Meat Wars

By PHILIPPA STEVENSON

Monday's annual Meat Industry Association cocktail party at the plummy Wellington Club was notable for one of the people who wasn't there - PPCS chief Stewart Barnett.

"Everyone commented that it was unusual for him not to be there," said one among the meat men who, like RSA members on Anzac Day, gather to chew over old war stories.

This year there were fresh wounds as well as the old battle scars to pick over. Perhaps too fresh for even the hardest of Southern men - which Barnett undoubtedly is.

Only 10 days before, in the second of two highly critical decisions, High Court Judge William Young had come down hard on Dunedin-based PPCS for "gross commercial misconduct" in concealing the fact that it paid Maori investment vehicle HKM Nominees - widely known as the Trojan Moa - to gain a 33 per cent cornerstone shareholding in Hastings-headquartered Richmond in 1997.

In his first finding in August, the judge said Barnett, company lawyer David Stock, of Chapman Tripp, and Alan Haronga of HKM had "credibility problems" and Barnett and Stock were involved in "repeated untruths".

The farmer co-operative is appealing both decisions, a move that has suspended an order for it to forfeit $10 million worth of shares until it either makes a successful bid for 90 per cent of Richmond, or until 10 days after the determination from the appeal, to be heard in April.

If it wants to follow the takeover route, and lift its stake from the present 43 per cent, PPCS has until January 24 to start its bid.

But in Hawkes Bay, Justice Young's findings have been everything and more that a 10-strong group of Richmond shareholders had suspected.

They were also vindication for the group, vilified as a precious aristocracy holed up in fortress Hawkes Bay, repelling the southern barbarians at all costs.

Napier lawyer Robin Bell, for whom the group was named, rejected any suggestion its actions were personal and directed against PPCS farmer shareholders.

"What we have objected to are actions taken in their name by their board of directors and their executives, and if their company had been dealt with in the same fashion as ours they, I'm sure, would be taking the same stance as we have. So they shouldn't blame us for doing it."

The group racked up costs of more than $1 million, which Justice Young ordered PPCS to pay.

Bell said that, tense legal machinations aside, the group had had a lot of enjoyment out of a stimulating exercise and had been praised by the judge. "We're a good group and we get along well. We've had quite a bit of fun.

"One of our stalwarts has said sunlight is the best disinfectant. That's our watchword, really, openness and transparency."

The other members of the group are former Richmond directors Tom Crosse and Bill Richmond (the son of the founder), its one-time chairman Hamilton Logan, past chief executive John Foster, and farmers Ralph Beamish, John Cullwick, David Hildreth, Tim Logan and Brian Pattullo.

The group's shareholding in Richmond is only about 2 per cent but its support is believed to be higher. Some were previously members of Richhold which formed in 2000 to aggregate small shareholders' shares to repel PPCS. It had around 10 per cent of the company.

If PPCS mounts a takeover it is likely to meet the same sort of resistance.

Foster reckoned it could have been different if PPCS had been a sweeter suitor, and Justice Young noted no hostility towards PPCS until it began secret share raids.

Resistance in Hawkes Bay could have been overcome, Foster said.

"But we took those various actions, Richhold included, without the knowledge of the deceit - just a suspicion.

"And now all the deceit is out there for all to see we are not content on allowing him [Barnett] to take over Richmond. There is so much trust that is inherent in a decent meat company-farmer relationship, how on earth can they rebuild that?"

At Monday's cocktail party, and since, meat people have chewed over the motivations for the PPCS-Richmond wrangle, and the implications for an industry again shaping up for serious upheaval.

One seasoned observer speculated that Barnett was following the template of his PPCS predecessor and mentor Ian "Jenky" Jenkinson, who successfully structured similar deals.

"You can't help looking at it as deja vu. Stewart's run it successfully all this time. The bit of crowning glory which would have put him right up there with Jenky as the new god has turned to custard.

"It does make you wonder how much [history] has influenced him."

The history can be read in Meat Acts, a book written by Mick Calder and Janet Tyson and published three years ago. It covered the industry's tumultuous years from 1972 to 1997, and events are increasingly making it an industry must-read.

Justice Young's precedent-setting twin decisions, packed with eye-opening conspiracy, have also become a surprise hit read.

But in Meat Acts a reader finds echoes of today's events.

