KEY POINTS:
The prospects for a Fonterra-style mega-meat company have been dashed after Alliance Group turned down a merger proposal with Dunedin-based PPCS.
Farmer co-operative PPCS said it wanted to merge with Southland-based Alliance as part of a process of industry reform to deliver improved and sustainable returns.
A merged company would have had more than $3 billion in turnover, employed about 14,000 people at the peak of the season and controlled 43 per cent of the global trade in sheepmeat.
PPCS chairman Reese Hart said the case for a merger was compelling and in the interests of the long-term sustainability of the sheepmeat industry.
"Regrettably, Alliance Group has declined to support a merger at this time," Hart said. "While Alliance Group has signalled to PPCS it supports a strong, merged single co-operative in the future, no timeline was indicated."
Commerce Commission approval for a merger would have been a significant challenge but not impossible, Hart said.
"We believe the opportunity to lift the productivity of New Zealand's second-largest export sector would have found widespread support."
The company would continue looking for alternative business propositions and would consider industry co-operation in the future, Hart said.
"However, in respect of joint marketing initiatives these opportunities will be limited due to the diametrically opposed positions of attempting to market under a single entity offshore while competing aggressively in the procurement of livestock within New Zealand." Merging with Alliance would have addressed both ends of the value chain, he said.
"We identified significant opportunities for cost reductions, optimisation of plants and a more collaborative approach to marketing and research and development," Hart said.
"Some aspects may be achieved independently of a merger but the real and more sustainable benefits would have come through a merger."
In 2004 PPCS took over Hawkes Bay-based Richmond for $140 million after a long-running and hostile takeover battle.
Action was needed now to create the optimum meat sector supplier-owned model, Hart said.
"In PPCS's view we should not delay in implementing an immediate and long-term vision for the meat sector which would capture significant benefits for farmers."
Alliance Group chief executive Grant Cuff did not return calls yesterday.
The two farmer co-operativemeat companies had engaged PricewaterhouseCoopers in June to undertake an appraisal of operations and evaluate options to improve livestock returns to farmer suppliers.
PPCS chief executive Keith Cooper said all options and opportunities had been considered as part of the investigation.
"It is disappointing that we haven't managed to get something that in my view would have been very constructive," he said.
It had not been an acrimonious breakdown of talks, he said, and nobody had taken offence at the outcome.
NO DEAL
* A merger of PPCS and Alliance would have created a $3 billion business.
* PPCS said it was important for the long-term sustainability of sheepmeat exports.
* Sheepmeat returns have fallen dramatically in the past year, cutting margins for exporters.
