Information Pack For Proposed Merger. 4 February 2013

Transcription

1 Information Pack For Proposed Merger 4 February 2013

2 IMPORTANT INFORMATION The information in this section is required under the Securities Act 1978 Investment decisions are very important. They often have long term consequences. Read all documents carefully. Ask questions. Seek advice before committing yourself. Choosing an Investment When deciding whether to invest, consider carefully the answers to the following questions that can be found on the pages noted below: What sort of investment is this? Page 48 Who is involved in providing it for me? Page 49 How much do I pay? Page 50 What are the charges? Page 52 What returns will I get? Page 52 What are my risks? Page 53 Can the investment be altered? Page 56 How do I cash in my investment? Page 56 Who do I contact with enquiries about my investment? Is there anyone to whom I can complain if I have problems with the investment? What other information can I obtain about this investment? Page 57 Page 57 Page 57 In addition to the information in this document, important information can be found in the current registered prospectus for the investment. You are entitled to a copy of that prospectus on request. The Financial Markets Authority regulates conduct in financial markets The Financial Markets Authority regulates conduct in New Zealand s financial markets. The Financial Markets Authority s main objective is to promote and facilitate the development of fair, efficient, and transparent financial markets. For more information about investing, go to Important Notice This Information Pack includes an amalgamation proposal, prepared for the purposes of Part XIII of the Companies Act 1993, and an investment statement prepared for the purposes of the Securities Act 1978, the Securities Act (Co-operative Companies) Exemption Notice 2011 and the Securities Regulations It is prepared as at and dated, 5 February This Information Pack describes the proposed amalgamation of Satara and a wholly-owned subsidiary of EastPack, EastPack Satara Limited, and the terms of the offer of new fully paid EastPack Transactor shares in connection with that Amalgamation, and the terms of a further offer of EastPack Investor shares to the Satara Transactor shareholders as a term of the Amalgamation. It also describes the risks associated with this investment. The purpose of this Information Pack is to provide information that is likely to assist a prudent but non-expert person to decide whether or not to vote in favour of the Amalgamation (one consequence of which is that Satara Transactor shareholders will receive EastPack Transactor shares) and whether or not to take up the Investor Share Offer. You should read all of this Information Pack and the accompanying documentation before deciding whether or not to vote for the Amalgamation and/or subscribe for EastPack Investor shares. If you are in any doubt as to how to deal with this Information Pack, please consult with your financial or legal adviser. EastPack Transactor shares and EastPack Investor shares are not being offered to any person other than Satara Transactor shareholders. If you are no longer a shareholder in EastPack or Satara please return this document to the relevant Company in which you were formerly a shareholder. If you have transferred your Investor shares in either Company to another person you should pass this Information Pack and the accompanying documentation to the purchaser of those shares or the agent through whom the sale was made. No person is authorised to give any information or to make any representation in connection with the Amalgamation, which is not contained in this Information Pack. Any information or representation not so contained may not be relied upon as having been authorised by Satara or EastPack. No person named in this Information Pack, nor any other person, guarantees the EastPack shares allotted as part of the Amalgamation or the associated EastPack Investor Share Offer. Defined terms used in the Information Pack have the meaning given to them in the Glossary in Appendix 4. Neither EastPack Investor shares nor EastPack Transactor shares being offered by EastPack will be listed on the NZAX. Overseas Shareholders This Information Pack is intended for use only in connection with the offer of EastPack shares in New Zealand. It is not to be sent or given to any person outside New Zealand in circumstances in which the offer of EastPack shares or distribution or use of this Information Pack would be unlawful. Forward Looking Statements This Information Pack contains certain statements that relate to the future. Such statements are not a guarantee of future performance and involve known and unknown risks, uncertainties and assumptions, many of which are beyond the control of EastPack and Satara, and which may cause actual results, performance or achievements of EastPack Group to differ materially from those expressed or implied by such statements. All statements, other than statements of historical facts, included in this Information Pack that address activities, events or developments that EastPack and Satara expect or anticipate will or may occur in the future are forward looking statements. When used in this Information Pack, the words "estimate", "project", "anticipate", "expect", "intend", "believe" and similar expressions are intended to identify forward looking statements. Forward looking statements are based on assumptions and analysis made by EastPack and Satara in light of their experience and perception of historical trends, current conditions and expected future developments as well as other factors they believe are relevant. However, whether actual future results and developments will conform to their expectations and predictions are subject to considerations discussed in this Information Pack, particularly the risks set out in the Investment Statement set out in Appendix 1 of this Information Pack, as well as other factors, many of which are beyond the control of the EastPack Group and Satara. All of the forward looking statements made in this Information Pack are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by EastPack and Satara will be realised or, even if substantially realised, that they will have the expected consequences or effects on Satara or the EastPack Group or its businesses or operations. Rounding Numbers and percentages displayed in this Information Pack have in some cases been rounded. Page 2

