Commercial

Press, 17 July 1978, Page 14

Commercial

By

ADRIAN BROKKING,

commercial editor

The sharemarket marked time last week — at least the indices did. Rises outnumbered falls, but were mostly among / second-line stocks, and the easier tone among leaders kept the indices back.

Many second-line stocks remain attractive propositions, in spite of some sharp rises in some; T. J. Edmonds, Donaghy, Canterbury Timber Products, J. E. Watson, Wilson Neill, Hodder and Tolley, Rheemn and Tel* therm are just a few that come to mind. The most dramatic development in an otherwise quiet week came after the close of trading on Friday: Canterbury Farmers’ Cooperative Association, of Timaru, served notice of intention to make a take-over bid for New Zealand Farmers’ Co-operative Association of Canterbury, Ltd, its Christchurch cousin.

An impetuous move, and not one likely to receive the support of the directors of the Christchurch firm — now or later — I should think. ,

There may be advantages in a. marriage of the two groups — in fact, it would be surprising if there were not, just as there are likely to be some disadvantages — but C.F.C.A. is pressing its suit with unseemly haste. Because of the provisions of the Companies Amendment Act 1963, C.F.C.A. has to give notice of intention to make a formal offer at least 14 days beforehand; this notice was given on Friday.

In the letter the chairman of C.F.C.A. (Mr A. G. O. Johnston) said that the feasibility of a merger of the two companies had been discussed at various times during recent years. “However,” he says, “it has now become obvious that, with the high rates of inflation in recent years having a disproportionate effect on operating costs (particularly in the farm servicing and administration sectors), a larger co-operative organisation could better cope with the challenges facing activities of the associations. “This merger therefore is

a logical development of the farmers co-operative movement, and should, enable a better service to the traditional rural and retail community while providing the prospect of better returns to shareholders through having an involvement in farming retailing, fishing, transport, and energy, covering the Northern half of the South Island.

“The directors (of C.F.C.A.) propose that the merger be effected by an exchange by the New Zealand Fanners Co-operative Association shareholders of tw’O ordinary 50c shares for one ordinary 100 c share in the Canterbury Farmers Cooperative Association, Ltd. It is proposed to offer 75c cash to the holders of specified preference shares in the New Zealand Farmers Cooperative Association, Ltd. “This share exchange will mean that the ordinary shareholding in the enlarged Canterbury Farmers Cooperative Association will be held in the proportions of 59 per cent by the existing ordinary shareholders of New Zealand Farmers Cooperative Association and 41' per cent by the eixsting ordinary shareholders of C.F.C.A. These proportions equate to the tax-paid profits from trading and investments of the two associations.” . . , , “The C.F.C.A. board feels strongly that the offer will be in the best interests of shareholders, clients, and staff. The two companies have similar functions and together will form a much stronger business enterprise, while at the same time retaining the local interests of the northern half of the South Island. Farmer clients will benefit from the strength of a larger team in the farm service section. Retail customers will benefit from the greater purchasing power available to a larger company. The stronger enlarged group will have the increased capacity to take full advantage of Canterbury’s fishing resources through C.F.C.A.’s subsidiary Feron Seafoods, Ltd,” Mr Johnston says.

“Because the services of the two companies do not overlap, we are please to advise that there will be no staff made redundant by the merger. The opportunities for promotion in the larger enterprise will appeal to people making a career in both companies. Staff superannuation rights will be protected to ensure that because of the merger no staff member will lose any retirement, sickness, or other benefits.”

“Some directors of N.Z. Farmers Co-Operative ciation will be invited to join the Canterbury Farmers Cooperative Association. "The two companies will continue to have management and administrative centres in Timaru and Christ' church, and the new board of directors will give early consideration to the siting of the head office in the best interests of the company.

“Our shareholders will be asked to amend the articles of association of their company to provide for “one share, one vote.” i “C.F.C.A. has had a successful shareholder discount scheme for some years; this scheme offers a discount on a wide range of merchandise of 5 per cent for cash sales. It is intended to offer this privilege to all new shareholders holding a minimum of 100 shares. The discount will apply only to cash-across-the-counter sales.” “Our board of directors strongly recommends the offer to shareholders for acceptance. The new joint operation with a combined board, a fresh outlook in a stronger, more influential, company has the potential for better service to clients and improved profitability to shareholders,” Mr Johnston’s statement concludes.

The reaction of the board of N.Z. Farmers was com-

mendably prompt, swift, and to the point, and should leave the shareholders of the Christchurch company in no doubt.

The chairman (Mr R. H. Clark) said in a press release that discussions had been proceeding between the two companies since his announcement of merger talks on June 26.

“However, the C.F.C.A. representatives insisted that a decision must be made and announced immediately. “My board, on the other hand, unanimously resolved to insist that no agreement could be concluded until the annual accounts of both companies were available for analysis by the board and its consultants. “Because of this disagreement the C.F.C.A. accordingly served my company with a take-over scheme.

“It is not within the spirit of the merger discussion. It is totally unacceptable. “I shall as soon as possibly notify our shareholders of our reasons for strongly urging them to disregard any offers made pursuant to that scheme,” said Mr Clark.

i David is trying to steal a march on Goliath. By making a bid now, the Timaru directors are dictating the terms, and if successful would be in control of the enlarged group. This cannot be right, because no matter bow a merger is affected, and also if the present take-over bid were to succeed, N.Z.F.C.A. shareholders will own the majority of the shares in the merged group. While it is of course perfectly legal for any company to make a take-over bid for any other company, the present move under the circumstances is not quite cricket. Last, but not least, the price seems to be wrong. In any case, the game is now getting rough. Fortunately for the N.Z.F.C.A. shareholders, they have a strong board, which may be expected to make a good fight of it. The board’s legal adviser happens to be Mr R. P. Thompson — no mean fighter himself — who has chopped with this kind of axe before. Meanwhile, the N.Z.F.C.A. shareholders should wait: they can do better than this.