Norgate bid casts doubt on Genesis stake

Duncan Bridgeman

Friday 23rd April 2004

Wrightson looks set to dump its 15.4% stake in biotech firm Genesis Research if Rural Portfolio Investments (RPI) is successful in its partial takeover bid.

Analysts said the move was likely after Craig Norgate's RPI outlined in an investment statement plans for a strategic review of the rural services company.

"[Genesis] is not a key value driver for Wrightson and it has taken a hit," said an analyst who asked not to be named.

While a selldown would not be a major deal for Wrightson, which has a market capitalisation of about $230 million, it would be significant for Genesis.

The company has enough cash to survive just two more years unless it can significantly reduce costs or boost revenue. It said recently it was looking to merge with other Australasian companies to attract investors.

Genesis reported a loss of $12.7 million for the year to December 31. Revenue was $9.9 million down from $15.5 million. Wrightson last year equity-accounted $700,000 of Genesis' loss.

RPI, an investment vehicle for former Fonterra chief executive Craig Norgate and the McConnon family of Mainland Cheese fame, said it intended to review Wrightson's business and policies, including strategies, capital and debt requirements, general efficiencies and distribution policies.

RPI confirmed Mr Norgate and Baird McConnon would seek board representation if its $1.50-a-share bid for control of Wrightson was successful.

Mr Norgate said he could not elaborate on the specifics of RPI's intentions until the existing Wrightson board and management gave him an insight into what their current strategy was.

"While [Genesis] has had quite an impact on [Wrightson's] equity accounted earnings I don't think it's a material part of the overall Wrightson business."

Wrightson paid just over $5 million for its Genesis stake, or $1.31 a share.

At 4pm yesterday Genesis shares were trading at 77c.

"The issue is if [RPI] do get control, whether they want to go down that biotechnology human capital kind of path and put resources into that area," Forsyth Barr analyst John Cairns said.

Genesis chief executive Jim Watson was overseas and unavailable for comment before press time.

Mr Watson has said the two companies had targeted a number of areas, including grass nutrition, to improve livestock productivity.

Wrightson, which has its own profitable seed business, has had a long association with Genesis. But it has not really explained how this was enhanced by its acquisition last year of Genesis shares, other than saying it "strengthens [our] ability to secure value from new biotechnologies."

Linked to this is Fonterra's 19.9% Wrightson stake. The dairy giant maintains it will not sell its shares and is likely to be opposed to RPI gaining control. This has led to speculation that Fonterra might look at a counter bid for Wrightson.

In 2001 Fonterra subsidiary RD1 paid $1 a share to acquire its 19.9% stake from Sir Ron Brierley's Guinness Peat Group.

RD1 said at the time it wanted to be a supportive Wrightson shareholder but the tie-up with Genesis is seen as a key part of Fonterra's pasture genetics strategy.

However, analysts question whether Fonterra intends to be part of the rural services industry, which some say is set for amalgamation.

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