Monday, July 8, 2019

Bob Edlin: Yili’s gain on the West Coast brings a $500,000 windfall to farmers – but local leaders lament sale to foreigners

Westland  Milk  Products  farmer-shareholders  voted overwhelming in the past week to accept  the  $558m  takeover bid   by   Chinese  giant  Yili  for the   co-op’s  milk processing  operation.

For  individual  farmer shareholders, the  bid  means an injection of  around  $500,000 each  into their  bank accounts,  plus better  returns for their milk  over  the  next  10 years.
No wonder  94%  of the  96% eligible shareholders  cast their votes in   favour.  West Coast farmer and Federated Farmer president Katie Milne, who is also a WMP director, said it was an “absolutely stunning” result for West Coast farmers.
Yet the  sale  is lamented  by  many local leaders, as well  as  by  NZ  First  whose spokesman  Mark Patterson  wailed about an  “alarming trend”.
Patterson  says a  stronger   national test  should be applied  to  foreign takeovers of companies like  Westland Milk, the  second biggest  co-op  in the   dairy industry..
Other  critics  regard the  takeover  as a   warning   flag for   Fonterra   which  – like  Westland  Milk –  has  turned  in disappointing  financial performance  in  recent  seasons.
Fonterra  is now selling  off  assets to  reduce   its  debt  burden.  The  bigger  question is  whether  the  co-operative  model is serving  the NZ  dairy  industry   well.
Critics   cite  overseas   dairy  giants  like  Danone,  Nestle  and  Kerry   whose   financial  performance  leaves  Fonterra trailing far  behind.   They  fear,    as  in  the  banking industry, an ever-increasing   flow of  profits    will go now  from  the dairy industry  in  NZ    to overseas  interests.
Yili  already  owns  the South Canterbury-based  processing  company Oceania.
The  sale   still has  to   pass    regulatory   hurdles  including  approval  from the  Overseas  Investment  Office.
About 430 farmers were eligible to vote, making up 2,775 votes. For the deal to pass, it needed 75% shareholder support and also had to be approved by shareholders holding more than 50% of the shares eligible to be voted.
The offer was made by Hongkong Jingang Trade Holding, a wholly-owned subsidiary of Inner Mongolia Yili, which is the largest dairy company in China. Westland had been looking for outside capital after struggling to be profitable and give a competitive payout to its farmer suppliers. Yili has stated it is “not subject to any state control or direction”, although 25% of the company is owned by the Chinese Governmen
At $3.41 each, the shares are now worth more than double the $1.50 they have traded at for years. For the average-sized Westland supply farm, the consequential windfall of about $500,000  offers heavily  indebted  dairy farmers  the chance  to   get  bankers off  their backs.
Westland Chairman Pete Morrison said shareholders had shown strong support for the proposal.
“When the Board initiated the strategic review process, we did so with the full understanding that all Westland farming families needed to have a competitive milk payout.  We know this has been, and is, a driving need for all shareholders.
“This proposed transaction will secure a competitive milk payout for at least 10 seasons for all of our existing shareholders and ensures that all of our existing shareholders’ milk would be picked up for 10 years.
Morrison  said  the offer of $3.41 per share is significantly higher than the independent adviser’s valuation range ($0.88 to $1.38 per share).
The board recognises that the vote is an important milestone in Westland’s history.  While Westland will cease to be a co-operative, the board believes the proposed transaction represents the best available outcome for shareholders,”.
Westland is the largest employer on the West Coast, with its headquarters in Hokitika, where 550 staff work.
The  sale   aroused   deep  feelings   on  the  Coast. Reefton dairy farmer Graeme Neylon, who is also the deputy mayor of the Buller district, said he was one of about 16 people who voted against the deal.
“I guess it was inevitable and it has played out exactly how I expected with an overwhelming majority in favour but it’s still a sad day for the Coast and for the co-operative model and probably for NZ”.
Neylon was against the co-operative (formed in 1937) going into foreign ownership.
“Yili didn’t want to buy it for the good of their health – they came in here to make a profit and I guess my beef is that profit should be going back to shareholders not going out of the country,” he said.
Controversy  over the  sale also  stemmed  from  the  arrangement   within the  takeover  offer  for  senior  managers  of   the co-op   to  receive bonuses   totalling  $1.6m.

Bob Edlin is a veteran journalist and editor for the Point of Order blog HERE.

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