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$434M sale of Wrightson's seeds fair to minorities

Friday 12th October 2018

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Danish cooperative DLF Seeds' $434 million cash and debt bid to buy PGG Wrightson's seeds unit is fair to minority shareholders, independent advisor KordaMentha says. 

Wrightson's 12,059 shareholders will vote on the deal at a combined annual and special meeting on Oct. 30 in Christchurch. The transaction needs 75 percent support to go ahead, meaning controlling shareholder Agria can't force it through.

While Agria hasn't given an irrevocable undertaking to vote in favour, independent adviser KordaMentha said it's highly likely they'd support it given Wrightson's board unanimously recommended the resolution. 

KordaMentha valued Wrightson's seeds unit at between $377 million and $441 million with a midpoint of $409 million. DLF has offered to pay $413 million in cash and assume or repay $21 million of debt. It would also sign distribution, brand and shared services agreements with Wrightson. 

The independent advisor's report said there were risks to the seed unit's ability to grow earnings and widen margins, with inconsistent performances from the Australian and South American divisions often due to events beyond management's control, such as weather. 

KordaMentha said the transaction was fair to Wrightson's minority shareholders. 

The transaction needs shareholder support, Commerce Commission and Overseas Investment Office approvals, and change of control consents from its joint venture partners. The parties have until Aug. 4, 2019 to satisfy those conditions. 

The Commerce Commission yesterday released its statement of preliminary issues on the proposed transaction. That indicated a focus on whether the deal will limit competition in the forage and turf seeds markets, and whether it will encourage greater coordination by the remaining players. 

Wrightson's board, chaired by Agria's Alan Lai, recommend investors support the transaction, saying it was the best option to emerge from the firm's strategic review. DLF's offer price was also compelling relative to Wrightson's internal valuation of the seeds business. 

If it gets approval, the board said Wrightson plans to return up to $292 million through a share cancellation. The remaining cash will repay debt and fund capital expenditure. Wrightson will probably need to shrink its corporate head office and the smaller business may attract less analyst and investor coverage. 

KordaMentha noted the board is continuing its strategic review of the rest of the rural services business, and it's likely debt will be materially lower, reducing risk on the balance sheet. 

Wrightson yesterday said it expects operating earnings of about $70 million in the year ending June 30, similar to what it reported for the 2018 financial year. That forecast includes the seeds business. 

First NZ Capital research analyst Jack Crowley said the forecast implied flat earnings from the residual businesses. The brokerage is restricted in its research coverage because it's Wrightson's joint adviser in the strategic review. 

Wrightson shares rose 1.7 percent to 60 cents, valuing the company at $452.9 million.

(BusinessDesk)

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