Up to 40% of shares in Silver Fern Farms could be publicly listed in restructuring plans which could raise $80 million in new capital, the meat processor and marketer announced yesterday.
Controls would be in place to ensure supplier shareholders maintained 60% of voting rights.
Single shareholders or groups of associated shareholders would be limited to a total of 5% of the total capital issued.
Silver Fern Farms (SFF) chairman Eoin Garden was confident of getting shareholder support, but said the restructuring package was also a vote by shareholders on whether they wanted the meat industry to change from being production-driven to market-led.
He said in an interview the near doubling in lamb prices this season was because of a worldwide shortage of product and a more favourable exchange rate and not because of structural changes to the industry.
Other than maintaining the status quo, the proposed restructuring package was the only option for the company's 20,000 shareholders to consider, he said.
"We're not talking alternatives; this is the only proposition.
The only alternative is do nothing and that is not an option for the industry."
Chief executive Keith Cooper agreed, saying if nothing was done, "farmers better get ready for $53 lambs in the future".
Mr Garden said the capital was needed to support strategic initiatives, including the international rollout of SFF-branded meat products, and to strengthen its balance sheet.
Mr Cooper said that through rights issues, the company could raise $128 million in fresh capital.
However, farmers had experienced a couple of tough years and he did not expect a full take-up.
"If we get less than $80 million, so be it."
The company was forced to turn to supplier shareholders for capital following the failure last year of the partnership with rural servicing company PGG Wrightson.
SFF was then independently valued at $440 million, but ABN Amro Craigs broker Peter McIntyre said the paying down of debt and the diluting effect of increasing the number of shares on offer could result in SFF being revalued at between $375 million and $400 million.
Total assets amounted to $690 million, according to last year's annual report.
Mr McIntyre described SFF's timing as "immaculate" as sheep and beef farmers were having a profitable season.
Mr Garden said while retaining the core principle of farmer control, the move would inject capital, and trading on the NZX Unlisted market would provide transparent market-based share value.
The move would also reduce redemption risk and allow shareholders to access the value of the company to a greater extent than under the previous shareholding structure of $1-in, $1-out.
While a new board was being finalised, this was not pre-emptive as details had to be prepared for shareholders on what the new structure would look like, Mr Garden said.
He expressed confidence shareholders would show a strong interest in the plan and that SFF would get the 75% support needed.
Mr Cooper said SFF had looked at Fonterra's failed attempt to raise capital by partially floating its business.
The difference between the two companies centred on dairy farmer concern over how the milk price would be set, he said.
The meat industry was more competitive and the market would set livestock prices, Mr Cooper said.
Silver Fern Farms capital restructuring
• Suppliers to hold minimum 60% of voting rights.
• Balance may be listed on NZX alternative market.
• Single shareholders or groups of associated shareholders limited to 5% of total issued capital.
• Transacting shareholders can exchange rebate shares or supplier investment shares for new ordinary shares.
• They would also be eligible for a cash issue of two new ordinary shares per share held at a subscription price of $1 a share.
• Bonus issue of one share for every four held.
• Board to be reduced from 12 directors to eight, made up of five farmer elected directors including chairman and three appointed based on their commercial expertise.
• Company's 20,000 shareholders to vote on July 30.
• Needs the support of 75% of eligible voting shareholders to proceed.
