Smarting shareholders blast PGW

PGW managing director Tim Miles faces irate investors yesterday. Photo / Martin Sykes

PGG Wrightson shareholders have blasted the company's board for losing nearly $50 million on the failed Silver Ferns Farm deal and called for its directors to resign.

The board of New Zealand's largest rural supplier fronted up at its annual meeting in Auckland yesterday to face more than a hundred investors who were furious about the company's performance.

PGW reported an after-tax loss of $66.4 million compared with a profit of $73.2 million for the June year after it had to write off $49.6 million for settlement and due diligence costs associated with its failed deal to buy a 50 per cent stake in meat processor Silver Fern Farms.

The deal fell over last year after PGW failed to get finance and then had to pay a $42 million compensation package to Silver Fern because the deal was unconditional.

Yesterday PGW chairman Keith Smith said it was a disappointment but the settlement had allowed the company to put the deal behind it.

But the board took full responsibility for the failure. Smith said the company had had the backing of its bankers to get the deal done but it was conditional on raising an additional $110 million in equity.

But a week after the vote by Silver Fern had been completed Lehman Brothers collapsed and the capital markets closed, allowing the banks to pull out of the deal.

"We had been working on the equity raising for some time, and there was every reason to be confident this would be completed. In the end, we were undone by the worst financial crisis in 80 years."

Smith said the board accepted responsibility for the failure and apologised to shareholders for the lost value which had wiped 16c off the company's share price.

But the apology was taken with a grain of salt by shareholders.

"It's very well to say sorry but it doesn't make it any better," one said.

Shareholder Garth Williams said the apology was long overdue and the $50 million loss was "appalling".

Legal advisers had let PGW down by not recommending the deal remain conditional.

Smith said in hindsight the company should have raised capital in June last year instead of waiting for the vote needed from Silver Fern farmers.

The board had believed there would be a strategic advantage in rationalising the meat industry but in hindsight it would not have done the deal now.

Smith said the deal had been hit by bad timing.

But another shareholder said the company should have got its finances sorted before it made the offer unconditional.

"When I go to buy a house I make sure I have the money available. We are not talking about a small amount of money here."

One shareholder wanted to know if the entire board had recommended the deal go ahead. Smith said it had.

Director Craig Norgate's decision to step down as chairman had previously been assumed to be his way of taking the blame for the failed deal but yesterday Norgate said he had only stepped down to allow an independent director to preside over the capital restructure.

"I did not resign because of what happened in the Silver Fern Farms deal."

Shareholders wanted to know if any of the board stood against the decision to go ahead with the deal and if not why the entire board was not stepping down.

But Smith said the board had an obligation to pull the company back into shape after the disastrous year it had been through.

Others questioned the independence of Smith, who now sits as chairman on both PGW and NZ Farming Systems Uruguay, which PGW manages.

"Do you think it is a good look to be chairman of both of these companies?" shareholder Alan Best said.

Smith admitted he was not comfortable holding both positions but had been asked to step into the PGW chairmanship role to provide independence while it was going through its restructure.

"I am overly sensitive to the issue and it is something I acknowledge."

He said governance was an issue the board was going to address once it had got through it recapitalisation.

But one shareholder said the soured Silver Fern Farm deal had put the company on notice over its next transaction.

While PGW has been pushing the positives of its new deal with Chinese agriculture company Agria, shareholders remain sceptical of the deal, which will see it take a 13 per cent stake for $36 million.

"In the [Agria] prospectus there were a huge number of risks. Although you have covered some of the issues you have not talked about all of the risks," Best said.

But Smith reiterated that the company had done its due diligence and was not concerned about Agria.

It was still on track to announce plans for a proposed capital raising early next month.

Smith said although things appeared to be improving the outlook for the company remained unpredictable and its customers were cautious.

"Despite the recent good news, uncertainty remains on the timing, extent and impact of improvements in the operating environment, and the flow-on effects for farmers and the company."

PGW closed down 1c on 62c.