Thirty-Seven Irrevocable Commitment 1986

CHAPTER THIRTY-SEVEN

Irrevocable Commitment

In the Society’s nearly one hundred years of trading, no other board of directors had been charged with deliberating on matters that could effectively bring an end to the oldest and largest provincial trading organisation in Taranaki. This business, originating from Arthur Fantham’s Egmont Farmers’ Union Limited stock and station operation in 1889, was now cradled precariously in the arms of its directors and executive management. Although seemingly self-inflicted, it would be fair to say that its extraordinary predicament and tenuous grasp on survival had been aggravated by recent national economic restructuring which had hit at the very core of the farming community and associated industries. The weakened financial base of the company following dramatic capital commitments placed it at the forefront of the financial collapse being suffered by many companies in the ‘crash of 1987’. Much of Farmers’ Co-op’s success had been built on the growth and achievements of the farming sector, and the new government measures had impacted adversely at a time when it was most vulnerable and was, as well, hindered by an irreversible ingrained philosophy that prevented it from extricating itself from the current financial instability.

Now the magnitude of the situation and making an immediate final decision on the company’s future was too much for the directors to take in. Further models of probabilities of ‘what if’ situations, were requested concerning the sale of the motor business, Londontown and the Wanganui Wool Store, the projected effects if Londontown, Hawera, Stratford and New Plymouth branches were retained and the other branches of the group closed. In addition the directors asked that a meeting be arranged with senior executives of other independent companies to ascertain views on amalgamation or shareholding participation in a new national company to be formed from the independents with possibly some outside equity shareholding. This proposal did not find favour with all members of the board and three, P. A. Murdoch, R. A. Death and D. B. Sarten, voted against the motion.

It was immediately resolved to adopt three items included in Option 1: to increase market share, accelerate the sale of unwanted assets of non-profitable operations, and ‘further refine and take immediate action in terms of our selling philosophy, products, stock levels and purchasing arrangement’. It was also resolved, ‘to give authority to the management to reduce staff levels should they be so required to do in an endeavour to reduce the costs of operating the company’. Mr Evennett advised his intention to open discussions with Mr Sholto Matthews of Elders on the Wanganui Woolstore and the possibility of some sort of joint operation.

Following lunch a presentation was made to Mr George Livingston Baker and Mr Arthur Henry Foreman both longstanding shareholders. Mr Baker had been allotted shares transferred from his father in July 1916 and Mr Foreman had received shares in a similar manner in March 1919. They were each presented with a framed photograph of the first of board of directors.

To say the situation was fluid would be a huge understatement; new and significantly different scenarios were presented to the board for consideration at each monthly meeting. This coincided with the appointment of Mr Peter Taylor of Arthur Young Financial Services, Wellington in May 1986 to assist in the review of the many scenarios coming forward and diversification possibilities. He now attended most executive and monthly board meetings, supporting the chief executive and providing technical, advisory and financial advice. Divestment of unwanted divisions was now well and truly under way, with progress and planning for the sale of New Plymouth, Hawera and Stratford motor branches to R. J. Burkitt Ltd scheduled to take place on 1 July 1986 or thereabouts. The motor division, although never highly profitable, had been a huge part of the company’s turnover throughout the past century; it held agencies for various brands dating back to 1914, and had had a strong and long relationship with the Austin Motor Company. The imminent loss of branches at Hawera, Stratford and New Plymouth, with their large and loyal garage and sales staff now on the verge of redundancy, seemed a tragic end to this pivotal part of Farmers’ Co-op’s one-stop-shop philosophy.

The Wanganui motor operation transfer to Elliston Motors was also well advanced, the Marton motor operation had been closed and the sale of Londontown at Wanganui was under negotiation with a number of interested parties. The sale of Specialty Machinery was also under negotiation, and apart from the departmental store and rented-out shop fronts at New Plymouth, all other remaining property would soon be vacant, with a variety of proposals being examined.

In the face of all this adversity, and the downward spiralling that could not be halted or even slowed, Farmers’ Co-op made a bold and courageous last-ditch effort to launch a major corporate marketing campaign in an attempt to revive sagging staff morale, improve trading conditions and stem losses. The focus of the campaign was on creating a new corporate image that would inspire a revival and be a springboard for the organisation to ‘play an even greater leadership role in the retailing and stock and station activities in Taranaki’. The theme was, ‘The Dawn of a New Era’, to show the people of Taranaki the Company’s deep commitment to the province and its communities. The new trading name was unveiled on 28 July 1986, as TARANAKI FARMERS. Although it did not find favour with everyone, a new strong corporate logo was now proudly displayed on all premises, vehicles, stationery and other signage throughout the province. Staff now wore fashionable blue uniforms with red accessories and gathered at meetings throughout the province to launch the new trading name – Taranaki Farmers – replacing what had been the revered but long-winded title of The Farmers’ Co-operative Organisation Society of New Zealand Limited, although often shortened to FCOS or Farmers’ Co-op. Despite its facelift the company continued to perform badly and targets were not met. The New Plymouth store and livestock departments were both contributing to the downward trend and market share was also declining in some northern districts of the province. In addition the farm supplies division was failing to meet budgets. The task for the directors was increasingly daunting and stressful. At the September 1986 meeting of the board, discussion on options available to the company continued and the chief executive advised that an approach by the advisors Arthur Young to Elders Australia had met with a favourable response and a decision was now required from the board as to the next steps to be taken. Director Preston Bulfin stated:

