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PGG Wrightson's Craig Norgate says he hopes to know by the end of the week if his $220 million plan to buy half of New Zealand's biggest meat company can be salvaged.
The global financial crisis yesterday derailed the biggest business deal being done in New Zealand.
The Norgate-led rural services business was forced to pull plans to buy half of meat processor Silver Fern Farms after the banks providing finance backed out at the last minute.
NZX-listed PGG Wrightson had agreed to buy half of Silver Fern Farms for $220 million through a mixture of capital raising and debt, with $145 million due on Tuesday and $75 million due by March.
Norgate, PGG Wrightson's chairman, said a number of banks that committed to fund the deal had been unable to finalise credit approvals in time for the part-settlement.
"This is entirely a function of the extreme financial market conditions and their impact on banks lending capacity in the current environment," Norgate said.
"They [banks] had the opportunity to review things and with what happened in the US on Monday night that was just too hard on the day."
PGG Wrightson would revisit the matter with all parties and endeavour to resolve it as quickly as possible.
However Norgate said the delay was likely to be weeks rather than days.
"Whilst there's reasonable prospects that we can get it done, in the current market environment you just have to say that there's risks," he said.
Conditions in New Zealand's rural sector remained strong, he said. Market commentator Arthur Lim said it was not surprising the deal ran into difficulty.
"As I think we've seen over the last three weeks the credit markets and the financial markets are getting tougher and tougher by the day."
The PGG Wrightson deal was one of the biggest deals under way in New Zealand, he said.
"In times like this only the ultra, super-good deals and safe deals I think get done."
PGG Wrightson would continue discussions but the deal proposed needed the financial markets to come back into sync, Lim said.
"That's where realistically I think it's going to be next year rather than this year."
The partnership with Silver Fern was promoted as creating a pasture-to-plate supply chain and a platform for rationalisation in a sector in which sheep farmers have had three years of low returns.
The deal would have been partly funded by a placement of $78 million worth of new shares and a retail offer fully underwritten to $32 million.
The money raised through the placement was given back yesterday and the retail offer has been deferred.
PGG Wrightson would have to re-do the capital-raising exercise if the deal went ahead and was talking to Silver Fern Farms and the banks.
The deal squeaked through a Silver Fern farmer vote with 75.6 per cent support, 0.6 per cent above the threshold, and the new firm had been planned to be in place by yesterday.
Silver Fern Farms chairman Eoin Garden said the environment was a challenge for many businesses.
"We're just progressing down through this month and have an expectation that we'll be able to consummate the deal," Garden said.
Dunedin-based Silver Fern Farms was comfortable with its position regardless of the deal, he said.
"I suppose it was one of the reasons why [PGG Wrightson] was attracted to the business is that we had got ourselves into a very solid position," Garden said.
"The end of this financial year will show a very satisfactory result and good, strong balance sheet."
The company has said it expected borrowings for the year ending August 31 to be $230 million, down from $330 million the previous year.
Meat & Wool New Zealand chairman Mike Petersen said the PGG Wrightson deal would not of itself be a panacea for industry rationalisation.
"The world has got so uncertain credit-wise I don't think anyone's going to be rushing and expending any money," Petersen said.
Meat & Wool said the export slaughter for the season starting on October 1 was expected to be down 9.3 million animals.
"We're going to see some real pain in the industry side of the sector in the next 12 months which I think will probably hopefully speed up those talks around rationalisation," Petersen said.
PGG Wrightson shares closed up 29c at $1.89 yesterday.
