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Silver Fern's farmers approve Wrightson merger

Monday 8th September 2008

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The farmers who own Silver Fern Farms agreed to a proposed merger with PGG Wrightson Ltd. that will provide a NZ$220 million capital injection and combine their livestock procurement businesses.

Some 75.62% of votes cast were in favour of the plan, which unlocks the cooperative formed in the shadow of WWII. The proposal needed 75% support to succeed.

"Partnering with PGW is in the best interests of Silver Fern Farms' suppliers, and going forward, the wider pastoral sector," said Eion Garden, the cooperative's chairman and one of the supporters of the plan. "It's about the future of the red meat industry."

The merger requires a sea-change in the behaviour of farmers, who will be asked to agree to supply stock on forward agreements rather than just chasing the highest spot price. Silver Fern wants to get more certainty of supply to win higher prices in year-round overseas markets for chilled meat.

Wrightson shares rose 1.5% to NZ$2.65 and have climbed 40% in the past 12 months, while the benchmark NZX 50 Index fell 20%. The company gains access to procurement turnover at Silver Fern worth an estimated NZ$60 million a year.

The deal will create an enlarged Silver Fern with shareholders funds of NZ$510 million and an equity ratio of about 80%. The strengthened balance sheet may also help it revive talks with rival Alliance Group, which had said Silver Fern was too financially weak to contemplate a broader merger.

The transaction is to be implemented by Oct. 1.

By Jonathan Underhill

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