Proposed PGG-Wrightson merger 'likely to start trend'

Craig Norgate, CEO of Wrightson's majority stakeholder Rural Portfolio Investments (RPI).

Further rationalisation is on the cards in the rural services sector after the proposed merger of Wrightson and Pyne Gould Guinness (PGG), an analyst says.

Macquarie Equities investment director Arthur Lim said yesterday that the sector's remaining companies - which include Fonterra subsidiary RD1 - would need to follow suit if they were to stay competitive.

The proposed merger would create a company, named PGG Wrightson, with revenue of more than $1 billion. It would rank among the top 20 companies on the stock exchange, with a market capitalisation of $510 million.

However, projected revenue would still be only 15 per cent of a sector worth $7 billion. The proposed merger also requires Commerce Commission regulatory approval.

Lim said the merger highlighted the impact of Craig Norgate, CEO of Wrightson's majority stakeholder Rural Portfolio Investments (RPI), on the rural supply sector.

Rationalisation had seemed unlikely, but "once you get a mover and shaker [like] a Craig Norgate, a lot can happen in the industry".

Norgate played down his role in industry rationalisation, taking a back seat during the media conference yesterday.

"There's no such thing as a merger that can be pulled off by one person," he said. The merger proposal was the result of months of work by all parties.

Although he will take a seat on the board, Norgate said he would not have a hands-on role in management.

The boards of Wrightson and PGG are recommending that shareholders agree to the merger.

PGG chairman Bill Baylis said the new company would have greater power to invest in innovation, deliver services and products more efficiently, increase returns to shareholders and offer improved career options to staff.

The merger is expected to generate savings of $10 million in the first year - offset by costs - and at least $20 million in the second year.

PGG will be the merger vehicle and Wrightson shareholders will receive 1.028 PGG shares for every Wrightson share, dependent on capital and equity changes.

The merger is supported in principle by the cornerstone shareholders of each company - Pyne Gould Corp (PGC), which holds 55.4 per cent of PGG, and RPI, which holds 50.01 per cent of Wrightson.

After the merger, PGC would hold about 22 per cent of the new company and RPI 30 per cent.

Pending shareholder approval, legal completion is expected by the end of September.

Baylis said cost-cutting would be focused on back-end administration and retailing operations rather than field sales. "Clearly, there may be rationalisation across some roles, functions and locations in the merged company," he said.

"However, we are adamant that all field staff will be retained."

The merged company would employ 2700 staff working in livestock, wool, farm supplies, seed, finance, real estate and insurance.

Neither Baylis nor Wrightson chairman Keith Smith would say which side initiated the merger. Both companies will operate independently until the merger is approved.

Under the proposal, the merged company will have a 12-person board of directors chaired by Baylis. The search for a chief executive will start immediately with Wrightson boss Barry Brook and PGG boss Hugh Martyn considered leading contenders for the job.

The share price in both companies soared yesterday, with Wrightson closing up 20c at $2.05 and PGG up 15c at $2.10.

PGG Wrightson

Annual Revenue: $1.1 billion.
Market Cap: $510 million.
Merger benefits: $20 million in second year.
Staff: 2700.
Ownership: Craig Norgate's RPI will own 30pc. Financial services company Pyne Gould Corp will own 22pc.