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.