Is Westland Milk one of NZ’s “key strategic assets”?
NZ First is adamant it is and believes the government should be a applying a “national interest test” to the proposed sale of the company to the Chinese dairy giant Yili.
Those who see heavily indebted companies like Westland Milk struggling to make a profit and not even matching Fonterra’s payout to its suppliers might take a cooler view to the proposed sale.
Federated Farmers dairy chairman Chris Lewis said he had received “mixed” feedback from West Coast farmers on the deal, which will require 75% approval.
“West Coast farmers have had a tough time over the last five years with low milk prices, and other things, so the banks will be quite keen for farmers to cash in on some of this capital”.
Some Westland farmers, though, will be positively salivating at the Yili offer which, among other things means the average West Coast farmer will receive $500,000 cash. That will help to get banks demanding faster repayment of loans off their backs.
The proposed $588m transaction follows a strategic review of Westland — NZ’s second biggest dairy co-op after Fonterra — by its board.
Westland Milk’s chairman Pete Morrison says the main reason for the deal was Westland’s inability to deliver a competitive milk payout in recent years. Under the deal, Yili will at least match Fonterra’s price for 10 seasons starting from August 1 this year.
The proposed sale to Hong Kong Jingang Trade Holding Co, a unit of Inner Mongolia Yili Industrial Group, is at $3.41 per share. Using a back-of-the-envelope calculation, based on the average farm size representing 150,000kg of milksolids, Morrison estimated the deal to be worth $480,000 to the average farm. Yili will also assume $342.5m of Westland’s debt and other liabilities.
“It will bring capital to the West Coast and a route to the market,” .
At one stage the government – through the Provincial Growth Fund – was offering $9m to Westland Milk as it seeks to add more value to its output. But this has been withdrawn.
Now, through its primary industries spokesman Mark Patterson, NZ First has two strikes against Westland Milk over the proposed sale.
Not only does it fail the national interest test but it is “outrageous” that chief executive Toni Brendish has been offered $680,000 by Yili if the sale goes through.
“ How can we trust that the interests of our farmers are properly represented when top management are lured with big money?” Patterson asks.
He has a point there.
And it is not only NZ First that is worried about the implications of the sale.
Many Fonterra farmer-shareholders believe their co-op could be challenged by Yili which already has a significant foothold in the NZ dairy industry through its ownership of the Oceania. The company acquired South Canterbury’s Oceania Dairy in 2013 and since that time it has invested $650m in establishing milk powder, infant formula and UHT production lines.
Those fearful of Yili’s ambitions believe the dairy industry in due course would become mostly foreign-owned, rather like the banking industry has fallen largely into overseas ownership.
That’s why Mark Patterson (undoubtedly with the backing of his leader Winston Peters) is saying we need to take the sale and retention of key strategic assets much more seriously. For him the Westland situation shows the need for a national interest test as part of the overseas investment office process “so we can counter foreign companies forking out cash to get their way,”.
Agriculture Minister and West Coast-Tasman MP Damien O’Connor has described the bonus deal as “outrageous and an insult to farmers”.
But where he stands on the subject of a national interest test is less clear: perhaps that’s not surprising since Westland is his home territory.
If the sale is accepted by the co-operative’s shareholders, bonuses will be paid to other top management including $360,000 to its chief operating officer, $302,700 to its general sales manager and $100,000 to its chief financial officer.
Otago University senior accountancy lecturer Dr Helen Roberts has been quoted as saying it appears Yili is willing to pay the management to encourage farmers to sell their assets, raising a conflict of interest.
“If you were in that position would you say no?“
The vote to sell the century-old company is set for July 4. It is the West Coast’s biggest industry and employer.
The proposed transaction requires High Court approval in accordance with the New Zealand Companies Act and consent under the Overseas Investment Act.
State-owned corporate farmer Landcorp, will receive $11 million for the 3.25m shares it holds.
Brendish is paid $1.1m a year and 16 further employees receive more than $200,000.
For years the co-op has struggled to make a profit, last year finally managing to run into the black with a $3.3m profit before tax.