Mark Peart: Big guns must show merger is right for all

I'm pleased to see, looking back on my periodic musings in this space, that my prediction that Pyne Gould Guinness would feature sometime, somewhere, in the ongoing consolidation of the rural servicing sector turned out to be accurate.

What I was surprised at, though, when I heard the news on Tuesday that PGG and Wrightson were planning to merge, was just how much the revelation knocked me back on my heels, so to speak.

It was an announcement that came out of left field and had a definite gee whiz feel about it.

Back in February I wrote here that we could expect PGG to be prominent in further industry consolidation. PGG had just failed at that stage in a joint bid with Fonterra's RD1 to beat Wrightson in the battle of control for Williams and Kettle.

It was dusting itself off after having been knocked to the floor on that occasion.

Subsequent and recent events have confirmed that it may have been down, but that it certainly wasn't out.

I said in February we could expect PGG to be back in the frame and eager to progress further industry consolidation sooner rather than later.

I pointed to how chairman Bill Baylis had been on record about the inevitability of the sector being controlled by a smaller number of larger players. After all, everybody had been talking to everyone else.

But gee, who would have thought things would get that small and that cosy.

The spin being peddled is that this is a "friendly" merger, designed no doubt to avoid customers having to witness more blood on the floor, after what, let's face it, has been a pretty bloody 12 months for the sector, after the vitriol of the Craig Norgate-Baird McConnon bid for Wrightson.

And in an industry where many of the personalities call a spade a spade, it will be interesting to see how an amalgam of directors from two traditionally fiercely competitive camps will cohabit.

Whoever put out the background information which accompanied the merger proposal announcement last week knows what I'm talking about.

I quote: "Whilst the two companies have had different philosophies at times in the past, they are now very compatible. They have similar cultures at the farm gate, at the saleyard and in the community - competing hard, but underpinned by an abiding focus on clients."

And if the companies negotiate the various regulatory hurdles they must overcome to make the merger happen, their clients will surely be on their case to make sure they do just that.

At times, companies have been so busy restructuring, consolidating, and rationalising, they've forgotten that it's the clients who pay the directors and managers, help generate the profits, and provide the capital for expansion and reinvestment in the business.

When Norgate and McConnon took over W&K, it would have been stretching credibility to think they wanted to stop there, when they clearly have a grand vision for the sector.

PGG also would not want to be marginalised. Baylis and co would have reasoned that it was better to be inside the tent looking out, than outside looking in.

Speaking from a purely parochial standpoint, Dunedin has been a big winner in this proposal, and rightly so.

It will house one of two regional offices, the other being in Napier, with the headquarters in Christchurch.

Otago-Southland has been and will continue to be important. It's probably no accident, given the history and regularity of southern rural takeovers that Dunedin won out.

Having shaken things up with their announcement, the two companies now have to demonstrate to everyone that this bold undertaking is in the best interests of the agricultural economy.

* Mark Peart is an Otago-based freelance writer.