Chinese eye $100m chunk of Silver Fern

Silver Fern Farms was formerly the Primary Producers Cooperative Society, but rebranded in 2008 and took the value-added route, supplying Silver Fern branded venison, beef and lamb. Photo / NZPA

Ownership of at least 30 to 40 per cent of New Zealand's biggest meat processor, Silver Fern Farms, looks set to pass to Chinese interests in a $100-million deal, say sources.

They said an announcement was due next week, possibly as soon as Monday.

"It's going to the Chinese and it's going to be $100 million," one source said.

"The fact is that they have had two good seasons if you are a beef farmer and two lousy seasons if you are a sheep farmer," he said.

"No one has the readies [cash]."

Under foreign investment rules, Overseas Investment Office consent its required for investments worth more than $100 million.

Silver Fern last year enlisted the services of Goldman Sachs to advise on its options as it looked at raising $100 million to retire debt.

The company, which is a "hybrid" cooperative owned by farmers and outside shareholders, has been holding meetings with farmers on the condition that they sign confidentiality agreements. Dunedin-based Silver Fern Farms has declined to comment to the media.

West Otago farmer Allan Richardson, who with other farmers has called on Silver Fern and the number two meat processor, Alliance, to enter merger talks rather than courting foreign capital, said he understood the company would make an announcement next week.

"There will be an offer on the table and there will be short-term sweeteners added, but in the end it will come down to whether farmers want to be price makers or price takers," he told the Herald.

The company has already made big inroads into its debt.

"They [Silver Fern] are going to be as strong as any other company in the industry, so why put the ownership of the company at risk?" said Richardson. "That discussion [with Alliance] needed to take place - unfortunately it has not."

Richardson said the transaction would have ramifications for Alliance and all the other meat companies.

Silver Fern and Invercargill's Alliance Group are together responsible for processing just over half New Zealand's meat production.

Silver Fern repaid about $100 million in debt in the year to last September. The company had two years of losses - $42.3 million in 2011-12 and $36.5 million in 2012-13 - as it worked its inventory down. It turned in a small profit of $500,000 in the year to September 2014.

For the current financial year, the company has said it is on track to deliver earnings before interest, tax, depreciation and amortisation of between $75 million and $85 million.

As well as debt repayment and plant upgrades, it also wants to accelerate its "value added" strategy to a point where value-added sales exceed a "tipping point" of 10 per cent of total sales, up from 5 per cent now.

Silver Fern Farms was formerly the Primary Producers Cooperative Society, but rebranded in 2008 and took the value-added route, supplying Silver Fern branded venison, beef and lamb.

The meat industry has for several years continued to struggle with issues of overcapacity and competition for stock - made worse by a dwindling sheep population.

Silver Fern's shares were halted from trading on the Unlisted platform last month while the company conducted meetings around the country.

A newsletter sent to farmer shareholders last week said the cooperative expected to conclude the capital-raising process in the next two to four weeks.

In its recent update, Silver Fern said its year-end debt may reduce to a range of $140 million to $170 million, compared with $289 million at the end of last year.

China has already dipped its toes in the water in the southern meat processing scene.

Last year, China's Lianhua Trading Group went to majority control of the relatively small Invercargill meat processor, Prime Range Meats.