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Silver Ferns open letter forces merger question onto Alliance AGM agenda

Wednesday 27th October 2010

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Alliance Group’s shareholders will consider the potential for a merger with Silver Fern Farms at their annual meeting in December though chairman Owen Poole says such a deal lacks merit.

Silver Fern made a direct approach to the rival meat company’s shareholders, seeking support for an independent evaluation of an amalgamation that would create a business with about half the nation’s red meat market.

Silver Fern chairman Eoin Garden advised Poole of the move by email last Friday after releasing an open letter addressed to shareholders of the two companies. There followed a phone conversation where Poole told Garden he was “extremely disappointed” at the tactic.

Poole told BusinessDesk that Silver Fern made an approach earlier this year and was rebuffed because “the risks exceeded the benefits.” Silver Fern “were clearly miffed with that.” Alliance’s board has now sent its own letter to shareholders setting out its views.

Alliance’s main concern is that a merged company with 50% of the market still wouldn’t be large enough to change market behaviour “onshore or offshore,” Poole said.

“History has shown that aggregation of insufficient size has been tried and failed,” Poole says in the letter.

He said Silver Fern had “lost significant supplier support, and accordingly, has experienced dramatic market share loss” since first seeking to acquire former North Island-based meat processor Richmond in 2002. That deal was completed in 2004.

“Under a merger proposal, AGL shareholders would be required to rationalise the industry’s structural over-capacity which currently, is largely held by SFF,” Poole said in the letter. He doubted there would be a definitive response from Alliance shareholders to Silver Fern’s informal poll.

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