They have indicated a return of up to $292 million from the $431m sale, which passed its first hurdle at the annual meeting in Christchurch last Tuesday with overwhelming shareholder approval.
Other conditions remain to be met and in the meantime PGW directors and management will continue their strategic review of the business, including the most suitable capital levels, cost base, governance structure and growth options.
A decision from the Overseas Investment Office (OIO) on whether the sale can proceed is expected to be the most drawn out of the regulatory conditions. A tailwind might be needed to get that in by the end of the year, Burt said. The directors expect to have their decisions made by then.
Shareholders voted virtually 97% in favour of the sale to Danish group DLF Seeds. If controlling shareholder Agria’s vote was discounted the minority shareholders voted 85% in favour, a very strong result, he said.
On a wet day there wasn’t a big turnout of shareholders so the outcome was set by heavy support from proxy votes filed ahead of the meeting.
Max Smith, of the Shareholders Association, argued against the sale, saying seeds is the major part of the business and a sale will result in royalty payments on intellectual property and proprietary seeds being lost to New Zealand and leave a much smaller business vulnerable to negative impacts from issues such as Mycoplasma bovis and Government restrictions on irrigation development.
Burt said royalties will not be lost. They will continue to come back to the research and development joint ventures involving PGW seeds and Crown agencies for investment in further research.
The remaining business will be very substantial, with revenue of $800m a year, more than 2000 staff and very good operating and growth prospects. It will still be the biggest rural services group in NZ.
“People are wrong to say we will be a shadow of what we were but we would have to cut our cloth,” Burt said.
Chief executive Ian Glasson does not expect the M bovis issue to have a significant impact on the livestock agency business because it is well set up for online trading if farmers move to avoid sale-yards transactions.
The livestock and the other big remaining division, water and retail, are outstanding businesses resilient to headwinds.
Smith asked Burt what the remaining business will be worth if a capital return of 30c a share is paid out.
Burt said he could not speculate on that but he estimated, based on the share price of 58c and something like 38c or 35c a share paid out, that could leave a theoretical share price of 20c, which would undervalue the business.
“We’d have operating earnings of $35m a year and 20c would undervalue that. We’ve got good growth options.”
Asked by Smith whether the remaining business could also be broken up Burt said the review is ongoing but the board met the day before the annual meeting on an understanding of the company remaining listed on the NZX and looking for growth.
After the meeting, he told Farmers Weekly that could be done incrementally by expanding its already leading distribution business, by adding more products and more valuable products. A large acquisition is not on the radar.
Wrightson also needs competition regulatory approvals in NZ, Australia and South America and joint-venture partner agreements for the sale.
There is not a lot of market overlap between PGW seeds and DLF to suggest competition issues should hold back approvals, Burt said.
Shareholder David Tennyson said the independent report from Korda Mentha indicated seeds division operating margins in Australia and South America are very low and he suggested if they could be brought up to the much higher NZ levels the division’s Ebitda could be lifted to $80m a year.
“The business could be worth $600m to sell so there’s more to be gained than by selling it for $400m.
“We’re missing out on the value of decades of research and development.”
Burt said it is difficult trading overseas.
“It’s hard to replicate NZ in Australia and South America.”
Glasson said it is tough to take a seeds business outside NZ.
“We see this in Australia and South America.”
October trading picked up after a slow first quarter to the financial year and PGW expects operating earnings (Ebitda) of about $70m for the year ending June 30, about the same as last year. He described that as a strong result and another good year is expected.
Retail and water is expected to have slight improvement on the outstanding result last year, Fruitfed Supplies should do well from further horticulture sector gains and the livestock and wool businesses should continue to perform well.
But the rural real estate market remains soft.
The group is optimistic about the NZ seeds business but drought is a problem in Australia and there are liquidity issues in the rural sector in Uruguay.
It is too early to accurately forecast after-tax earnings for the year but a seeds sale would add about $120m of net capital gain to the overall figure.