3 CONTENTS PAGE KEY INFORMATION 4 IMPORTANT DATES 6 HOW TO APPROVE THE MERGER AND ACCEPT THE INVESTOR SHARE OFFER 7 HIGHLIGHTS/KEY TERMS 8 DETAILS OF ENLARGED GROUP, THE MERGER AND THE INVESTOR SHARE OFFER 15 Enlarged Business Overview 15 Rationale for the Merger 15 Business Strategy 19 Board of Directors 20 Executive Team 23 Arrangements with Growers 25 Rebates 26 Dividend Policy 26 Proposed Merger Terms 27 Investor Share Offer 28 Conditions to the Merger Becoming Effective 29 OPERATIONAL SYNERGIES AND COST SAVINGS 31 PROFILE OF EASTPACK 35 EastPack Key Operational and Financial Indicators 39 PROFILE OF SATARA 41 Satara Key Operational and Financial Indicators 44 APPENDIX 1 Investment Statement Information and Exemption Notice Directors' Certificate 47 APPENDIX 2 Other Information 62 APPENDIX 3 Summary of EastPack Constitution and share rights 64 APPENDIX 4 Glossary 69 APPENDIX 5 Directory 73 APPENDIX 6 Amalgamation Proposal 74 APPENDIX 7 Directors' Certificates relating to the Amalgamation 76 APPENDIX 8 Minority Buy-Out Rights 79 APPENDIX 9 EastPack Special Purpose Unaudited Financial Statements for the year ended 31/12/12 APPENDIX 10 Satara Special Purpose Unaudited Financial Statements for the year ended 31/12/12 APPEXNDIX 11 Examples of Satara Shareholder Entitlements and Voting Rights Page 3

4 KEY INFORMATION Merger Terms Amalgamation Satara will amalgamate with a wholly-owned subsidiary of EastPack called EastPack Satara Limited. Satara Transactor shares will convert to EastPack Transactor shares on a dollar-for-dollar basis. i.e. one fully paid EastPack Transactor share for each dollar paid up on Satara Transactor shares held. Satara Investor shares held or controlled by growers will convert to EastPack Investor shares on a one for one basis, provided that no Satara Transactor shareholder may hold more than four EastPack Investor shares for each Class 1 tray they supplied during the 2010, 2011 or 2012 growing season (whichever is the highest) (EastPack Investor Share Threshold). Satara Investor shares held by non-growers and Satara Investor shares which cannot convert to EastPack Investor shares because of the EastPack Investor Share Threshold will be cancelled in exchange for cash consideration totalling $0.60 per share ($0.56 payable by EastPack within five Business Days of the Amalgamation Date and $0.04 payable by EastPack or the Amalgamated Company on 30 June Investor Share Dividend Holders of Satara Investor shares will receive a special dividend of $0.05 per share (fully imputed), which is only to be paid if the parties proceed with the Merger. Investor Share Offer The Investor Share Offer is intended to allow other Satara growers (as a group) the opportunity to acquire the equivalent number of EastPack Investor shares that would otherwise have been allotted to Satara growers that are holders of Satara Investor shares but for EastPack s Investor Share Threshold, at a cash price of $0.65. The precise number will be determined as at the Amalgamation Date, but is estimated that approximately 500,000 EastPack Investor shares will be offered to Satara Transactor shareholders under the Investor Share Offer. Timing Trading of Satara Investor shares on the NZAX will cease upon the Amalgamation becoming unconditional, expected to be on or about Friday 8 March The Amalgamation is expected to be effective from Friday 15 March The key terms of the Merger are set out on pages 27 to 29. Key Merger Benefits Creates the single largest, grower owned kiwifruit packing and coolstorage operation in New Zealand, handling an estimated 27-30% of New Zealand kiwifruit volumes. Ensures low packing prices remain sustainable for the benefit of shareholders of the Enlarged Group. Underpins EastPack's ability to continue to pay dividends to its Investor shareholders and Satara's shareholders who become EastPack Investor shareholders. Synergy savings and improved facility utilisation, increasing the potential to improve the profitability of the Enlarged Group beyond that achievable if the Companies continue to operate separately. An ability to pack through the most efficient sites and defer capital expenditure. Page 4

5 Retains valuable surplus assets for future upgrading enabling the Enlarged Group to efficiently process growth in volumes with relatively low capital expenditure. Operational synergies and cost savings - expected to be $3.5 to $4.3 million per annum from FY2014 ($0.13 to $0.16 cents per Class 1 tray) with $2.7 to 3.3 million expected in Enhanced ability to negotiate more favourable terms for services. Access to the best people across both organisations and the industry. Better standing to work collaboratively with ZESPRI to reduce costs, improve quality and add value in the supply chain from orchard to market. Main Risks of the Merger / Enlarged Group Psa has had, and will continue to have, a significant impact on volumes and it is very difficult to predict the scale of its ongoing effects. Industry fruit volumes have reduced from a high of 113 million trays in 2011 to 98 million trays in Based on industry volume assessments provided by ZESPRI, volumes are expected to continue to decrease in 2013, and for two years thereafter. Also, based on ZESPRI s predictions, volumes are not predicted to increase back to 2011 levels until the year All participants in the kiwifruit industry from growers to ZESPRI and post-harvest operators (the sector that EastPack and Satara trade in) are expecting profits to reduce over these years. There are, however, many unknowns associated with Psa and the impact on crop volumes could be worse than currently anticipated. The earnings of the Enlarged Group are dependent upon the prices it charges its growers for packing and coolstorage and the volume, quality and size of fruit supplied by growers in any one season. This can be affected by matters such as market competition between packhouses and reduced crop volumes (arising, for instance, from Psa and adverse climate, disease, pests and environmental factors). The earnings of the Enlarged Group could be adversely affected by increases in costs of production including the price of packaging materials, electricity and labour (particularly packhouse labour). As with any merger, the expected Merger benefits may not meet expectations. Attention is drawn to the Investment Statement set out in Appendix 1 of this Information Pack which contains key information concerning the issue of securities pursuant to the Merger including a more comprehensive set of risks that the Enlarged Group faces. You should carefully consider the Investment Statement. 1 This statement of estimated costs savings and one-off costs for achieving them relate to future actions and circumstances which, by their nature, involve risks, uncertainties and other factors. Because of this, the cost savings referred to may not be achieved, or those achieved could be materially different from those estimated. This statement should not be interpreted to mean that earnings per share in the financial year following the Merger, or in any subsequent period, will necessarily be greater than those for the relevant preceding financial period. Page 5

