Friday, March 29, 2024

Farmers have ‘no option’ but to sell Westland

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Voting to sell the Westland Co-operative Dairy Co will be a sad day but there’s no choice, Harihari farmer John Sullivan says.
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The poor returns achieved by the co-op over the last five years mean 60% to 70% of supplier/shareholders are finding it hard and the business can’t keep going as is under the present board and management, he said.

“It’s extremely disappointing.”

Shareholders will vote in July on the offer from Chinese group Yili of $3.41 for each co-operative share. That will provide just over $245.5 million in cash from Yili, Asia’s biggest dairy business. It will take on the co-operative’s $342m in liabilities, valuing the total business at $588m.

A lot of the cash will end up being paid to banks financing the region’s dairy farmers, Sullivan said.

However, the payment, added to Yili’s undertaking to at least match Fonterra’s farmgate milk price for the first 10 years of ownership, starting with the new season on August 1, should allow farmers to get back on their feet.

He thinks the 10-year undertaking should be for a longer period.

Westland’s payout has averaged well below Fonterra’s in recent years. 

Westland’s chairman Peter Morrison said directors believe the Yili deal is the best outcome for shareholders and were unanimous in supporting it. 

Shareholders will be able to ask questions of the board and management at information meetings over the next two days.

Yili already operates the Oceania dairy product plant in South Canterbury. 

Federated Farmers Westland dairy section head Stu Bland said there is no surprise in the outcome of Westland’s efforts to find new capital for the business.

“We knew what the options were but it’s still really early days and we need time to digest what we’ve got.”

The directors had three options to work on: remaining as a co-operative, finding a cornerstone shareholder or a complete sale.

“We’ve got two options now.

“We can stay the same and that still is an option or we can go for the buyout.”

Like Sullivan, Reefton-based Bland said the co-operative is important to him.

“But if it can’t work and we can’t stand on our own two feet then probably we need to sell. There’s no use being a co-operative if you’re not profitable. That’s no good for us nor for the West Coast.”

Maruia farmer Peter Brooker is also waiting for a clearer picture and more detail to be gleaned from the shareholder meetings.

“My first thoughts are for the co-operative structure and principles and people will say that the dairy industry was built on that and it was but there’s been a fairly big shift away with Open Country and Synlait so a decision might be easier than it was, say, five years ago.

“We’ve still got some very staunch people but there’s a fair few saying now that the co-op mightn’t be sustainable.”

For the deal to work for Westland farmers the Fonterra milk price will need to remain strong but “Fonterra’s not exactly humming at the moment”. 

A potential risk Brooker sees is the proviso the deal could be off the table if 10% of Westland’s supply is lost through a switch to Fonterra by some shareholders by a certain date so they could stay with a co-operative.

If Fonterra cherry-picks suppliers close to its collection area that will leave other Westland farmers vulnerable, he said.

Morrison said that under the deal a supplier committee consisting of five representatives from Westland’s existing suppliers and five from Westland (under the new ownership) would be set-up to maintain communications and transparency in the group.

The strategy review began because of Westland’s inability to deliver a competitive milk price and the board worked with 25 separate parties to get indications of interest, either in a cornerstone shareholding or full acquisition or merger. 

The Yili deal will be through a scheme of arrangement, requiring a 75% yes vote from the votes cast and at least 50% of all shareholders entitled to vote, Morrison said. 

High Court and Overseas Investment Office approvals are needed.

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