Dunedin-based meat processor's joint venture with Chinese firm will see the New Zealand company debt free by year-end.
Silver Fern Farms shareholders have voted strongly in favour of a 50/50 joint venture with China's Shanghai Maling Aquarius, which will give the Dunedin-based meat processor a $261 million capital injection and make it debt free by the end of this financial year.
The motion was carried by a majority of 82.2 per cent at a special meeting at Forsyth Barr Stadium in Dunedin. A competing motion, which sought support to require the board to undertake an analysis of a merger with neighbouring Alliance Group, was voted down by 76 per cent.
Silver Fern Farms - which has in the past sailed close to the wind with its borrowings - said the deal would make it debt free and would put money in the bank by the year's end.
The deal is subject to approval of Shanghai Maling's shareholders, and to regulatory approvals from New Zealand and Chinese authorities.
Shanghai Maling, a listed company based in Shanghai, is 38 per cent owned by the state-backed Bright Food Group.
Silver Fern Farms chairman Rob Hewett said shareholders throughout the country had shown support for the proposal since its inception, with many calling it "the breakthrough initiative" the company had been seeking in recent years.
The company has struggled in recent years with a high debt load, caused in part by a collapse in sheepmeat prices in 2013. Several other factors have made the sector difficult, including a sharply declining sheep population, competition for land use from dairy, competition for stock and overcapacity.
"We think it's a game-changer for the company and a defining point for the industry," company chairman Rob Hewett told the Herald.
The deal involves Shanghai Maling investing $261 million for a 50 per cent share of Silver Fern Farms' business, in partnership with the existing Silver Fern Farms Co-operative.
The investment will provide significant financial capability to Silver Fern Farms' global "plate to pasture" value-added strategy as the enterprise tries to move away from what has been up until recently a purely commodities-based model, the company said.
Hewett said the extensive retail and distribution assets of Shanghai Maling and the broader Bright Food Group in China would give the company an opportunity to establish itself as the premium red meat brand in what is the world's fastest growing protein market.
He said the company's finances in the past had caused some suppliers to question its ability to pay.
"The strength of the balance sheet now means that that is a non-argument," he said.
We think it's a game-changer for the company and a defining point for the industry.
A plan put together by a group of agribusinesses to underwrite a shareholder capital raising did not gain any traction while the Shanghai Maling proposal was on the table.
Silver Fern had previously gone to its farmer shareholder base in 2010 in a bid to raise $100 million but raised only $23 million, Hewett said.
"There is no such thing as bad equity, in terms of the country that it comes from. It's all in the terms of the deal and the Shanghai Maling deal is strategic on a number of levels," Hewett said.
At neighbouring Alliance Group - the country's biggest sheepmeat processor, chief executive David Surveyor, who has just completed a nationwide roadshow for farmer shareholders, said it would be business as usual.
"Over the course of our annual road-show, farmers are telling us they think it's important they retain ownership of the industry, they want to be in control of their destiny and their membership in our co-operative fulfils this need," he said.
"This is a decision that has been made by Silver Fern Farms shareholders," Surveyor said. "We will run our own race and we have a strategy that will deliver significant value to our farmers."
Alliance has already considered merging with Silver Fern but found that such a move did not fit with its strategy, Surveyor said.
Allan Richardson, who with other shareholders tried to steer the company back to considering a merger with Alliance, said the battle had been lost.
"There has been a lack of profitability in the industry for many years and farmers have perhaps forgotten why co-ops existed," Richardson said.
"New Zealand has been great at selling its strategic assets offshore, and at some stage that might come back to bite us on the arse."