6 IMPORTANT DATES Information Pack posted to EastPack and Satara shareholders Proxies close for EastPack Special Meeting of shareholders Proxies close for Satara Special Meeting of shareholders EastPack Special Meeting of shareholders Satara Special Meeting of shareholders Thursday, 7 February 2013 Wednesday, 20 February 2013, 10am Wednesday, 20 February 2013, 2pm Friday, 22 February 2013, 10am Friday, 22 February 2013, 2pm Last day for exercise of minority buy-out rights Friday, 8 March 2013 Amalgamation becomes unconditional Friday, 8 March 2013 Last day for on-market trading of Satara Investor Shares Friday 8 March 2013 Trading Halt on Satara Investor Shares Monday, 11 March 2013 Record Date for Satara Special Dividend Thursday 14 March 2013, 5pm Payment date for Special Dividend Friday 15 March 2013 Closing date for EastPack Additional Investor Share offer Friday 15 March 2013 De-listing of Satara Investor Shares Friday, 15 March 2013 Amalgamation Proposal filed with Registrar of Companies Friday, 15 March 2013 Amalgamation Date Friday, 15 March 2013 Issue of EastPack Transactor shares and Investor shares to relevant Satara Transactor shareholders and first payment date for cancelled Satara Investor shares ($0.56 per share) Second payment date for cancelled Satara Investor shares ($0.04 per share) Friday, 15 March 2013 Monday, 30 June 2014 These dates are indicative only and may change. Page 6

7 HOW TO APPROVE THE MERGER AND ACCEPT THE INVESTOR SHARE OFFER Satara Shareholders: In the envelope containing this Information Pack, you will find a notice of the special meeting of Satara convened to approve the Merger, a form of proxy for that meeting and, for those Satara Transactor shareholders wishing to participate in the Investor Share Offer, the Investor Share Offer Application Form. Instructions on how to vote for the purposes of the special meeting are set out in the notice of meeting. If you are unable to attend the meeting, please complete the form of proxy and return it to electionz.com in the envelope provided as soon as you are reasonably able. If you want to participate in the Investor Share Offer and are eligible to do so, please complete the Investor Share Offer Application Form. Satara shareholders with questions about how to complete the forms should contact: Janice Candy, Satara Co-Operative Group Limited Washer Road, Te Puke P O Box 243, Te Puke Janice.Candy@satara.co.nz Phone: Fax: EastPack Shareholders: In the envelope containing this Information Pack, you will find notice of the special meeting of EastPack convened to approve the Merger and a form of proxy for that meeting. Instructions on how to vote for the purposes of the special meeting are set out in the notice of meeting. If you are unable to attend the meeting, please complete the form of proxy and return it to electionz.com in the envelope provided as soon as you are reasonably able. EastPack shareholders with questions about how to complete the forms should contact: Donna Smit, EastPack Limited 678 Eastbank Road PO Box 45, Edgecumbe Donna.Smit@eastpack.co.nz Phone: Fax: Details of the Special Meetings Meetings are being held on Friday, 22 February 2013 at Baypark Stadium Lounge, 81 Truman Lane, Mount Maunganui to seek the approvals. The EastPack Special Meeting will be held at 10:00am and the Satara Special Meeting will be held at 2:00pm. Missing Documents Please contact either Satara or EastPack (as applicable) if you did not receive any of the documents mentioned above. Page 7

8 HIGHLIGHTS / KEY TERMS The EastPack and Satara Boards have reached agreement on the terms of a proposed merger of EastPack and Satara to create New Zealand s largest kiwifruit post-harvest company. The company will be grower owned. 2 Some key attributes of the Enlarged Business following the Merger are as follows: It will handle an estimated 27-30% of New Zealand kiwifruit volumes 3 and will be the largest kiwifruit post-harvest company in New Zealand. The combined grower base will be more than 880 supplying orchards (KPINs). Approximately 300 new KPIN's will be introduced to EastPack s Transactor share register and expand the EastPack Transactor share capital base to over $20 million. The Enlarged Group will have a total of nine kiwifruit facilities employing over 210 permanent staff with seasonal employment of over 2,000 staff. Based on the 2012 year end balances, adjusted for expected consolidation transactions, the combined turnover for the merged entity would be in excess of $112 million and the net assets (including Transactor share capital) would be over $59 million. Merits of the Merger EastPack and Satara are obvious merger partners and the respective strengths and the synergies that will follow from the Merger will provide a much stronger platform to deal with the challenges that the industry is now facing, particularly Psa. The EastPack and Satara Boards strongly believe that the Merger is not only in the best interests of both Companies and their shareholders, but is fundamental to preserving value. The Merger will create benefits of scale and ensure the Enlarged Group has the financial capacity and resources to implement operational improvements in a structured and orderly manner. The key benefits of the Merger include the following: Operational synergies and cost savings - expected to be between $3.5 million and $4.3 million per annum from FY2014 with between $2.7 million and $3.3 million expected to be available in These benefits flow from a variety of sources including the rationalisation of excess capacity, the elimination of duplication in costs, and the introduction by EastPack to Satara of business tools used over recent years to drive efficiency gains and quality improvement. Details in respect of additional 2 Note under its constitution EastPack Investor shares can only be held by EastPack Transactor shareholders, with the exception that up to 5% of Investor shares on issue can be held by staff. At 31 December ,000 Investor shares were held by staff, which post Amalgamation will represent 1.7% of the Investor shares on issue before taking into account new shares issued under the Investor Share Offer. 3 Based on currently anticipated FY 2013 kiwifruit volumes and the Transactor shareholder bases of both Companies. 4 This statement of estimated costs savings and one-off costs for achieving them relate to future actions and circumstances which, by their nature, involve risks, uncertainties and other factors. Because of this, the cost savings referred to may not be achieved, or those achieved could be materially different from those estimated. This statement should not be interpreted to mean that earnings per share in the financial year following the Merger, or in any subsequent period, will necessarily be greater than those for the relevant preceding financial period. Page 8

