Some questions remain about the actions of PGG Wrightson's new China-based cornerstone shareholder, but the move by Agria Corp to buy a 12% stake last week is being viewed positively by the market.
A Craigs Investment Partners report said the United States share price of the New York Stock Exchange (NYSE)-listed company was being hammered by a securities class action over apparent misleading and omitted disclosures in its registration statement for an initial public offer, action Agria intended to "vigorously contest and defend the allegations against it".
Investors were also weary of delays in filing its annual accounts for the year to December 2008 due to two investigations ordered by its audit committee, and a delay in valuing its biological assets.
PGG Wrightson (PGGW) chairman Keith Smith defended his new business partner, saying in a statement that there had been full disclosure and due diligence prior to the transaction, and a motion to dismiss the court action was heard in July and Agria was waiting the decision.
"The fact that the relationship has progressed to the point of announcement demonstrates that neither PGGW, Agria nor their advisers found issues of significant concern."
He said the relationship would be beneficial to both parties.
Craigs said while Agria was conservatively financed - as at September 2008 it had $US174 million ($NZ230 million) on hand - much of the success of the venture depended on the performance of the new Agria management.
PGGW rated the new management highly.
Xie Tao has been appointed chief executive, replacing Alan Lai, who remained as chairman.
Christopher Boddington was appointed chief financial officer.
Both have a background with PricewaterhouseCoopers.
Agria, a China-based agricultural company, last Friday announced its intention to spend $36 million for a 12% stake in PGGW, but also signalled its intention to increase that stake.
The deal, dependent on a number of conditions including PGGW paying off a $200 million loan, was hailed as two like companies co-operating for mutual benefit.
PGGW was strong in seed production and livestock broking, which Agria wished to develop, while Agria had cash and strength in seed production.
The Craigs report said the deal would create long-term opportunities for PGGW, but just as importantly the purchase price of 88c a share was at a premium on the current share price.
Agria, which was founded in 2000 and has headquarters in Beijing, was floated on the NYSE in November 2007 at $US16.50 ($NZ22) a share, but has a current share price of $US2.19 ($NZ2.92).
Craigs Investment Partners broker Peter McIntyre described the issues for the low share price as minor, but said it was important that the market was aware of them.
"It would be a lot easier and simpler for everyone if they didn't have those issues," he said.
It has also been revealed that Agria, while cash rich, has a smaller market capitalisation than PGGW, at $US138.4 million ($NZ187 million) compared to PGGW's at $NZ205 million.
PGGW will still have to go to shareholders for more equity, quite likely a two-for-three rights issue at 50c a share, which Craigs said could net it about $115 million.
Combined with the placement and $50 million from working capital, PGGW should be able to pay back the $200 million by next March, the report said.
This also meant PGGW would not have to sell its finance arm, as had been speculated.
Based on this, Craigs has increased its target share price from 74c to 83c.
