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PGG and Wrightson announce intention to merge

Media release

Tuesday 5th July 2005

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The Boards of Pyne Gould Guinness Limited and Wrightson Limited have agreed on terms for a merger of the two companies and will put a merger proposal to their respective shareholders for approval as soon as is practicable.

The chairmen of both companies - Bill Baylis (PGG) and Keith Smith (Wrightson) - said both boards were unanimously in support of the proposal.

The merged company - PGG Wrightson Limited - will retain the operational strength and breadth of its predecessors, providing specialised services and products built on a long history of close involvement in the rural sector.

'Looking ahead, both of our companies see agriculture as continuing to play a pivotal role in New Zealand's economy," Baylis and Smith said today. "PGG Wrightson is founded on the premise that New Zealand agriculture must 'punch above its weight' if it is to succeed in the face of intense and growing international competition. The company's goal will be to deliver a new level of performance to help its clients respond to the competitive pressures they will continue to face.

"A strong national rural servicing business will be in a better position to achieve this than a highly fragmented industry. PGG Wrightson's prime purpose will be to make a positive difference to the profitability and sustainability of our farmer clients' businesses."

Under the proposal approved by both boards, the merger will see Wrightson being merged into PGG to become PGG Wrightson, which will remain NZX listed. PGG will issue new shares to Wrightson shareholders to effect the merger. The share issue will be based on a formula reflecting the valuations agreed by the boards for the merging companies. Wrightson shareholders will receive approximately 1.028 PGG shares for every Wrightson share they currently hold, dependent on any capital changes or changes in equity.

A scheme of arrangement will be put to the shareholders of both companies for approval at special meetings, likely to take place in early September. There will also be other conditions that will need to be satisfied for the merger to proceed.

The cornerstone shareholders in both companies - Pyne Gould Corporation Limited (PGC), which holds 55.4% of PGG; and Rural Portfolio Investments Limited (RPI), which holds 50.01% of Wrightson - have indicated that they support the proposal in principle. They will respectively hold 22% and 30% in the merged company.

If the proposal proceeds, PGC and RPI will have a Shareholders Agreement between them covering standard areas of governance and consultation, and including a pre-emptive right in the event that either party should desire to sell shares in the merged company. Securities to be issued as part of the merger are not guaranteed by PGC, RPI or any other parties.

PGG Wrightson will be represented throughout New Zealand, and also in Australia and South America. The Corporate Office will be in Christchurch, and there will be administrative centres in Dunedin and Napier and branches in centres throughout New Zealand.

All the businesses in the current operating portfolio are intended to be retained, so that the company will have leading positions in Livestock, Wool, Rural Supplies, Grain, Seeds and Nutrition, Irrigation, Finance, Real Estate, Insurance, Consultancy and Training. The strength of the merged company will support further investment in new technology and research directed at providing better products and more professional service to clients.

"Both boards recognise that the strength of each business will be based on the quality and commitment of the new company's staff, and their relationships with clients," Baylis and Smith said. "Accordingly, all field staff will be retained in the merged company. As the company develops and progresses, staff will gain the benefits of enhanced career and personal development opportunities, arising from business expansion and innovation."

In total, PGG Wrightson will employ approximately 2,700 people. The strength of the merged company's New Zealand base will provide an excellent platform for development in key offshore markets.

Based on pro forma financial data, the company will have an initial turnover of $1.1 billion and total assets of almost $900 million. The merger is expected to result in synergies of approximately $10 million in the 2005-06 year, which is expected to be offset by a similar magnitude of associated costs. Synergies of approximately $20 million are expected to flow through to earnings in the second year.

Under the proposal, the merged company will have a 12-person board of directors, chaired by Baylis. A search process for the chief executive officer will be commenced immediately, with the existing ceos of both of the merging companies expected to be leading candidates. Until that process is completed, Baird McConnon will be interim managing director.

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