The move by China's Bright Dairy & Food Co to take a 51% stake in independent dairy company Synlait is another example of this country's inability to grow companies, business commentator Rod Oram says.
Bright is paying $82 million to take control of
The move by China's Bright Dairy & Food Co to take a 51% stake in independent dairy company Synlait is another example of this country's inability to grow companies, business commentator Rod Oram says.
Bright is paying $82 million to take control of Synlait's processing operations, with some of the cash injection making up for the abandonment last year of a $150 million float, which Synlait had said was needed to double its milk-processing facilities at Dunsandel near Christchurch.
Synlait will continue to own and operate all of its Synlait farms through a separate company.
Also yesterday, PGG Wrightson announced it was accepting an offer of 55c a share for its 11.5% stake in NZ Farming Systems Uruguay from Singapore's Olam International.
Olam already held 18.45% of NZFSU and launched a $109.5 million takeover bid for all the shares it does not own.
Oram said the announcement of the Synlait and NZFSU developments had made for an important and depressing day.
"Twice in one day we get a situation where New Zealand investors are unprepared to invest in the future of the dairy industry and, sorry, I find that very depressing," he told Radio NZ today.
Synlait, which had been one of the most effective builders of large dairy operations, gained some advantages from the deal, including a good channel into Chinese markets through Bright. But the deal would "tightly lock" Synlait into Bright.
It was downstream from farms, in the areas of production, branding and distribution where real value was created, Oram said.
"Owning farms is okay but if you're looking for real long term value Synlait's given up control over that part."
Along with Bright's 51% stake in Synlait's processing operations, another 22.5% is owned by Japanese trading and food company Mitsui.
"This is further evidence that we just plain can't grow companies in this country and hang on to them ... even in dairying, which is our biggest and most powerful sector," Mr Oram said.
Meanwhile, NZFSU, which is developing farming land in Uruguay, had made good progress but it had been difficult and along the way various investors had lost interest.
NZFSU was behind schedule in terms of production and returns but nobody would doubt that in due course those returns would come, Mr Oram said.
