Finance crucial to Affco

By PHILIPPA STEVENSON agricultural editor

Meat company Affco's bid to raise $26.9 million in a rights issue is critical to the company's future, says an independent adviser's report.

In a report to the company's small shareholders, Deloitte Corporate Finance said without the capital raising Affco's drive for efficiency and profitability was likely to stall.

"Affco will also come under increasing pressure from its debt providers to decrease its seasonal debt," the advisers said.

"The level of Affco's financial leverage is such that raising further debt is not feasible."

Major shareholders Talley's Fisheries, which owns 19.9 per cent, and Peter Spencer's Toocooya Nominees, with 18.7 per cent, could respectively raise their holdings to a controlling 35 per cent and 25 per cent by underwriting the issue.

"At these shareholding levels, either shareholder could effectively block special resolutions single-handedly," Deloitte said.



If they took all the additional shares agreed in underwriting agreements, Talley's would add $8.2 million to its existing $5.4 million investment in Affco, and Toocooya would put $3.4 million on to its $5.1 million subscription.

The third-largest shareholder, Hugh Green Investments, with 10 per cent, had indicated its support for the rights issue.

Affco's small shareholders - mainly supplying farmers - could prevent Talley's and Toocooya getting effective control of the company at a discounted price by taking up their own rights entitlements, the report said.

They will also get their say at a special meeting on August 23 where, under the Takeovers Code and Stock Exchange listing rules, the board is seeking approval for the underwriting agreements because they could result in the major shareholders each holding more than 20 per cent of the company.

Affco reported a loss of $14.7 million for the half-year to March, compared with a $752,000 profit for the same period last year.