders.
“Our strategy aims to maximise returns to committed farmer shareholders by procuring, processing and marketing the world’s best quality red meat products.
“As a differentiated branded seller we will capture this greater market value by getting better at matching our products and markets, continue our leadership in the development of new markets, create more efficient sales channels and invest more in new product development and packaging.
“The investment in SFF may be game-changing for them, but it is by no means game-changing for Alliance Group. Our model is about building a better business and creating value for our farmer shareholders.”
The co-operative has received an encouraging response to its offer to committed farmer shareholders of a loyalty payment if they supply 100 per cent of all their livestock or 100 per cent of one species, he said.