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Investing for the Future?

Greetings Readers

Reports today show that the GlobalCo companies are getting on with their program of acquiring company’s and joint ventures.

The board has bought thirty percent of a Malaysian producer of a cultured milk drink and on the local front, Kiwi subsidiary, Food Solutions, has bought sports nutrition company Horley’s. Both seemingly sensible involvements, targeting the retail marketing of milk products which should offer returns on both product sales and retail production and marketing.

However a curious part of local developments is the direction that the RD1, the farm service and supply arm of NZ Dairy Group is heading. The acquisition of a 20 percent share holding in Wrightson’s and the full purchase of Southland’s Crawford Agriculture seems to be part of an aggressive strategy to dominate the farm supply business in NZ.

While twenty percent stake in Wrightson’s cannot yet be seen as move to dominate Wrightson’s. It looks as though this initial share purchase at $1 a share, to a total of $27 million will have to be followed by further sums of up to $100 million to gain the full ownership of Wrightson’s, which must be part of the plan.

Otherwise why pay 40 cents per share premium to GPG, who must have been pleased to exit a company which has struggled to perform in the past. Sure there will be some very useful elements the industry could acquire through Wrightson, but the price appears to have the potential to be expensive.

Cooperatives have generally in the past foundered when investments were made based on interest return on capital rather than higher product prices paid to shareholders in a producer coop or lower purchase prices paid by a shareholder in a supplier coop.

The nature of the Wrightson developments has the potential to be repeated in all of the industries acquisitions at it expands to meet the promise of the merger.

However it would be ironic if manufacturing and production staff skilled in the practical production of real products sold for real income were to be replaced by an army of cost accountants shuffling slips of paper representing paper profits gained from paper wealth.

Keep an eye on where Wrightson’s share price goes over the next month or two.

Good farming

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