The pick-up in takeover activity, particularly across the Tasman, could be a sign the corporate world is gearing up for action.


It is an ideal environment for takeovers and mergers because money is cheap, companies have limited organic growth opportunities and share prices and the New Zealand dollar have fallen.


Shanghai Maling’s proposal to acquire 50 per cent of Silver Fern Farms also reaffirms that Chinese investors are particularly interested in New Zealand’s rural and food-based assets.


Equifax’s recent non-binding expression of interest for ASX-listed Veda is of particular interest on this side of the Tasman because of Veda’s New Zealand connections and its colourful history.


Silver Fern Farms was established in the South Island on September 30, 1948 as the Primary Producers Co-operative Society (PPCS).


One of its main objectives was to counter the British multi-nationals, particularly Borthwick, Vestey and the Co-operative Wholesale Society, that dominated the New Zealand meat export industry.


Farmers believed these multi-nationals underpaid them for their livestock and were capturing most of the meat export profit margin through their United Kingdom distribution operations.


The original farmer shareholders set up PPCS as a marketing company, as they wanted to capture far more of the farm-to-customer profit margin.


PPCS acquired Hawkes Bay-based Richmond Meats in the mid-2000s after an acrimonious takeover battle, and changed its name to Silver Fern Farms in 2008.


On June 30, 2008 PGG Wrightson’s then chief executive Craig Norgate announced in a blaze of publicity that the rural services company had made an unconditional offer to purchase 50 per cent of Silver Fern Farms for $220 million.


According to the press release “the partnership would create an integrated supply chain ‘from plate to pasture’ – with every stage geared to meeting the needs of meat consumers around the world”.


In other words, the PGG Wrightson/Silver Fern Farms partnership would finally achieve the original objectives of the PPCS founders in 1948.


But the deal was struck at the height of the global financial crisis, and PGG Wrightson defaulted on its obligations after it was unable to raise $220 million.


The NZX-listed company had to pay $42 million compensation to Silver Fern Farms and its share price slumped from an adjusted price of $2.05 at the time of the partnership announcement to 60c three years later.


A Chinese consortium made a successful partial offer for PGG Wrightson in 2011 and now owns 50.01 per cent of the NZ rural-based company.


On September 15, Silver Fern Farms announced that Shanghai Maling, China’s largest meat processor, would invest $261 million in the company in return for 50 per cent ownership.


This is 19 per cent higher than the PGG Wrightson offer seven years ago; the NZ sharemarket, excluding dividends, has risen by 23 per cent over the same period.


Silver Fern Farms’ ordinary shareholders will also receive a $35 million (30c a share) special dividend when the Shanghai Maling transaction is completed.


The accompanying press release said the transaction would provide “Silver Fern Farms with significant capability to accelerate its global ‘plate to pasture’ strategy”.


The $261 million cash injection will considerably strengthen Silver Fern Farms’ weak financial position.


However, it is not too difficult to foresee possible events over the next decade or two.


Dunedin-based Silver Fern Farms could crush Invercargill’s Alliance Group and eventually acquire its bitter rival.


Shanghai Maling would then control around 60 per cent of the New Zealand meat export industry and be in a position to capture most of the “plate to pasture” profit margin through its Chinese retail outlets.


If this happens, the founding PPCS shareholders would be turning in their graves as farmer shareholders would have have swapped the much-maligned British multinationals for a Chinese conglomerate.


Silver Fern Farms’ shareholders will receive the full transaction documents next week and this will place them in a better position to make a measured decision.


New Zealand farmers were highly critical of the role played by Borthwick, Vestey and the Co-operative Wholesale Society, and they have to be careful that they are not enticed by a $35 million special dividend and end up in a similar situation with Shanghai Maling.


Meanwhile, Veda’s New Zealand connections go back to Baycorp, one of the NZX’s high-profile companies between 1986 and 2001.


The debt collection company listed on the NZX in June 1986 after the issue of shares to the public at $1 each plus one free option for every two shares. Its ordinary shares and options quickly soared to $8.60 and $7.50 respectively.


The October 1987 crash had a devastating effect on the company as it went through major operating problems, particularly in Australia. Its share price plunged to 2.5c in 1990 as its Australian operations were closed down and the company struggled to survive.


In the early 1990s Baycorp made an amazing recovery under the leadership of Charles Bidwell, Jim Boult and Keith McLaughlin.


Its share price soared to $14 and its sharemarket value to $1.2 billion by mid-2001.


Baycorp acquired a 9 per cent stake in Data Advantage, which listed on the ASX in 1998 and dominated the Australian consumer credit reporting market.


In late 2001, Baycorp and Data Advantage merged and Baycorp shareholders ending up with 58 per cent of the new company. It was named Baycorp Advantage and Roseanne Meo was appointed the first chairperson.


But it was effectively a takeover of the New Zealand company as the head office was moved to Sydney and Data Advantage’s David Grafton was appointed chief executive.


The company was renamed Veda Advantage in 2007 after the sale of its debt collection business, including the New Zealand Baycorp brand.


A few months later, Veda Advantage was bought by two private equity funds, Pacific Equity Partners (PEP) and Merrill Lynch Global Private Equity Fund, for A$810 million under a scheme of arrangement.



These schemes, widely used in Australia, require the 75 per cent approval of shareholders voting at a meeting, whereas a bidder under the Takeovers Code requires acceptance by 90 per cent of all shareholders before it can move to compulsory acquisition.


Veda Advantage bought several companies under private equity ownership, and in 2011 PEP acquired Merrill Lynch’s stake to become the major shareholder.


The company’s senior management held a minority stake.


In late 2013, the company was relisted on the Australian Stock Exchange as Veda Group after an IPO at $1.25 a share.


This valued the company at A$1.05 billion with the public contributing $340 million of new equity and the remaining $710 million of value held by PEP and the company’s management team. The management and PEP did not sell any shares in the IPO.


PEP could have generated a substantial paper profit from the purchase and IPO of Veda because it would probably have borrowed most of the 2007 purchase price.


Veda’s main business is the supply of consumer and commercial credit data in Australia and New Zealand.


The latest Veda listing has been a big success, with PEP selling the last of its shares at A$2.31 in February. Its current share price is $2.66 compared with its IPO price of $1.25 a share less than two years ago.


Equifax’s expression of interest in Veda is a sign that business confidence and corporate activity has picked up, as the large New York Stock Exchange-listed company could have acquired Veda for a much lower price two years ago.


Brian Gaynor

Portfolio Manager

Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.