“BAIC have advised that their investment in PGW is strategic in nature and has been made with the aim of exploring future closer ties between New Zealand and China as a major export market for agriculture."
PGW is a retailer selling supplies to NZ farmers. All the IP went out of the door with the sale of the seed division. How will China owning a share of PGW help develop China as an export market for NZ farmers? To me the reason for acquisition by BAIC of the now 11% stake in PGW is vague and doesn't really stand up to scrutiny.
Beijing Capital Agribusiness and Foods Group (BCAG) is the parent of BAIC
I see information Beijing Capital Agribusiness Inc is to be found on the CITIC website.
http://www.agri.citic/html/en/Animal...Agribussiness/
"CITIC Group was established in 1979 by Mr. Rong Yiren with the support of late Chinese leader Deng Xiaoping. Since its inception, CITIC Group has been a pilot for national economic reform and an important window on China's opening to the outside world. It has blazed a new trail of development for China's Reform and Opening-up by raising foreign capital, introducing advanced technologies, and adopting advanced international practice in operation and management, thus building up good reputation both home and abroad."
So BAIC is for all effective investment purposes an arm of the Chinese government. Would our government be happy with the Chinese government controlling a large chunk of NZ's agricultural supply chain? What benefit to NZ would that offer?
I never knew I was powerful enough to control the market for PGW shares! But let's rewind the situation. The recent peak in PGW share price prior to the seed division divestment was 71c on 8th June 2018. Following the sale of the seed division, a 31cps capital distribution was made. So the equivalent highest PGG Rural Rump price was: 71c - 31c = 40c. There has been a 10:1 share consolidation since. So the PGG Rural Rump price at its highest was the equivalent of $4. At the time it was speculated that Elders might be interested in buying PGW. But that price was judged too high and no bid came.
I find it doubtful that BAIC would pay an equivalent price to what Elders would have paid as I can see fewer synergies. Take 20% off $4 (a price that Elders was not prepared to pay) and I get $3.20. To me that would be the upper bound of any takeover price from BAIC for PGW. With no takeover bid we might expect PGW to trade at a price 15-20% below $3.20. That translates to an indicative price range of $2.56 to $2.72. With PGW shares trading at $2.98 today, the risk/reward buying in at that price looks marginal.
SNOOPY