Seeds of doubt in Chinese bid for PGGW

In a hard hitting article  in the NZ Herald, Fran O'Sullivan looks at the real reason for the Agria takeover offer of PGGW and asks why the independent directors aren't more open about future directions for this company.

The rumours have been swirling for a while that the Chinese investors are only interested in the seed business, and livestock farmers should be concerned where their service will come from in the future.

Many areas of the country have seen the PGGW livestock brand weakened by big changes in personel and structure, and farmers have departed in droves.

If the finance arm is sold, as well as the seed business, based on previous performance where will profits come from?

Fran O'Sullivan's comment that "'as far as New Zealand's strategic "national interests" are concerned PGG Wrightson is of much higher importance than the 20 Crafar dairy farms that so exercised the public last year", should sound a warning to all livestock farmers.

The Chinese-backed bid for 50.01 per cent of PGG Wrightson is really all about getting control of what happens to the rural services company's most undervalued asset - a seeds business that Agria believes could ultimately be leveraged to become a multinational rival to America's Monsanto. This is the real game plan behind the play that Agria and its new partner New Hope have launched with an opportunistic move while the PGG Wrightson share price is depressed.

And it is also the reason why the New Zealand Government must investigate exactly what Agria and New Hope bring to the table before they make a decision on whether to allow the partial takeover to proceed. It's instructive that neither PGG Wrightson's trio of independent directors - chairman Sir John Anderson, Keith Smith and William Thomas - nor Grant Samuel, which issued an independent report to shareholders, could shed any light on what Agria/New Hope intend to bring to the table once they gain control of the company.

In other words shareholders, we haven't a clue about the motivations or long-term game plan of the very investors we brought in to provide financial stability for the company in late 2009 when it desperately needed capital. You have to dig deep into Grant Samuel's report before reaching the pivotal sentence: "It is likely that PGW's substantial seed business is the primary attraction to Agria."

In its analysis of PGW, the advisory firm points out that its seed business is the largest Southern Hemisphere supplier of commodity and proprietary forage seed predominantly to New Zealand, Australia, South America and various other international markets.It is a market leader in New Zealand in forage, brassicas and turf, in Australia in proprietary and commodity forage products and a strong presence in South America through various investments in Uruguay, Argentina and Brazil.

But having deduced that the seeds business is the prime value attraction for Agria, the advisory firm fails to apply the kind of dynamic analysis that would give shareholders an indication of the value that particular business would have for PGW itself if strategically leveraged further on the world stage. What Grant Samuel does not say is that Agria is purely a front - or intermediary - for New Hope. But given that the Chinese company ponied up the capital for PGW when it was on its knees in late 2009 and has held the shares until an appropriate Chinese player was ready to move, the inference is clear.

And judging by the speed with which Canadian player Agrium has gained the independent board committee's approval to do its own due diligence prior to launching a 100 per cent takeover, Sir John, Smith (who has made some frosty comments to media) and Thomas are quite uncomfortable with the Agria play. Irrespective of whether Agria gets over the line, as far as New Zealand's strategic "national interests" are concerned PGG Wrightson is of much higher importance than the 20 Crafar dairy farms that so exercised the public last year.

It's time for NZ Inc to swing into action: the NZ Super Fund, Fonterra (which looked at this asset earlier on), Landcorp and a few fellow travellers should surely be able to mount a spoiler bid.