In a move which caught the finance and farming sectors unaware, PGG Wrightson has proposed buying a 50% share in Dunedin meat processing and exporting co-operative Silver Fern Farms (formerly known as PPCS) for $220 million.
The proposal still has to be approved by 75% of Silver Fern Farm (SFF) shareholders.
If agreed, the new entity would operate from October.
The investment has been seen as a massive jolt for the meat industry which has been suffering from a lack of capital and low returns for farmers, prompting many to convert to dairying.
"The industry has been starved of capital. That is why we don't have strong balance sheets and profits," SFF chairman Eoin Garden said.
Initial savings of $60 million a year were expected from reduced duplication and other economies, and longer-term gains of $100 million a year were anticipated.
SFF's chief executive Keith Cooper said improving markets were expected to lift average lamb prices $15 to $20 a head next season, but gains from this partnership would add another $5 a head, potentially taking the average lamb price to more than $75, compared to nearly $55 this year.
A weaker exchange rate would lift returns even more, Mr Cooper said.
One area of saving was in livestock procurement where PGG Wrightson, which has 280 staff, would integrate the 100 from SFF.
PGG Wrightson managing-director Tim Miles said there were no immediate plans for rationalisation, but there would be savings from combining the two workforces.
Other savings would come from the ability for SFF to roll out robotic technology in its 24 processing plants, market gains from promoting its brands, and the completion of its project to align production with processing capacity.
"The technology is there. We just need the horsepower to roll it out through the business," Mr Garden said.
While SFF would get some badly needed capital, PGG Wrightson chairman Craig Nor-gate said it was in the publicly-listed rural servicing company's interests to have profitable sheep and beef farmers.
The only way to do that was to extract more money out of markets through an integrated supply-chain, linking farmers with the market - a view also shared by SFF.
Mr Norgate said lamb exporters needed to move away from relying on Europe and to reposition in affluent new markets that wanted western diets, such as China, but that required investment in marketing.
It also required management changes by farmers to contract-supply lamb year-round.
The deal
• PGG Wrightson to pay $220 million for a 50% stake in Silver Fern Farms (SFF).
• Initial savings of $60 million a year identified, growing to $110 million a year.
• PGG Wrightson handles transactions on 11 million animals a year.
• SFF operates 24 plants handling 33% of our sheepmeat exports, 35% of beef and 54% of venison.
• Investment in new technology, research and technology, and brand promotion.
• Initial eight-person board made up of three supplier-elected directors, one appointed by a new 14-person shareholders' council, and four from PGG Wrightson, together with a chairman.
• Eoin Garden to be inaugural chairman.
• Independent adviser's report, explanatory memorandum and notice of meeting sent to SFF's shareholders in mid-August.
• Shareholders' vote in September, with 75% approval needed.
• New structure in place in October.