"Horrified" Sheep and beef farmers around the country will be devastated to hear that their hopes of industry consolidation have been shredded by PPCS. Meat Industry Action Group Chairman Keith Milne said he was horrified that the Mega Merger was not going to go ahead and he said that already some farmers he had spoken to were calling for heads to roll. The present poll on Farmnews is enough to give an indication of how farmers are feeling toward the sheep industry at the moment. Results of the poll so far are: Will you still be a sheep and beef farmer in 5 years time? Yes 30% Yes, but only if there is a big lift in price next season 42% No, I've given up hope or had enough 14% No, Can't afford to wait for price lift 14% Are you sticking with sheep and beef? Yes, not making any changes 14% Yes, but I'll be grazing cows or growing grain or selling feed as well 31% No, I'm converting or selling 17% Yes. Planning to expand and run more sheep and beef 10% Yes, I'm going to give it another year 12% Do you think the mega-merger will go ahead? Yes 24% Yes, but by the time it's organised it'll be too late 26% Yes, but only in part 19% No 31% Ironically the greater percentage of farmers were correct here... Do you see the merger of Alliance Group and PPCS as a good first step towards industry consolidation? Yes 21% Yes, but we don't want to take the deadwood from both companies 42% No 19% No. I think we'd be worse off. 19%

18 April 2008 -- The "Concept" - also known as the Mega-Merger - will not go ahead, Alliance Group Chairman Owen Poole announced this afternoon.

Mr Poole said the meat industry restructuring proposal would not be progressed any further.

While support to advance "The Concept" had been obtained from four meat companies, including Alliance Group, PPCS was not prepared to commit to the proposed process.

PPCS would not accept the likelihood that not all beef would be included, effectively bringing the proposal to an end.

PPCS' involvement was essential to forming the new company and capturing the gains sought.

Mr Poole said that Alliance Group is disappointed that the opportunity to increase farmers' returns by up to $400million has been lost. He also expressed his thanks to the other companies, Members of Parliament, government officials, Meat and Wool New Zealand and numerous other individuals and organisations who had lent support to "The Concept."

Mr Poole said that an atmosphere of goodwill had developed in discussions with the other parties. A number of other potential opportunities have been identified.

These would not provide the benefits promised by "The Concept," but would now be evaluated to further advance returns to producers and Alliance Group's shareholders and suppliers in particular.

PPCS Ltd Chairman Eoin Garden said he believes industry consolidation along the lines of the proposed Alliance Group's mega-merger concept still represents the ultimate solution for the long term sustainability and profitability of the New Zealand meat industry.

"We understand some other potential participants have not signed the Alliance- imposed agreement. This implies the proposed mega-merger had effectively become a merger of PPCS and Alliance, which would then look for opportunities to acquire certain assets from other meat industry players. In our view this is not an industry solution but a piecemeal acquisition model which is not what has been put before the stakeholders to date."

Mr Garden, in advising of the decision of the PPCS board not to sign the current form of the co-operation agreement as proposed by Alliance, said Alliance had failed to address two fundamental issues; firstly, the need to follow a conventional process including proof of concept and business case prior to valuation work and secondly, that all other participants sell all processing assets into the entity.

As a way forward PPCS has proposed a "co-operation agreement" intended to advance a "proof of concept" - that outlines the industry structure and shape of any merged group and provides feasibility, and clarity around the position of other participants, leaving open the prospect of a more detailed agreement in due course. This could include offshore marketing agreements.

Mr Garden said that to advance these alternatives, as a matter of necessity, a suitably qualified independent person would be appointed to govern the process.

"The original Alliance Concept as detailed in its letter to shareholders of 12 February 2008 stated the concept was based on aggregation so that '80% of NZ livestock is managed from farm to market'. This model was estimated (although still not substantiated) to improve farm gate returns by $400m.

"Given the failure of other participants to commit to sell their businesses into the model, that model is no longer on the table. Accordingly, the estimated cost savings and rationalisation benefits of merging five businesses were no longer available to the proposed merged entity."

Mr Garden said PPCS could not be held responsible for the model not proceeding when its foundation had effectively changed and the other parties were not participating to the level envisaged under the original AGL Concept.

"A very real danger in pursuing a hybrid of the original concept is that it pays a premium for assets others are willing to sell, incurs rationalisation costs, takes on substantial debt on behalf of farmers, but still leaves some or all of the re capitalised participants competing against the new entity either directly or in other species."

Mr Garden added that while active leadership as shown by Alliance and other promoters was admirable, it needed to be supported by comprehensive analysis and an executable implementation plan. "The current proposed Mega Meat merger had neither.

"PPCS has and will continue to promote or support initiatives within the industry to remove cost duplication and capture additional market opportunities. In that respect we have recently explored cost reduction and aggregation initiatives, both of which were not taken up by the companies that had been involved in the Mega merger negotiation," said Mr Garden.

"We would still maintain that a merger or a strategic marketing alliance between the main parties in the industry is appropriate and supportable in the longer term, and we would support those aims. Accordingly PPCS is more than willing to engage, in good faith, with Alliance or other parties in any constructive initiatives to improve the industry structure."