Decision time for Wrightson investors

By Duncan Bridgeman

Thursday 8th April 2004

The big question for Wrightson shareholders is whether Craig Norgate can succeed in his bid for control of the company. If not, Rural Portfolio Investments (RPI), the company Mr Norgate half owns, is threatening to exit its shareholding in Wrightson.

After a bungled attempt to get to 20% last year, RPI had to settle with a 13% stake in the rural services firm.

Now it wants to buy an additional 37% at $1.50 a share a 21% premium to Wrightson's closing price of $1.24 before the offer announcement.

First New Zealand Capital analyst Andrew Mortimer said that at first glance the offer appeared reasonable taking into account the industry expertise RPI would bring to Wrightson.

"Six months ago our view would have been unlikely [RPI could gain control], however, since then profitability has declined and the dividend has been cut ... in our view the price offered is not wide of fair value."

But Goldman Sachs JB Were said the offer price was 16% below the broker's $1.79 discounted cashflow valuation.

"We view this as an opportunistic attempt by RPI to gain a seat at the Wrightson table at a time when the business is not performing to its potential and the operating environment is challenging [droughts, flooding, and the high New Zealand dollar]."

Mr Norgate said Wrightson's recent trading results were disappointing and had forced RPI to take action to protect its initial investment. RPI initially paid $1.45 for its 13% stake.

"Certainly if it was worth $1.45 four months ago it's not worth that today, but we've had to be a bit realistic about what we think it will take to get to the 50.01%."

Dairy giant Fonterra, which ousted Mr Norgate as chief executive last year, said it would not be selling its 19.9% stake in Wrightson.

Fonterra not selling its holding raises the possibility of a counter bid for control of Wrightson, which could force RPI to increase its offer.

However, analysts say the likelihood of a competing bid is unlikely, given that Wrightson would not necessarily fit into Fonterra's renewed focus on dairy products.

British investment fund Marathon is the only other major shareholder with 7.9%.

Mr Norgate said he would be comfortable with 50.01% and RPI had ruled out a full takeover because major shareholders might not wish to exit.

RPI intends to offer three payment options for investors, including cash, redeemable preference shares or a mix of the two. The issue is intended to be underwritten to $85 million, with the right to accept over subscriptions of a further $15 million.

Mr Norgate said the balance would be retained for any Wrightson capital requirements and "other opportunities."

"We wouldn't see it as promised land; we just see it as a sector we are comfortable with."

Mr Norgate owns RPI with Otago's McConnon family, the name behind the development of the Mainland dairy company eventually sold to Fonterra in 2002.

Mr Norgate said he expected to join the Wrightson board with RPI chairman Baird McConnon if the partial takeover bid was successful.

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