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Agria in for $104 mln payday in Wrightson capital return

Thursday 4th July 2019

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Chinese agricultural firm Agria will pocket almost $104 million in PGG Wrightson's $234 million capital return.

The Christchurch-based company has called a special meeting on July 23 for shareholders to vote on whether to support the proposal. The scheme of arrangement, which will also need High Court approval, would see Wrightson undertake a two-for-one share split, followed immediately by a 31 cent payment per share to cancel one of every two shares. 

The practical effect of the transaction is that investors would end up with the same number of shares and receive a 31 cent per share payment, which won't be treated as a dividend for tax purposes. 

Wrightson said it has already got initial court orders relating to the scheme and expects to complete the deal around Aug. 2. 

“The proposed capital distribution was initially announced by PGW back in August 2018 when agreement was reached to sell the seed and grain business to DLF Seeds," chair Rodger Finlay said in a statement.

"Accordingly, shareholders have been anticipating the distribution and it is timely to now be able to put that decision to a vote." 

The rural services company always intended to return a portion of the proceeds to its shareholders after booking a $120 million gain on the sale of the division. DLF paid $413 million for the Wrightson unit and took on $21 million of net debt. Wrightson initially flagged a return of up to $292 million.

Cornerstone shareholder Agria will be paid $103.7 million, while the Cushing family's interests will receive about $6.2 million. The Cushings have re-established a direct involvement in the firm since buying a small stake from Agria. David Cushing took a board seat in April. 

Agria has ceded control of Wrightson since settling with the Overseas Investment Office when the good character of its principal, Alan Lai, was called into question. Last year, Agria and Lai settled fraudulent accounting and market manipulation claims brought by the US Securities and Exchange Commission, without admitting or denying the charges.                             

Provided the scheme goes ahead, a one-for-10 consolidation will then reduce Wrightson's issued shares to about 75.5 million from 754.8 million. 

The shares last traded at 53 cents for a market value of $400.1 million. The notice of meeting puts a $399.9 million value on Wrightson's equity as at May 31, and estimates it will be about $165.9 million after the capital return. That implies a per share equity value of 22 cents before the one-for-10 consolidation and $2.20 thereafter.

Wrightson's operating cash flow is forecast to be $20-$30 million for the year ending June 30, 2020, which it anticipates will be enough to cover capital expenditure and dividend payments. 

The company is forecast to have core debt of $25-$50 million over the 2020 financial year and may need up to $70 million for working capital, which peaks between October and January when selling spring inputs to farmers. 

Finlay said the company recently entered into a new banking facility on "very competitive" terms. 

Shareholders will also be asked to vote on changes to the constitution to comply with new NZX listing rules. 


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