9 ongoing annual costs required to achieve the synergies and one-off costs that have been identified in relation to the Merger are set out on page 32. The ability to process volume through the most efficient sites and defer capital expenditure until industry volumes justify further investment. The Enlarged Group's financial strength will better enable it to quickly upscale with modern efficient equipment if kiwifruit volumes recover. Other benefits of scale include: o o enhanced ability to negotiate more favourable terms for services; and access to the best people across both organisations and the industry in general. Ensures low packing prices remain sustainable for the benefit of shareholders of the Enlarged Group. Underpins EastPack's ability to continue to pay dividends to its Investor shareholders and Satara's grower shareholders who become EastPack Investor shareholders. Synergy savings and improved facility utilisation, improve the profitability of the Enlarged Group beyond that achievable if the Companies continue to operate separately. An Enlarged Group better able to work collaboratively with ZESPRI to reduce costs, improve quality and add value in the supply chain from orchard to market. Since 2010, EastPack and Satara have substantially reduced debt levels and are now in a position of relative financial strength and stability to contemplate buying out non-grower interests and reverting to grower ownership and control. This will assist to keep the focus on quality processing, the highest possible OGRs, low packing prices and realising the benefits outlined above, which are discussed in more detail on pages 16 to 19. The Enlarged Group expects to incur $1.1 million in one-off costs to effect the Merger and realise the operational synergies. Merger Terms Satara Transactor shareholders will receive one fully paid EastPack Transactor share for each dollar paid up on Satara Transactor Shares held. Each Satara Investor share held or controlled by Satara Transactor shareholders or their affiliates will be cancelled in exchange for one EastPack Investor share, provided that no Satara Transactor Shareholder may hold more than the EastPack Investor Share Threshold. Satara Investor shares held by other shareholders and Satara Investor shares held by Satara Transactor shareholders that cannot be exchanged into EastPack Investor shares because of the EastPack Investor Share Threshold, will be cancelled in exchange for cash consideration of $0.60 per share ($0.56 payable by EastPack within five Business Days after the Amalgamation Date and $0.04 payable by EastPack or the Amalgamated Company on 30 June 2014). All Satara Investor shareholders will receive a special dividend of $0.05 per share (fully imputed) (which will only to be paid if the parties proceed with the Merger) (Special Dividend). Page 9

10 Further details on the terms of the Merger are set out on pages 27 to 29. Rationale The primary objective of the Merger is to create a co-operative that is owned by growers and of sufficient scale to realise the benefits outlined above. The EastPack and Satara Boards believe the one-for-one exchange ratios for Transactor and Investor shares are fair. To achieve grower ownership, Satara's non-grower Investor shareholders are being offered cash consideration at a price incorporating a substantial premium of 50% to the last traded price for Satara Investor shares (excluding the Special Dividend) 5. The Merger presents non-grower Satara Investor shareholders with the opportunity to realise their investment at that premium price against a background of thin trading volumes of Satara Investor shares, reflecting low levels of investor demand for this security. It is the opinion of both Boards that, in the absence of the Merger, this is unlikely to change in the near to medium term. Arrangements with Growers All Satara Transactor shareholders have in place packing contracts with Satara for the 2013 packing season. Those contracts will be assumed by EastPack Satara (a subsidiary of EastPack) as a function of the Amalgamation. Growers contracted to Satara will be provided with the option of remaining on Satara's terms (including Satara's pooling and trust terms) or moving to EastPack's standard terms (including EastPack's pooling and trust terms) for the 2013 season. Existing pooling arrangements and trust arrangements applying to grower funds will apply for the 2013 season. Ideally all Satara growers will be on EastPack's standard terms and trust arrangements for the 2014 packing season. Representatives of both EastPack Entity Trust (EET) and Satara Kiwifruit Supply Limited (SKSL) will determine how grower funds will be pooled for the 2014 season. Rebates will be the same for all Transactor shareholders in the Enlarged Group post-merger, whether they were EastPack or Satara growers prior to the Merger. EastPack expects to pay a Rebate of 20 cent per Class 1 tray of kiwifruit supplied during the 2013 growing season. Satara growers who are entitled to a 20 cent per tray Rebate payable on 30 June 2013 under the terms of their Supply Commitment Agreement with Satara, will be paid their Rebate on that date. All other grower shareholders will receive their Rebate on a date to be determined by the EastPack Board. Please see page 25 and 26 for further discussion on these arrangements with growers. Investor Share Offer The Investor Share Offer is intended to allow Satara growers (as a group) the opportunity to acquire approximately 500,000 EastPack Investor shares, being the equivalent number of EastPack Investor shares that would otherwise have been allotted to holders of Satara Investor shares but for the EastPack Investor Share Threshold (Additional Investor Shares). 5 The last traded price of $0.40 for Satara Investor shares referred to is as at 1 February 2013, the last date before this document went to print. If the offer price of $0.60 is combined with the Special Dividend, the premium of such total consideration to the last traded price for Satara Investor shares is 62.5%. Page 10

