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Independent adviser Grant Samuel rolled out again to back Silver Fern Farms deal

Friday 22nd July 2016

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Silver Fern Farms has got Grant Samuel to back its proposal to sell half its meat processing assets to China's Shanghai Maling Aquarius ahead of a second shareholder vote, which the board will ignore if support for the deal evaporates. 

In the notice to shareholders of the Aug. 12 meeting in Dunedin, Grant Samuel again said the terms of the transaction were "fair and reasonable" to shareholders, with the meat company still "undercapitalised and a financial restructuring is critical to its future." The transaction was supported by shareholders at a meeting last year, but 80 dissident investors led by John Shrimpton and Blair Gallagher forced a second vote, claiming it wasn't in the best interests of the company. 

Among those objections was that the earlier vote didn't classify the deal as a major transaction under company law, which is an agreement involving assets totalling half the value of a company. Grant Samuel said the Shanghai Maling deal didn't constitute a major transaction because "the aggregate market value of the gross assets transferred from SFF Co-Op to its subsidiary companies falls within the range of $200 million to $215 million," which is less than half the independent adviser's assessment of the meat processor's market value. 

The deal would see the meat processor's assets poured into a new company half-owned by the Chinese firm in return for $261 million of cash to repay bank debt, a special dividend, and funds to bankroll the cooperative for seven years.

"We are frustrated and disappointed that Messrs Shrimpton and Gallagher have encouraged a small group of shareholders to question the approval obtained last year, that they have required the cooperative to hold this further special meeting, and that they are continuing to agitate for the transaction to fail," chairman Rob Hewett said in a statement. "Subject to Overseas Investment Office approval, Silver Fern Farms is bound to complete the transaction with Shanghai Maling. This meeting – whether the resolution is passed or not – cannot change that."

The special meeting was pushed out a month after delays to OIO approval raised speculation Shanghai Maling would walk away, rumours which were later allayed when the Chinese firm agreed to a three-month extension on the deadlines for certain conditions. The meeting will now take place before a potential OIO decision. 

Silver Fern Farms this week said it would only breakeven in the current financial year, having previously warned profit would "materially below" the pre-tax earnings of $27.2 million in 2015. 

Hewett said the company's "disappointing financial performance this year illustrates again the volatility of the industry and the risks associated with our current capital structure" and that the status quo wasn't tenable. 

"The board believes Messrs Shrimpton and Gallagher do not appreciate, and so are not fairly or accurately representing, the prospects and risks of any refinancing and restructuring the cooperative would need to undertake should the Shanghai Maling investment not proceed," he said.

BusinessDesk.co.nz

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