It recorded a 1980s move by PPCS which followed the fallout of the cataclysmic removal of the SMP subsidies to farmers, the Meat Board ceding its monopoly on sheepmeat marketing, and industry-wide moves to reduce over-capacity.

In 1986, a PPCS flush with funds and assisted by Dunedin businessman Ian Farrant sought investment advice from Paul Collins and Bruce Judge of Brierley. It decided to float Apex Ltd.

"Apex was used as the vehicle that saw PPCS eventually acquire the control of CFM [Canterbury Frozen Meat] from Fletcher Challenge - which had been invited in by the directors of CFM to act as a white knight to attempt to stave off the move by PPCS - and the minority shareholders," says the book.

While PPCS' methods were arguably forged in the past its motivation for the move on Richmond is more certain.

"What is indisputable is that PPCS, one of the two wealthy South Island co-operative meat companies, is under increasing pressure from overseas markets to expand its production season and its inventory, so it can give its customers year-round supply," wrote commentator Hugh de Lacy in the Business Herald in August in a view endorsed by PPCS.

"The only way PPCS can do this is by acquiring a stake in the North Island. The South Island is too cold and its growing season too short for PPCS to achieve year-round supply from its home base. It has to expand into the warmer North Island.

"Once it has succeeded, the other equally well-heeled southern co-operative, Alliance, is commercially bound to follow.

"Because the two big North Island investor-owned and publicly listed companies - Richmond in Hawkes Bay and Affco in Auckland - are a couple of floundering crocks that can't turn a decent profit even in these boom times, the eventual outcome is pretty well ordained - the South Island co-operatives will swallow the North Island privateers."

Part of de Lacy's forecast has already come true.

Last month, in a vastly more successful move, Alliance paid just $850,000 to the receiver of Levin-based Lakeview Farm Fresh for the company's rundown Dannevirke works. The purchase included 20-year resource consents which will give Alliance great flexibility when it extends the plant to handle one million lambs a year.

Even adding the cost of plant upgrade Alliance has got a cheap foothold in the North Island compared with the millions PPCS has poured into its bid for control of Richmond.

When PPCS was forced to sell its HKM-acquired shareholding in 2000 it was bought by Active Equities, the company of former Brierley executives and old-time PPCS adviser Paul Collins. PPCS's buy-back of the shares will cost it more than $23 million.

PPCS - which delivered Peter Spencer a $7 million profit for shares he held in Richmond - is up for an estimated $3 million for Bell Group and Richmond court costs as well as the $10 million share forfeiture.

If it moves to take over Richmond, PPCS could be up for more than $130 million, for a company Justice Young estimated was worth $100 million.

Foster said Richmond needed a cornerstone shareholder but emphasised it needed one that would bring advantages.

Unlike PPCS and Spencer he did not aspire to a Fonterra-style, integrated industry, he said.

"I don't see the huge, supposed synergistic benefits between PPCS and Richmond," he said. "They are South Island, we are North Island. How do you rationalise plants? You don't."

A combined Richmond-PPCS would be able to take advantage of a longer lamb season for valuable chilled lamb "but what use is that to Richmond?" Foster queried.

Other investors have expressed interest in Richmond but one, fishing company Talley's, has since put its money into Affco.

North Meats, a subsidiary of British turkey king Bernard Matthews, entered the fray for the PPCS shares which subsequently went to Active Equities. North Meats would still be interested in Richmond, Foster maintained.

But he doesn't underestimate Barnett's determination. "He's got no reverse gear, he's got no way out of it," said Foster who does not buy into the theory that Barnett aimed to prove himself the equal of his mentor Jenkinson.

"Up until this point, he's performed for PPCS very well and if he had gone happily to retirement and not contemplated the North Island or Richmond he still would have justified Jenky's faith in him."

While the fate of PPCS and Richmond hangs in the balance, Alliance will continue shipping lambs out of the North Island to its plant in Nelson, and upgrading its Dannevirke plant.

And another significant but quiet player, Anzco Foods, hopes to build a plant at Marton to kill a million lambs a year.

Observers are picking another expensive procurement war this season - good news for farmers but bound to ring the death knell for one company or another.

"My pick would be there's still going to be some more blood on the floor in the North Island," said one observer.

* PPCS will hold its annual meeting on Friday, and Richmond the next Friday.