11 EastPack will offer holders of Satara Transactor Shares the right to apply for the Additional Investor Shares, provided that no Satara Transactor shareholder will be entitled to more than four EastPack Investor shares for each Class 1 tray they supplied during the 2010, 2011 or 2012 growing season (whichever is the highest). The cash issue price for EastPack Investor shares has been set at $0.65 per share, which is broadly equal to the aggregate cash consideration 6 that will be paid to other Satara Investor shareholders. In the event that there is a shortfall of applications from Satara Transactor shareholders for Additional Investor Shares, EastPack will offer the unsubscribed Additional Investor Shares to Satara Transactor shareholders on the same terms on or about the first, second and third anniversaries of the Amalgamation Date or until they are fully subscribed. The Subscription Price under all offers will be payable at any time up until the third anniversary of the Amalgamation and will not bear interest. An Additional Investor Share will not be issued until payment of the Subscription Price is received by EastPack. Further details on the terms of the Investor Share Offer are set out on pages 28 and 29. Key Risks The opportunity to merge EastPack and Satara operations presents some short term challenges to deliver long term strategic benefits. The Merger is not without risk as the Enlarged Group attempts to rationalise and streamline operations in a Psa environment. The key risks arising out of the implementation of the Merger are as follows: Psa has had, and will continue to have, a significant impact on volumes and it is very difficult to predict the scale of its ongoing effects. Industry fruit volumes have reduced from a high of 113 million trays in 2011 to 98 million trays in Based on industry volume assessments provided by ZESPRI, volumes are expected to continue to decrease in 2013, and for two years thereafter. Also, based on ZESPRI s predictions, volumes are not predicted to increase back to 2011 levels until the year All participants in the kiwifruit industry from growers to ZESPRI and post-harvest operators (the sector that EastPack and Satara trade in) are expecting profits to reduce over these years. There are, however, many unknowns associated with Psa and the impact on crop volumes could be worse than currently anticipated. The earnings of the Enlarged Group are dependent upon the volumes of fruit supplied for packing and the prices it charges for packing and coolstorage in any one season. This can be affected by matters such as market competition between packhouses and reduced crop volumes (arising for instance from Psa, adverse climate, disease, pests and environmental factors). The earnings of the Enlarged Group could be adversely affected by increases in costs of production including the price of packaging materials, electricity and labour (particularly packhouse labour). 6 Cash consideration of $0.65 per share includes the special dividend of $0.05 per share that is to be paid by Satara immediately prior to the Amalgamation in the event the parties proceed with the Merger. Page 11

12 Any merger carries with it significant uncertainty and risk as to whether its benefits will meet expectations. The process of the Merger itself has risk. This includes staff and IT integration risks. These factors could affect returns to the business and therefore on EastPack Transactor and Investor shares. In particular, distributions to EastPack Investor shareholders, the payment of Rebates to growers and the value of OGRs of the Enlarged Group could all decline (but, equally, could improve for the same reasons). Attention is drawn to the Investment Statement set out in Appendix 1 of this Information Pack which contains key information concerning the issue of securities pursuant to the Merger including a more comprehensive set of risks facing the Enlarged Group. You should carefully consider the Investment Statement. Merger Approvals Required The Merger is subject to various shareholder approvals which will be sought at special meetings of EastPack and Satara to be held on 22 February Further details on the shareholder approvals required and the conditions applicable to the Merger are set out on pages 29 and 30. Directors' Recommendation EastPack s and Satara's Boards recommend that shareholders vote in favour of the Merger. They have both concluded that a merger between Satara and EastPack is in the best interests of growers, shareholders and the industry itself and is fundamental to preserving value. Implications if the Merger does not proceed If the requisite approvals required from Satara and EastPack shareholders and various Satara interest groups to implement the Merger are not obtained, or if any of the other Conditions are not satisfied or waived, the Merger will not proceed. The implications of this include the following: EastPack and Satara will continue to operate and compete on a standalone basis. The current outlook for FY13 is lower fruit volumes for both Companies and, for Satara, expected lower packing charges compared with FY12. As a consequence of this EastPack and Satara both expect weaker trading results in FY13. Satara does not expect to be in a position to pay dividends to its Investor shareholders in the foreseeable future, pending a return of improved crop supply and due to capital expenditure necessary to upgrade plant and equipment. Satara Investor shares will remain listed on the NZAX. The market price of Satara Investor shares may fall or rise. The current price of Satara Investor shares may be influenced by market expectations of the Merger being completed. If the Merger is not completed the Satara Investor share price may fall or rise due to the market expectations not being met. EastPack and Satara will bear much of the transaction costs of approximately $550,000 they would have borne if the Merger had proceeded. Page 12

13 EastPack will declare a gross dividend of up to $0.15 cents per Investor share, being a distribution of profit for the year ended 31 December Satara Investor shareholders will not receive the Special Dividend, which is only to be paid if the parties proceed with the Merger. Other Information More detailed information is set out later in this document. You should also consider the following: The more detailed description of the Enlarged Group, the Amalgamation and the Investor Share Offer, set out on pages 15 to 46. The investment statement prepared for the purposes of the Securities Act 1978, the Securities Act (Co-operative Companies) Exemption Notice 2011 and the Securities Regulations 2009 set out in Appendix 1. The Investment Statement provides answers to various key questions concerning the offers of EastPack shares. The Amalgamation Proposal, prepared for the purposes of Part XIII of the Companies Act 1993, set out in Appendix 6. The Prospectus of EastPack, with audited financial statements of EastPack for the year ended 31 December 2011 attached. You can view Prospectus and the financial statements on the Companies Office website at Page 13

