A surprise takeover bid yesterday for rural servicing company PGG Wrightson has breathed life into the poor-performing stock and should reward long-suffering shareholders.
Canadian-owned Australian company Landmark Rural Holdings, which with Fonterra jointly owns specialist dairy servicing company RD 1 Ltd, is understood to be the surprise bidder for PGG Wrightson (PGGW), which is already the subject of a partial takeover by shareholder Agria (Singapore) Ltd.
Agria has offered 60c a share for the shares it does not already own, with the aim of taking its stake in PGGW from 19% to 50.01%.
The sudden interest in the company pushed up its share price from an opening of 59c to close at 62c.
Buying PGGW is a logical step for Landmark and would allow the vertical integration of two national rural servicing networks.
PGGW's strength in sheep, beef, deer, seeds, real estate, fruit, insurance and finance would complement RD1's dairy sector presence.
RD1 operates 55 stores and employs 600 staff almost solely in the dairy sector, while PGGW has 94 stores and employs 2100 staff, primarily in sheep, beef and seed sectors but with some presence in dairy.
Yesterday, PGGW announced a "bona fide" bidder would be allowed access to do due diligence in PGGW, and that it has requested its identity be kept confidential.
But it soon emerged the bidder was Landmark, a wholly owned subsidiary of $NZ16 billion Canadian agricultural company Agrium.
Brokers do not believe a bidding war will erupt between Landmark and Agria, but Craigs Investment Partners broker Peter McIntyre said Landmark would need to offer a premium well over 60c a share to secure enough support.
But the stakes could be high given Agria has already secured Pyne Gould Corporation's 18.3% shareholding in PGGW, although that was conditional on reaching 50.01%.
Mr McIntyre said the market wanted clarity about Landmark's offer and its terms, especially given Agria's initial offer was still on the table.
PGGW's Takeover Response Committee of independent directors urged shareholdersto sit tight until the Agriabid expired on April 15.
Mr McIntyre said the Agria offer was opportunistic, given PGGW was at the bottom of its earning's cycle, but the fact remained PGGW was strategically important.
It had nationwide coverage, it was a central player in the country's agricultural sector and it was one of the leading seed developers in the world.
In the past year, PGGW shares have traded between 43c and 67c and Macquarie Equities Research describes the stock as underperforming.
An assessment of the Agria bid by Macquarie was as relevant to Agria as it would be should Landmark's bid proceed.
It warned the partial takeover bid was not guaranteed success as the Overseas Investment Office could view PGGW's seeds business as being of national importance, as it controlled up to 70% of the market.
The rural supplier's business could be undermined by farmers reacting to foreign ownership by shifting to locally owned competitors.
It concluded the Agria bid would not add value to PGGW shareholders, a view reinforced by the share price falling 20% following the bid.
Agrium, one of the world's largest agribusiness companies, employs 12,000 people and operates agricultural retailing in North and South America with turnover of $NZ6 billion.
Each year, it manufactures over eight million tonnes of nitrogen, potash, phosphate and other fertiliser.
Last December, it bought the Australian Wheat Board, which owns Landmark, for $1.5 billion.
