Meat giants square off to settle business battle in court

Two of the nation's biggest meat companies will square off in the High Court at Christchurch tomorrow to settle a bitter five-year battle.

The complicated court hearing could hold the seeds of destruction for either Hawke's Bay's Richmond Ltd food company, or for the leaders of the Dunedin-based Primary Producers Cooperative Society (PPCS).

At the heart of the hearing will be a range of disputed claims, including allegations that PPCS did not comply with a requirement to divest itself of Richmond shares when required under its constitution, and did not disclose continuing interest in shares and alleged "irregular" involvement where PPCS gave financial assistance to an earlier company acquiring Richmond shares.

One possible outcome which PPCS will be seeking to avoid in the hearing will be the risk of being required to forfeit some or all of the shares in its disputed holding in Richmond.

And for Richmond and the hard core of shareholder farmers who have been battling takeover by the southern meat company, failure in the hearing will enable PPCS to use the controlling stake it has already built up in their company.

The web of litigation to be sorted out this week has its origins in the meat industry rationalisation between 1986 and 1990 when Richmond was forced to re-organise its balance sheet. The Meat Board took a 33.4 per cent stake in the company, which it later held at arms length in a subsidiary, Primary Resources Ltd.

But in 1997, when the Meat Board was notching up multi-million dollar profits when farmers complained their own businesses were suffering hard times, it decided to sell off its stake.

The timing was not good for Richmond, which had 1700 shareholders -- including 500 staff -- but only nine of them had stakes of more than 1 per cent in the company. One is PRL and the next biggest held 3.5 per cent.

Many of the small shareholders were Hawke's Bay farmers and their families, who would be outgunned by a shareholder with a block vote of 33.4 per cent.

Richmond said its 24 million shares had a value of $3.70, each based on asset backing of $174 million and the Meat Board indicated it would entertain share bids in the $1.85-to-$3 range for its 8.1 million shares.

But purchase proposals from both Affco and PPCS did not win over Richmond shareholders. They feared that if Affco took over the shares it would dominate meat processing in the North Island, and they worried that there would be little benefit in being controlled by PPCS.

So in December 1997, Richmond obtained an injunction to stop the sale of the Meat Board shareholding to either PPCS or Affco on the basis that Richmond had been promised a say in who received its shares.

In February 1998, Richmond was approached by HKM Holding Nominees No 1 Ltd (Alan Haronga, Arama Kukutai and Paul Morgan) to buy the Meat Board stake as a "Maori investment company".

Controversy set in when in February 1999, PPCS announced it had bought a one-third stake in HKM, with an option to take up another third. Richmond shareholders were later to claim no notice and pause procedure was followed as required by the company's constitution.

In July 1999 PPCS told Richmond it was buying the second 33 tranche of HKM.

In August 1999 an extraordinary general meeting of Richmond held to approve its takeover of the Waitotara meat company looked likely to be blocked by HKM/PPCS and the next biggest shareholder, Toocooya Limited (owned by Peter Spencer) but the deal went through on the back of a 98 per cent turnout of Richmond shareholders. By January 2000, PPCS had boosted its stake in HKM Nominee, to 67 per cent. HKM had about 25.5 per cent of Richmond at the time, after its initial shareholding had been diluted by the issue of new shares.

At the same time, Richmond's chairman, local farmer Sam Robinson, was replaced by Auckland accountant Bob Croker, and HKM director Paul Morgan resigned, his seat taken by PPCS chairman Jim Pringle -- five weeks after an annual meeting in December, when such moves had not been mentioned.

Richmond farmers organised resistance, and in March 2000 set up the Richhold Company Ltd to aggregate farmer shares for block voting.

It also alleged that PPCS had not complied with the Richmond constitution because it failed to give notice of its intention to acquire more than 20 per cent of Richmond before making its acquisitions of HKM. Mr Croker announced in June 2000 that Richmond directors, after taking legal advice, had decided that the PPCS shares were "defaulter securities" because of the breach of clause 11.1 of the Richmond constitution, and should be sold.

The decision meant that the total shareholding of PPCS and HKM, about 13.8 million shares, had to be sold to independent parties within a month.

In July 2000 PPCS sold its shares to Hawke's Bay Meat, owned by Active Equities Ltd (AE) -- whose principals were former Brierley executives Paul Collins, Bruce Hancox and Patsy Reddy -- by a tender process in which it beat Talleys Fisheries.

In May 2001 PPCS made a stand in the market for 5 per cent of Richmond shareholding, and purchased Mr Spencer's (Toocooya Nominees) interest (9.9 per cent), taking its total shareholding to 16.7 per cent. It then announced it intended to acquire up to 60 per cent of Richmond at up to $3.65 per share, and later changed the target stake to 43.26 per cent.

At the end of May, North Meats Ltd (the local arm of UK giant Bernard Matthews) sought to acquire up to 60 per cent of Richmond, and the two suitors duelled over the bid price through June.

One June 12 2001, an injunction application filed by a Richmond farmer supplier sought to restrain PPCS's acquisition of Richmond under the Commerce Act.

On the same date, Hawke's Bay Meat announced the sale of half (49 per cent) of its interest in its 34 per cent shareholding in Richmond to PPCS by way of option to be exercised in 2003. Active Equities announced that put and call options were in place in respect of the remaining 51 per cent interest in Active Meat, for exercise in the period between February and September 2003.

On June 29 Hawke's Bay Meat and PPCS advised further options in relation to Hawke's Bay Meat's shareholding in Richmond, just before the new Takeovers Code came into force on July 1.

At the Richmond annual meeting on December 20, 2001 shareholders were told a review of the PPCS-AE transaction over several months by a committee of independent directors found no demonstrable breach of the Richmond constitution.

But on April 17, 2002 Richmond announced it was seeking a High Court declaration on the PPCS sale of its shares in July 2000 and the PPCS purchases in June 2001.

Richmond obtained an interim injunction from the High Court preventing PPCS Ltd from taking any steps to sell, buy or transfer any interests in Richmond shares. PPCS failed in an application to set aside that injunction, but it was varied to allow PPCS to purchase further shares.

- NZPA