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15 DETAILS OF THE ENLARGED GROUP, THE MERGER AND THE INVESTOR SHARE OFFER Enlarged Business overview The Merger will create New Zealand s largest kiwifruit post-harvest company. The company will be grower owned. Some key attributes of the Enlarged Business following the Merger are as follows: It will handle an estimated 27-30% of New Zealand kiwifruit volumes 7 and will be the largest kiwifruit post-harvest company in New Zealand handling over an estimated 27 million trays of fruit annually. The combined grower base will be more than 880 supplying orchards (KPINs). Approximately 300 new KPINs will be introduced to EastPack s Transactor share register and expand the EastPack Transactor share capital base to over $20 million. The Enlarged Group will have a total of nine kiwifruit facilities employing over 210 permanent staff with seasonal employment of over 2,000 staff. Based on the 2012 year end balances, adjusted for expected consolidation transactions, the combined turnover for the merged entity would be in excess of $112 million and the net assets (including Transactor share capital) would be over $59 million. The Enlarged Group will continue to pack avocados. Whilst volumes and resultant contribution are relatively low compared to kiwifruit, the avocado packing operation is expected to remain an important contributor moving forward. Further details of the Enlarged Group are set out on the following pages. This includes details of the intended Board and executive team, a description of the overarching business plan, the policy and rules concerning dividends and Rebates. Rationale for the Merger The kiwifruit industry in New Zealand is currently facing enormous challenges. Psa has greatly reduced industry fruit volumes from a high of 113 million trays in 2011 to 98 million trays in Based on industry volume assessments provided by ZESPRI, volumes are expected to continue to decrease in Also based on ZESPRI s predictions, volumes are not predicted to increase back to 2011 levels until the year All participants in the kiwifruit industry from growers to ZESPRI and post-harvest operators (the sector that EastPack and Satara trade in) are expecting profits to reduce over these years. The post-harvest sector is particularly competitive as operators, including EastPack and Satara, continue to compete for crop volume. This has seen discounting of post-harvest charges in the 2012 season, and increased discounting for the ensuing 2013 season. Post-harvest business profitability is critically dependant on crop volume throughput. Given the decrease in future volume, all businesses will be under pressure to maintain profitability. Looking forward, the outlook over the next two years is for lower national crop volumes due to the impact of Psa and the time lag in returning to full production as orchards cutover to new varieties. In this environment neither EastPack nor Satara need as much grading/processing capacity as they currently have available. Rationalisation and economies of scale are fundamental to post 7 Based on currently anticipated FY 2013 kiwifruit volumes and the Transactor shareholders bases of both Companies. Page 15

16 harvest operators. Consolidation of the industry's two large grower co-operatives is one means to achieve this. EastPack and Satara are like-minded co-operative companies that have played vital roles in the development of the kiwifruit industry. They are obvious merger partners and the respective strengths and the synergies that will follow from the Merger will provide a much stronger platform to deal with the Psa challenges that the industry is now facing. Following the Merger, the Enlarged Group will handle an estimated 27-30% of New Zealand kiwifruit volumes and will be the largest kiwifruit post-harvest company in New Zealand. The Merger will create an Enlarged Group that will be a grower-owned post-harvest operator and the Boards of EastPack and Satara believe that this will help maintain the unity of the kiwifruit industry and ensure that the combined entity will be able to deliver the highest possible OGRs, Rebates and dividends. Both Boards strongly believe that the Merger is in the best interests of growers, shareholders and the industry itself and is fundamental to preserving value in an industry that is experiencing a decline in volumes in the short to medium term. Other benefits of the Merger are set out below. The Boards of EastPack and Satara believe that there will be immediate financial benefits arising from the Merger. The Merger will create benefits of scale and diversification of production facilities and ensure the Enlarged Group has the financial capacity and resources to implement operational improvements across the business in a structured and orderly manner. The Boards believe that the key benefits of the Merger fall into the following key categories: Full Grower Ownership will assist to keep the focus on quality processing, resulting in the highest possible OGRs, Rebates and dividends. Having a co-operative company of significant scale will ensure the cornerstone supplier to ZESPRI remains grower owned, and help to preserve the cooperative principles under which the kiwifruit industry is currently operated and governed. Satara Investor Shares can be held by both growers and non-growers. There is an inherent conflict of interest when external funding is introduced to a co-operative structure. Investor shareholders naturally wish to maximise their return on capital employed while growers place greater emphasis on OGRs and therefore prefer lower packing and packaging charges (net of any Rebate). Removing non-grower interests lessens the tension between paying a higher Rebate versus distributing profit to Investor shareholders. However this comes at a cost to the Enlarged Group. As part of the Merger, non-grower Investor shareholders are to be 'cashed-out'. While the Enlarged Group has the financial capacity to debt fund the purchase of non-grower held Investor shares, in part due to the advantage of being able to defer capital expenditure, it will incur an incremental debt servicing charge of $0.4 million per annum. Operational Synergies and Cost Savings including benefits arising from introducing EastPack s Growing Excellence programme to Satara's business. It is expected that total annual savings arising from FY2014 will be in the range of $3.5 million to $4.3 million (mid range $3.9 million) per annum ($0.13 to $0.16 cents per Class 1 tray), with approximately $2.7 million to $3.3 million available in Page 16