The time was fast approaching for us to put our cards on the table in front of the shareholders, as the prime responsibility of the directors is to protect the shareholders’ interests.

As far as the Elders approach is concerned we need to establish (1) what they are prepared to buy (2) what they are prepared to pay (3) what protection they will give to staff. To gain answers to these questions we will need to pursue negotiations at least to a stage that will enable the directors to make a decision on informing shareholders.

It was resolved that confidential negotiations take place with Elders to clarify the terms and conditions of their offer and Arthur Young be authorised to enter into discussion to explore what the possibilities would be if Farmers’ Co-op considered selling the Group as one of its options. This communication resulted in talks between the two parties being abandoned, with Elders Pastoral Ltd indicating that they had their hands full with a recent Dalgety Crown transaction and were no longer interested in an offer of sale. Mr Taylor from Arthur Young noted that ‘this was an about-face from their original discussion with their Australian director, which could be a negotiating ploy on their part’.

Although not unanimous, a motion was carried, ‘that Arthur Young be requested to enquire again of Elders through their Mr Chumley whether Elders are definitely interested in pursuing the purchase of FCOS or not.’

Mr Taylor then suggested the board now devise strategies over the three months until the annual general meeting in December, to consider the options for the survival of the company. Mr Evennett added that scenarios considered by directors should be updated and re-explored so the board would be able to show they had been fully investigated. Mr Blyde said that, by the time of the December meeting we will have available profit figures for August, September and October, plus sales figures for November. This allows us time to decide what to tell the shareholders at the annual general meeting or at a later extraordinary meeting. Mr Bulfin stated that, when the directors are in a position to make a recommendation to shareholders an extraordinary general meeting could be called, and this could be stated at the annual general meeting if thought necessary. Communication was now deteriorating in all areas of operation as a consequence of enormous changes in structure and policy. Staff were dissuaded from speaking about their concerns to directors and instructed to channel any matters through the normal company managerial chain.

The merry-go-round continued, with various other parties entering the purchasing arena. A meeting with Sir Ronald Trotter, chairman of Fletcher Challenge Ltd, and Mr Downey in Wellington on Thursday 13 November provided Reeve Williams and Derek Evennett with the opportunity to advise steps the company had taken during the past 12 months to improve its situation. Sir Ron’s strong family connection with the Farmers’ Co-op allowed open expression of the difficulties that had been faced during the past few years and this dissertation received a sympathetic ear, with Ron Trotter and Mr Downey, suggesting that they might be able to assist in the orderly disposal of the business by offering financial assistance while this was done and perhaps taking over the livestock and farm supplies. Mr Evennett, in advising the board of the deliberations, said it was his ‘belief that Fletcher Challenge would wish to resolve the arrangement quickly and that they would act with integrity in their dealings with us’. Following a full and frank discussion by the board it was resolved that the chairman, deputy chairman and chief executive officer proceed with negotiations with Fletcher Challenge Ltd, and that they be authorised with full power to act. Because of the delicate nature of the negotiations, it was also resolved that strict confidentiality be adhered to by all board members.

Three weeks later at an executive directors meeting at New Plymouth the chief executive explained that two further meetings had been held with Messrs McLachlan and Bilas of Wrightson NMA, where the ‘cards were put on the table’ regarding the company’s position. Problems with the Commerce Commission could be foreseen; to proceed Taranaki Farmers would need a definite ‘no’ from Elders. That company was thus approached again and they now stated they did have an interest in the business, particularly the stock and wool, and the establishment of retail stores in Inglewood, Waverley, Opunake and Stratford, perhaps the farm supply stock in Hawera and New Plymouth,

and some staff. Elders might also be prepared to take over Taranaki Farmers’ debtors in those areas after a review of the books. With the trading results for October showing a net loss of $261,000 for the month and newspaper reports warning shareholders in advance of the annual general meeting that it had been an ‘extremely difficult year’ resulting in a $1.78m loss for the company, there was a conviction that the downturn had not yet bottomed out. The trading loss had been significantly increased by the exchange loss suffered on the overseas loan arranged two years earlier and the costs involved in the reorganisation of the company to bring it to its present position in terms of the agreed business objectives. The likelihood of any recovery, at least in the near future, was slim. The number of employees of Taranaki Farmers had now been reduced to 405.