MPC announced that on 8th February 2019 it executed contracts to acquire all the shares in Pacific Gold Macadamias Pty Ltd (PGM) that it does not already own. The acquisition, which is subject to Shareholder approval, will result in MPC increasing its net assets by more than 50% and allow the company to secure additional nut supply from Queensland, home to the industry’s fastest growing domestic region.
Shareholder information Sheet
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Notices of Shareholders’ Meetings and Explanatory Memorandum
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Frequently Asked Questions
These FAQ’s are designed to assist Shareholders understand the Transaction to be considered at Meetings on the 26th March 2019. You should read the Explanatory Memorandum and Notice of Meetings carefully and seek professional advice if you are unsure how to vote.
- In very simple terms, what is the proposed Transaction?
MPC owns approximately 37% of the issued shares in Pacific Gold Macadamias Pty Ltd (PGM), the largest processor in Queensland and second largest processor in Australia. MPC has now contracted to acquire the remaining 63% of PGM shares.
The contracts to acquire the shares are conditional upon the approval of various resolutions by the MPC Shareholders, and a meeting is being scheduled for the 26th March to consider the Transaction. If the Transaction is approved, both PGM and Macadamia Marketing International Pty Ltd (MMI) will become wholly owned by MPC.
- Why is the Board recommending this Transaction?
Global macadamia production is forecast to double over the next five years, and MPC needs to prepare for the changes this will bring to the global macadamia market. The acquisition of PGM allows MPC to grow and maintain its position as a major contributor and influencer of orderly markets within the industry. Orderly markets bring stable prices, which in turn protect farm values. This is important for all Shareholders.
In addition, the acquisition of PGM will materially increase MPC’s exposure to the fastest growing domestic macadamia producing region, Queensland.
- Will there be any cost savings by combining the two companies?
There will be some cost savings achieved by bringing the two businesses together. MPC is aware that processing costs at PGM are higher than at MPC, and the most significant cost savings are expected to be achieved through reducing PGM’s processing costs so that they are more in line with MPC’s costs.
It is also anticipated that there will be cost savings as a result of MPC’s increased scale, that provide bulk buying opportunities in gas, electricity and packaging.
- Given that the transaction is occurring at net asset value, why has the Independent Expert opined it is not fair, but reasonable?
The reason why the Expert has advised that the transaction is “not fair” relates to the ASIC guidelines that must be adhered to when preparing the report.
ASIC requires the Expert to treat the issue of the shares to Zadro as if it was a full takeover bid of the whole Company, even though in reality Zadro is only increasing his shareholding by 7%. The consequence of this treatment is that the Expert must assume the shares are worth more (known as a control premium) due to the shareholder obtaining full and unfettered control of a company. Given that the typical control premium applied in Australia for successful takeover is on average 30%, it is often the case that this type of report will be not fair but reasonable.
This provision of the Corporations Act was drafted having regard to large and extremely liquid companies (like BHP, RIO, Qantas – ASX Top 20 companies) where control of the company can be obtained with a mere 20% interest.
However, the same rule applies for small, unlisted public companies like MPC. Therefore, in accordance with the Corporations Act, because Zadro entities own more than 20% of MPC (ie owning 27.32%) and are increasing its shareholding by more than 3% (ie it is increasing the shareholding by circa 7%), in the fairness assessment, the Independent Expert must assess the transaction as if Zadro is obtaining full and unfettered control of MPC, which is clearly not the case.
In accordance with ASIC, the fairness assessment of the merger must be undertaken by comparing the following:
- Fair market value of MPC share prior to the Merger on a control basis (eg inflated by control premium); with
- Fair market value of the shares in the merged entity on a minority basis.
For avoidance of the doubt, I note that a not fair but reasonable is still a positive opinion as the Expert believes that it is still in the best interest of the Non-Associated Shareholders to vote in favour of the proposed issue of shares.
The following is a direct quote from the Independent Expert Report (p4) “…the Proposed Transaction is value accretive and compelling for the existing MPC Shareholders subject to the realisation of the anticipated cost synergies arising from the combination of the two businesses which are included in our valuation assessment of the Merged Group”.
- Why doesn’t MPC buy the assets of PGM, rather than the shares?
Buying either the shares or the hard assets will incur a stamp duty liability. However, acquiring the shares attracts a lower amount of stamp duty.
- Why doesn’t MPC just build its own receivals facility in Bundaberg and bring additional nut down here?
As well as giving MPC ownership of the physical processing asset, this Transaction increases MPC’s supply of nut by approximately 90%. This material increase in supply is critical to MPC remaining a significant influencer of stable markets and achieving its goal of protecting farm values.
- I am a Grower who holds ordinary MPC shares. What difference will I notice in my interaction with MPC?
This Transaction won’t impact the price you receive for your nut or the amount of dividend paid.
On a day to day basis, you won’t notice any change in your dealings with MPC. You will continue to receive the same quality service from the same employees.
- In the Explanatory Memorandum it states there are two meetings. Why are there two meetings and where will they be held?
MPC has three classes of shares: ordinary, preferential and A class shares. The first meeting is to vary the rights of the ordinary class shareholders only, and thus only ordinary shareholders are entitled to attend and vote at this meeting.
The second meeting is open to all classes of shareholders, however under the MPC constitution, only ordinary shareholders may vote.
The meetings will be held at the Ballina RSL Club on 26 March 2019 with the first meeting commencing at 6pm and the second meeting at 7pm.
- Is voting compulsory?
No, you do not have to vote however the Directors would encourage you to participate in this process by voting.
You can vote by submitting a completed Proxy Form so that it is received at least 48 hours prior to the Meetings, that is by 6pm on 24 March 2019. You can return your Proxy by email, post or fax.
If you are planning on attending the Meetings, please advise us for catering purposes.
- Why are you giving shares to PGM growers but not allowing other MPC shareholders to buy more MPC shares?
In 2018 the MPC board was giving consideration to issuing additional MPC shares, however it was not appropriate to continue those discussions given the proximity of this Transaction. The Board will resume their investigations and consideration following completion or otherwise of this Transaction.
PGM shareholders are exchanging their PGM shares which are valued at approximately $8.5Million for MPC shares of the same value. Importantly this is occurring at net asset value with the PGM shareholders not receiving either a premium or a discount for their shares and the net asset backing of MPC shares not being diluted.
- This Transaction is based on each MPC share having a net asset value of $13.50 per share. Does this set a precedent and mean that we will now have to buy shares at $13.50 each? If that’s the case, why couldn’t the company sell shares to us at a cheaper price first?
The net asset backing of each MPC share before and after the Transaction is approximately $13.50. Using net assets is one way to value a company, however there are several ways to value companies and this net asset value will form one piece of information the MPC Directors use to ascertain the appropriate value at which to issue shares.
The proposed transaction will require changes to the MPC Constitution. Attached below is a link to the current Constitution and a link to the proposed replacement Constitution.
Should have any questions regarding the proposed acquisition, please contact Andrea Lemmon, MPC Transaction Manager on 0407 417 286 during business hours.