17 The anticipated one off and ongoing costs to achieve these synergies are outlined in the commentary below the following table. Mid range Net efficiencies from the consolidation of packhouses and coolstore facilities Growing Excellence efficiencies introduced to Satara sites Administrative Overhead and Service Cost Synergies Total Annual Savings from FY2014 $1.2 million $0.2 million $2.5 million $3.9 million The core assumptions underpinning the synergies are summarised on page 33. Additional ongoing costs to achieve these synergies are expected to be approximately $0.9 million consisting of additional interest costs and the anticipated decrease in Satara revenues, on the assumption that Satara growers adopt EastPack's lower packing charges. In addition, one off costs required to achieve these synergies are expected to be approximately $1.1 million. It is expected that most, if not all of these costs will be incurred in FY2013. These synergies are expected to be critical in managing the impact of Psa on OGRs. For growers, the Merger will ensure that the Enlarged Group has efficient volumes to maintain throughputs at near capacity levels by mothballing two sites. This, combined with the consolidation of packing and coolstores at the most efficient, cost effective and strategic sites, will provide the Enlarged Group with the best chance of maintaining OGRs, Rebates and dividend flows. EastPack's existing growers' dividends are likely to erode if the Merger does not proceed. For Satara growers, becoming a shareholder of EastPack is expected to result in a relative improvement in OGRs, Rebates and dividend flows. Increasing OGRs will be the primary focus of the Enlarged Group following the Merger. More detail on Operational Synergies and Cost Savings is provided on pages 31 to 34. Other Benefits of Scale: o Enhanced ability for the Enlarged Group to negotiate lower charges for a number of services. The Enlarged Group will handle an estimated 27-30% of New Zealand Class 1 kiwifruit volumes 9 and will be the largest kiwifruit packing and coolstorage operation in New Zealand. With increased volumes the ability to negotiate lower charges for a number of services is anticipated to see a reduction in per unit costs, including, potentially under the following categories - packaging supplies, electricity charges, logistics services and other 8 This statement of estimated costs savings and one-off costs for achieving them relate to future actions and circumstances which, by their nature, involve risks, uncertainties and other factors. Because of this, the cost savings referred to may not be achieved, or those achieved could be materially different from those estimated. This statement should not be interpreted to mean that earnings per share in the financial year following the Merger, or in any subsequent period, will necessarily be greater than those for the relevant preceding financial period. 9 Based on currently anticipated FY 2013 kiwifruit volumes and the Transactor shareholders bases of both Companies. Page 17

18 supplies such as petrol and administration consumables. Potential cost savings for these items have not yet been quantified. o o Access to the best people across both organisations and the industry. The Merger will bring together two excellent teams with similar cultures. Both teams have strong loyalty to their respective brands, and offer open, transparent and good technical advice and communication. To achieve the synergies and savings outlined, due to duplications of roles that will occur with the merger, some current management roles will be disestablished. However, all existing grower service representatives, the Satara management team (excluding current Satara Managing Directors) and Satara orchard managers will continue to be employed within the Enlarged Group following the Merger. Following the Merger the Enlarged Group will be the largest kiwifruit packing and coolstorage operation in New Zealand. Having this volume will provide the critical mass to help attract, develop and retain valuable and highly skilled staff. Industry supply-chain opportunities. The Enlarged Group will be better placed to engage with ZESPRI on initiatives to improve OGRs. Having a focus on supply chain efficiencies and improvement is necessary to counter the continuing trend towards a stronger New Zealand dollar against most of our industry s trading currencies. An Enlarged Group will provide a better opportunity to work collaboratively with ZESPRI to reduce costs, improve quality and add value in the supply chain from orchard to market. In these Psa challenging times it is important that as much cash as possible is returned to growers. In this regard EastPack has conducted a high level analysis of the New Zealand kiwifruit industry s supply chain, and identified various "cost buckets" and other opportunities. Initiatives reducing waste and costs over recent years have included the following: Since 2010 the NZ industry onshore and offshore fruit loss, condition checking and repacking charges have greatly reduced. It is estimated that, in aggregate, such reductions equate to an industry saving and enhancement in excess of $50 million. This, combined with a reduction in post-harvest packaging charges is one of the reasons why the GREEN OGR has risen from 2012 compared to 2011, despite the continuing strengthening of the New Zealand Dollar against most other currencies. In 2012 EastPack participated in the Supplier Accountability Quality Trial Into Europe the results of which saw EastPack receive 54% of the total premiums paid to post-harvest suppliers, whilst supplying only 25% of the fruit. This has assisted increasing EastPack GREEN growers' 2012 OGRs. Having suppliers taking responsibility for in-market quality performance and having transparency and trust in the offshore checking system is a major advancement in reducing supply chain costs. o o Geographical spread, reducing impact of localised crop damage. The Merger will also improve the geographical spread of kiwifruit supply and post-harvest facilities to the Enlarged Group, thus reducing the impact of localised crop damage or failure. Better placed to deal with Psa. The impact of Psa remains uncertain. It appears that the Hayward GREEN variety has significant resistance in most regions, but has shown significant Page 18

19 susceptibility this year in regions where the climate is cooler and wetter. Experience has shown that the Hayward GREEN vines can recover from Psa from one year to the next. The big unknown is the effect of Psa on the ZESPRI recovery program, via new varieties G3 in particular. If the recovery of volumes (from Psa) via new varieties is not achieved, the New Zealand kiwifruit industry will become predominantly a Hayward GREEN industry, producing volumes in the vicinity of million trays. As at this date, Psa is infecting most new varieties, grafts and plantings and therefore the recovery of tray volumes via new varieties is at best unsure, making future volume projections extremely difficult. By merging EastPack and Satara this will help protect GREEN growers OGRs, Rebates and dividends due to the ability to aggregate crop volume around some of the most efficient and strategically located packhouses in New Zealand. If growers are able to find remedies to protect their new varieties, the Enlarged Group would be well placed to take advantage of the resulting volume increase. Business strategy The focus of the Enlarged Group will be to deliver quality services and competitive OGRs for all growers. From an operational perspective the key focus for the 2013 season if the Merger proceeds will be: taking advantage of, and implementing, the synergies identified and other opportunities which materialise. This will include: o o o o moving volumes to the most efficient packing sites and mothballing packing at the Washer Road and Griffin Road sites (with staff redeployed where vacancies are available), but with cool and cold storage continuing at Washer Road; maximising the benefits of scale in purchasing and procurement; working with ZESPRI to seek to further take advantage of industry supply chain opportunities; and continuing to develop more efficient business systems and processes (as part of the "Grower Excellence" program); integrating software, systems and processes; engaging and working with growers to standardise terms and systems across the organisation; and continuity of quality services to growers. Beyond the 2013 packing season and realisation of residual synergies, the strategy is to implement change by investing further in the vision of "World Class orchard to market" across all sites. Page 19

