COMMERCIAL S.F.M. outlines merger benefits

Press, Volume CXV, Issue 33791, 13 March 1975, Page 20

COMMERCIAL S.F.M. outlines merger benefits

(New Zealand Press Association)

WELLINGTON

Studies had shown that real and significant savings would result from a merger between Southland Frozen Meat and the New Zealand i Refrigerating Company. Ltd, according to the chairman of the Southland company (Mr A. F. Gilkinson).

Speaking at the annual; meeting in Invercargill! yesterday, Mr Gilkinson said S.F.M. shareholders would "obviously” want to know why their company, which had a tax paid profit of! $1,575,171 last financial year, would want to merge with one which made a consolidated loss of $2,322,549 ;last year. However directors and; staff were satisfied that sub-j stantial benefits would re-i

Mr Gilkinson outlined six benefits from the proposed merger. These were:-

Marketing.— The combined resources of the companies would strengthen the “New Zealand voice” in local and overseas marketing, with real benefit to the New Zealand producer, economy and the companies. This was directly in line with Meat Board and Government policy, and is fundamental to New Zealand’s future.

Administration.— Efficient management and adminisI [ration would result in substantial reductions in overhead, including centralisation of account and computer facilities.

Staff opportunity.— The expanded operations and promotion 'opportunities would benefit existing staff and attract personnel of the highest calibre.

Transfer of stock.— Real economics can be made by the transfer uf stock in the area from Christchurch south, to fully utilise works capacity during peak killing periods. Cold storage. The combined storage facilities would allow for increased usage of works during peak killing periods by using stor-

age space at other works — [this would save duplication and construction of additional storage. Hygiene.— Hygiene is a continuing and difficult requirement throughout the industry. Imporatant savings can be made through the joint expertise and resources of both companies. “Not a take-over” ’ Mr Gilkinson said other benefits would include laboratory research, purchase of stores, packaging, printing and specialised meat packs and cuts. He defended the merger proposals against the criticism from New Zealand Refrigerating that they amounted to a taker-over. He said an unqualified assurance had been given that N.Z.R. employees would continue to have security of employment and promotion; that the company’s name would be changed to reflect the company’s new corporate identify; and that the head office would be in Christchurch.

Minimum holding He said the board would consist of seven current S.F.M. directors and five existing N.Z.R. directors; two directors from each board would retire. Mr Gilkinson said 500 S.F.M. shareholders were already N.Z.R. shareholders, owning about 24 per cent of the N.Z.R. capital. &F.M. needed to acquire a minimum 51 per cent stake in N.Z.R. under the Companies Act, but wished to acquire all the N.Z.R. capital for the true merger. Mr Gilkinson gave the following comparison of S.F.M. and N.Z.R. statistics during

the period 1966 to 1974 inclusive — to show w'hat he termed the strength of S.F.M. Figures compared (I) Total profit: S.F.M. — from two works — 59.7 m; N.Z.R. — from five works — s7.Bm. (II) Average earnings on paid capital: S.F.M. 21.12 per cent; N.Z.R. 14.22 per cent. (III) Average dividend: S.F.M. 12.2 c a share; N.Z.R. 8.5 c a share. (IV) Share values: He said S.F.M.’s strength was reflected in the respective market, prices of both company’s securities as at the date of the “don’t sell” notice, January 14. S.F.M. 145 c, N.Z.R. 100 c. Growth rates The more consistent performance of S.F.M. is reflected in the market value of its shares during the period 1964 to 1974 which had a compound growth rate of 1.7 per cent a year, whereas over the same period N.Z.R. stock units had a negative growth rate of 4.5 per cent a year. On current prices N.Z.R. stockholders are being offered 155 c for each stock unit, which had a market value of 100 c at the date of the “don’t sell” notice. “Generous offer” Mr Gilkinson said N.Z.R. stockholders might reasonably expect increased dividend prospects as shareholders in S.F.M. “Your board knows the advantages of a merger and these are not disputed by the N.Z.R. board, he said. “S.F.M. believes its offer to be generous, and any higher price would weaken the merged operation, and unreasonably affect existing S.F.M. shareholders interests.” Mr Gilkinson said comment had been made on the relative asset backing of the two companies and on a revaluation at present being made by N.Z.R. of its assets. “But assets in the ultimate are only worth the profit they earn. “I am confident that N.Z.R. stockholders, including those already members of S.F.M., will accept S.F.M.’s offer and look forward to them being members of the company,” he added.