Opinion: Norgate's plans for Wrightson to be revealed soon

By Simon Louisson of NZPA

Friday 25th June 2004

Craig Norgate, the former Fonterra boss, whose Rural Portfolio Investments (RPI) won control of Wrightson this week, has been castigated in some quarters as a man without a plan.

His constant refrain has been that he had no predetermined plan and would listen before acting.

"Strategic direction, vision and philosophy - that's the level we work at. Detailed plans are for management," he said.

Norgate and partner Baird McConnon, former owner of the Mainland brand, have said the reason for their interest in Wrightson is that they think it has not been run well and improvements can be made.

Analysts doubt they have spent the thick end of $120 million without a good notion of where they plan to take the 160-year-old icon company.

"I would have thought Norgate had very definite plans," Forsyth Barr Frater Williams analyst John Cairns said. "He paid a very full price and I would think he would be moving very quickly to implement whatever plans and strategies he's got.

"For a person to spend that amount of money he would obviously be moving very quickly to address whatever shortcomings he sees in the business."

The latter obviously includes Wrightson's rural supplies business, which Norgate has described as an "absolute dog".

The fate of Wrightson's eleventh hour attempt to fend off RPI by announcing it was well advanced in merging its rural supplies unit with Fonterra's RD1 is unclear.

Most analysts doubt a merger, given the two companies have had over two years to implement it. It is even more doubtful after Fonterra, seeing RPI was succeeding in its bid, changed it mind and decided to accept the offer for its 19.2% Wrightson stake.

First to change will be the board which met today. Norgate has indicated RPI wants four of the seven seats. Given his bitter and trenchant resistance, chairman John Palmer can certainly expect to go and probably wrote his resignation today.

Also down the road, is likely to be chief executive and managing Allan Freeth who made his opposition to Norgate and RPI totally clear. The fight turned ugly at times and Freeth can hardly expect to survive.

Norgate has said he does not want to be chief executive although it is clear he and McConnon will be hands-on directors. Just what sort of termination provisions Freeth has will be interesting to see.

Another early change is that Wrightson is now likely to sell its 15.4% stake in biotech and agri-research company Genesis Research. Wrightson has already lost half of its $5.3 million investment and Norgate has clearly signalled he does not consider Genesis integral to Wrightson's future.

While Wrightson has considered its seeds division one of its crown jewels, Norgate has knocked Wrightson's plans for the division as "aspirational" compared with competitors PGG and Williams and Kettle who had simply "stuck to their knitting".

RPI vaguely detailed its plans in its prospectus and investment statement. It said it would launch a "comprehensive strategic review", something Wrightson employees, shareholders and clients have been all too familiar with in recent years, having enduring almost continuous upheaval.

The takeover documents stated that after Norgate and McConnon had secured places on the board they intended to initiate a review of all businesses, strategies, capital and debt requirements, general efficiencies and distribution policies.

When complete, they will seek to implement the recommendations in whole or in part.

However, analysts warn Norgate to tread carefully implementing the shake-up. He was not Mr Popularity for the way he ran Fonterra, which was seen under his leadership as an arrogant free spender that was out of touch with farmers.

Former Wrightson Greg Kay learnt the hard way about alienating many of his staff and clients by implementing what seemed a sensible plan in a clumsy way. Clients and money walked out the door at Joe Rokocoko speed.

On the other hand, analysts believe Wrightson needs a cornerstone shareholder to drive the company harder and lift it out of cruise mode.

Just how Wrightson manages its relationship with Fonterra will be interesting to watch. There is obviously little fondness at Fonterra for its former boss. Fonterra made it clear it did not want RPI to succeed.

Because of the level of scaling of acceptances for the offer, which at press time had not been revealed, Fonterra is likely to be stuck with about a 7% stake. It is likely to sell that as soon as it can without depressing the price too much. Fonterra is still likely to profit as it only paid $1/share.

Norgate et al would also do well remember that they have only 50.01% control and there are still 15,000 other shareholders. They will not be able to treat it as their private company.

In general, it seems the Takeovers Code for a partial takeover such as this worked much better than the previous unregulated regime.

However, Michael Couillault, of institutional investor Fisher Funds complained that Fonterra's reversal of its earlier public position exposed a "glaring hole in the code.

One institutional investor claimed investors were misled.

Its eleventh hour acceptance dramatically changed the outcome for "mum and dad" investors who sold into the offer, he said.

Because RPI is likely to have to scale back acceptances, those accepting the RPI offer will be left with about 40% of their shares.

However, no rules were broken and it is not clear why Fonterra shouldn't have the same right to sell into the offer as others.

RPI was yesterday whipped on the hand with a wet bus ticket by the Securities Commission for two technical breaches of trading and disclosure rules. Those breaches were minor, but possibly of more importance was the messy way in which the sale of the key 7.9% Wrightson stake held by Marathon Asset Management was revealed to the market last week.

NZPA knew of the sale before it was announced to the stock exchange. The Securities Commission is conducting a separate investigation into this. On the evidence NZPA had, it seems all parties - Marathon, RPI, and the exchange - could have been quicker and clearer about publicly disclosing the sale.

The results of the investigation are unlikely to change the outcome.

Wrightson shares have held up remarkably well since the RPI bid expired. Any takeover premium for the stock is now lost. Despite a valuation of $1.61 to $1.86 put on Wrightson by corporate valuer Grant Samuel, RPI, which originally bid $1.50, has stuck to the line that its $1.65 price was too rich. It should be remembered Wrightson shares were trading at $1.24 before RPI made its bid.

And shareholders can thank Norgate for the special 9c/share dividend announced this week as a result of his victory.

Whether he succeeds in turning Wrightson into the $2 stock Palmer and other directors believe it is, will be interesting.

Analyst John Cairns said the old Wrightson management had promised often but not executed and the company underperformed its peers.

"They have had plenty of time to do something. It's up to the new guys to see if they can achieve anything. Whether they are successful or not, I don't know."

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