20 Board of Directors Following the Merger, the Board of Directors of EastPack will comprise eight elected grower directors (two former Satara grower directors and six current EastPack grower directors) and EastPack's two independent commercial directors. Brief biographies of the members of the board are set out below. Ray Sharp Chairman Ray has been involved as a shareholder and grower with EastPack since 1997 and has been Chairman since Ray is involved in governance, planning and the strategic direction of EastPack, and has significant interests in kiwifruit orchards in Opotiki and Tauranga and holds a number of other directorships. Besides kiwifruit, Ray has ownership interests in the sheep, beef and forestry sectors. He has a Bachelor of Commerce Degree, and is a Fellow of the Institute of Directors. Ray has had 29 years' experience as a Chartered Accountant until Ray was a ZESPRI Director from July 2009 until March Grant Eynon Deputy Chairman Grant has been involved in the kiwifruit industry for 20 years. He became an EastPack Director in 2000, after the sale of Zest Company. Grant is a former NZKGI forum member and Chairman. He was a Kellogg Rural Leadership Scholar in Grant has extensive experience in property development. Page 20

21 Michael Montgomery Michael has been involved in the kiwifruit industry as a grower and a post-harvest operator since He became an EastPack Director in 2000, after selling his post harvest operation, Zest Company. Together with business partner Grant Eynon, he operates a partnership which has orchards in the Bay of Plenty and Hawke s Bay. Michael is Chairman of the kiwifruit industry logistics company, Tauranga Kiwifruit Logistics Ltd (TKL). Adrian Gault Adrian has been a Director of EastPack since April He holds a Bachelor of Agricultural Science and is a Nuffield Scholar (2000). Adrian is a Director of Otara Land Co., which has 19 canopy hectares of kiwifruit, 400 hectares sheep and beef. He has 30 years' experience in agriculture and horticulture. Mark Hudson Mark has been involved in the kiwifruit industry since 1982 and been an EastPack Director since Mark and his wife Helen have developed a 14 hectare orchard in the Whakatane area. Mark has a financial and accounting background and a Bachelor of Social Science. Mark holds representation on NZKGI and KVH for the Edgecumbe area. Page 21

22 Dr Mike Ashby Mike joined the EastPack board as an Independent Commercial Director in He is currently Director of The Breakthrough Company. Prior to that he was Chief Operating Officer at Southern Cross Healthcare. Mike was a partner at Cap Gemini (formerly Ernst & Young Consulting), leading the national Strategy and Transformation team, and worked with a number of large and small firms in agribusiness, insurance, government and financial services. He is also Chairman of TerraNova Group Ltd, a director with Stanley Construction and on the advisory board of Terrabyte. Maurice Kidd Maurice has a finance and investment background with extensive senior management and governance experience in a wide range of sectors including finance, retail, health, business systems, infrastructure and export produce both in New Zealand and internationally. He is currently Chairman of Molemap NZ Ltd, Beds R Us Franchise System Incorporated, Image Centre Holdings Ltd, Fairview Metal Industries Ltd and holds several other directorships, including of Paper Plus New Zealand Ltd. He spent eight years with Price Waterhouse in the UK and New Zealand, has a Bachelor of Commerce and is a member of the NZ Institute of Chartered Accountants and NZ Institute of Directors. Maurice was Commercial Director of the New Zealand Kiwifruit Marketing Board 1993 through to Murray McBride Murray has been involved in the kiwifruit industry since He managed the McBride family post-harvest facility and in 1990 purchased his first orchard. Since then Murray has been heavily involved in developing new Gold orchard plantings and is renowned in the industry as a leader in this field. He is currently a director of Sequal Lumber Limited, Trinity Lands Limited and Bay GOLD Limited. Page 22

23 Hendrik Jan Pieters Hendrik Pieters brings significant industry expertise to the role having been involved in the kiwifruit industry for 30 years as a grower of both green and gold kiwifruit (four orchards), and the owner and manager of a service business to the industry (harvesting and bees). In addition to his Chairmanship of Satara, Hendrik is also a current Director (and Deputy Chairman) of Kiwifruit New Zealand, the body charged with regulatory oversight of ZESPRI. Hendrik was the inaugural President of NZKGI, and a previous Chairman of Te Puke Fruitgrowers Association. Michael Maltby Michael has been a grower and Satara shareholder since He has a Bachelor of Commerce degree and is a member of the NZICA (Chartered Accountant), having spent 13 years with KPMG before leaving to establish his own IT consultancy business in Michael joined the Satara board in 2008 as a grower director and has chaired the Audit & Conflict Committee since His other business interests include dairy farming, forestry and commercial property. Following the Merger, the existing rotation rules in EastPack's constitution will apply. Under these rules one third of the shareholder directors or, if their number is not a multiple of three, the number nearest to one third shall retire from office, but be eligible for re-election at each annual general meeting. Assuming that there are no resignations during the intervening period, this would mean that Mr Pieters and Mr Maltby would be entitled to remain in office until the 2015 annual general meeting, when they will be required to resign but be eligible for re-election. Executive Team Following the Merger EastPack will have an eight member leadership team comprising of: Tony Hawken Chief Executive Tony has been with EastPack since its opening in He has a broad understanding of all facets of the kiwifruit industry, from the orchard to the marketplace. Tony has a Diploma in Horticulture and Horticultural Management. Page 23