Westland: Money due farmers ‘safer’ with Yili
Chairman says group trying to stall $588m deal has no reason to worry
Money due to Westland dairy company creditors, including a group aiming to block its imminent sale, is “far safer” with the Chinese buyer than with Westland as it stands, says chairman Pete Morrison.
He was responding to the emergence of a group of former Westland farmer-shareholders who say they’re collectively owed up to $8 million cash for their shares and have asked the Overseas Investment Office to delay or stop the sale until they are repaid.
The dairy co-operative’s 420 or so farmers will vote on its sale for $588m to China state-owned dairy giant Yili on Thursday.
The deal, which also needs Overseas Investment Office and High Court approval, would see Yili pay $246m for farmers’ shares — the independent equity valuation is $63m to $99.7m — with the rest of the purchase price being the assumption of Westland’s liabilities, debt and assets.
The OIO said it had received Yili’s application to buy Westland in April but could not respond to Herald questions about whether it considered such financial situations in its analysis of applications.
Yili’s offer price for shares is $3.41 each. Westland’s own independent adviser Grant Samuel has valued them at 88c-$1.30 each.
The group seeking share money back is claiming $1.50 per share — the cost of entry to supply milk to Westland.
While the average milk production Westland farmer could pocket $500,000 from the deal, there is bitterness on the West Coast that farmers have been forced into a corner by mismanagement of the company and that the region will lose a proud and independent 150-year co-operative dairy company legacy.
Now, the group of six former shareholders, who exited the company in the 2018 season citing its uneconomic milk payout and lost confidence, find themselves unsecured creditors.
Spokesman and farmer Pete Williams said the group, which has taken legal advice, has been told by the company it will have to wait for the share redemption money — possibly until 2023.
The total amount owing to former milk suppliers — who had to buy shares to supply — is $11m, according to the Westland buyout scheme document, he said.
The money is still owed because Westland’s constitution allows the company to postpone repaying departing shareholders for up to five years.
Morrison said as the former shareholders exited knowing this timeline and the terms, he struggles to understand their point.
“They are not shareholders. They are unsecured creditors. They left knowing they would be paid in five years. Yili is . . . buying a going concern and taking over all the assets and liabilities of the company.
“They will continue to honour these liabilities as they fall due. I don’t see any discussion here.
“Creditors are in a far better place with Yili owning Westland than Westland standing alone. Yili is a powerful company with a good track record in New Zealand. It’s a good corporate citizen — it’s just won an award for that in New Zealand.
“The money due is far safer with the Yili proposal than with Westland standing alone.”
But Williams said his group’s money is an interest-free loan to Westland, and is being withheld to make the deal look more attractive to Yili.
Holding back money from Kiwi farmers when dairying was going through such a difficult financial time was “a disgrace”, he said.
Williams rejected the suggestion his group was acting out of sour grapes over missing the chance to get $3.41 each for a share instead of $1.50.
“This is absolutely a principle for us. It’s morally wrong for them to still keep our money. Our beef is that they are taking advantage of a technical, legal clause in the old co-operative constitution to continue to hold our money as an interest-free loan.
“That money needs to go back into New Zealand farming.”
Westland’s payout to its farmers’ has lagged Fonterra’s and other processors. Industry commentators say excessive debt has been run up pursuing a costly value-add export product processing strategy without sufficient capital.
Williams’ group is now supplying Fonterra, which requires farmers to buy shares to provide milk.