It is a large acquisition for the size of LIC and is the first time the New Zealand dairy breeding and information technology co-operative has ventured offshore on such a scale.
LIC has already signed a conditional agreement to buy and must ratify that intention with a simple majority of 50% of shareholders who vote.
Shareholders can vote electronically or by post in the lead-up to a special meeting on Tuesday, April 7, where they can also cast a vote if they have not previously done so.
Afimilk is profitable, has no debt and has consistently paid dividends to its shareholders.
LIC intends to fund the purchase by debt through existing banking facilities and cash reserves.
The borrowing will change the equity to assets ratio from 77% in May 2019 to an estimate of 62%.
LIC chairman Murray King said the anticipated dividends from Afimilk will meet all interest costs and likely fund a portion of principal repayment.
“Therefore, the proposed investment is not expected to negatively affect future dividends to LIC shareholders.”
LIC has a patchy recent history of dividends – 6.4c a share in 2017, 1.7c in 2018 and 10.8c in 2019.
Shares are trading at 80c and were as high as $1 last April and July for brief periods.
Its total equity was $302m at November 30 and total assets $425m.
King said the Afimilk investment is a strong strategic proposition because the Israeli company is a leader in its field and has been on LIC’s radar for a number of years.
“Afimilk is looking for a long-term strategic investor with a shared mission to improve the profitability and performance of dairy farmers through its innovation and technology – so LIC is the right fit.
“We also have shared values being two agricultural co-operatives.”
He mentioned advanced technology such as cow wearables and on-farm management systems.
Afimilk’s revenue in 2019 was $89m and earnings before interest, taxation and depreciation $22m.
It makes sales in 50 countries with 32% of revenue from Europe and 25% from North America and Mexico.
The owners are Kibbutz Afikim and Fortissimo, an Israeli private equity firm, which will sell out to LIC.
