Silver Fern last week briefly acknowledged to more than 70 shareholders at its annual meeting in Dunedin that it was in talks with PGG-W over a damages claim after PGG-W defaulted on an unconditional agreement to buy a 50% stake in Silver Fern Farms for $220 million.
It is understood the companies want to remain on good terms and both intend that the damages claim does not go to the courts - but it is yet to be determined how hard-nosed Silver Fern will get over the prospect of a cash settlement.
There will be a slew of farmers involved who will be shareholders in both companies and a large payout in Silver Fern's favour would be perceived by many of them as a negative move overall.
Silver Fern chairman Eoin Garden said at the time of the annual meeting PGG-W had "acknowledged its fault and [that] damages are appropriate, but undetermined yet. Talks are ongoing at present".
"It [the merger proposal] was an unconditional agreement which PGG-W were unable to complete by the due date of October 1, 2008.
"Discussions continue to quantify damages," Mr Garden said, read from a set of presentation notes.
No more details were forthcoming on the damages claim.
Silver Fern chief executive Keith Cooper said after the meeting there was no damages figure to release, though it would be "more than a few million", while Mr Garden later said to the assembled general meeting the damages "would not be $220 million" - the merger proposal price.
Rural servicing company PGG-W offered $220 million to merge and acquire 50% of Silver Fern Farms in mid-2008, a proposal which just gained more than the required 75% shareholder support.
However, the deal fell apart by early November when PGG-W was unable to secure a crucial $110 million from risk-averse equity markets to make up the $220 million otherwise funded by its bankers.
The $220 million merger offer was "unconditional" and therefore PGG-W defaulted in not delivering the bid.
PGG-W chairman Craig Norgate was contacted yesterday and declined to comment publicly on the ongoing negotiations and possible range of the damage claim.
However, he said reports PGG-W could face a full 100% claim were incorrect.
"The will be the costs, plus the issue of the transaction and a damages claim, if any," Mr Norgate said.
He highlighted the two companies still wanted to work together on "supply chain" issues, which refers to the overall sourcing, processing and marketing of New Zealand stock overseas.
While PGG-W has forecast this year's after-tax profit will increase from last year's result, it will not want to undermine that result by handing over a large damages claim.
The result of the following financial year will be crucial for PGG-W as it is coming off a peak performance, will register the downturn in dairying, reflect less stock through the yards and have the added uncertainty of European Union protectionism in the form of the possible reintroduction of subsidies.
PGG-W established listed NZ Farming Systems Uruguay in September 2006, to raise equity from the public and purchase dairy farms in Uruguay, but will receive less in management fees coming from South America as it grapples with expansion, falling commodity prices and drought conditions, which were understood to have broken in recent days.
When asked during the annual meeting, Mr Garden said while arch rival Alliance had not closed the door to some future consolidation talks in the future, "Alliance's chairman said there was no consideration of any rationalisation with Silver Fern Farms at present".
