Murray Goulburn: Class action muddies dairy co-op’s sale bid

The announcement of clawback in the farmgate milk price for 2015-16 led to a crash in the price of listed units and the bleeding of milk as dairy farmers left the dairy co-operative.

The debacle has prompted a class action by holders of the listed units, many of whom saw their investment slashed to a third of its value.

On October 27, MG announced it had entered into an agreement to essentially sell the company to Canadian dairy giant Saputo for $1.31 billion.

MG spurned higher bids for the business as well as a proposal by Fonterra to merge its Australian operations to form a super co-op.

Spurning the higher bids may come back to haunt the dairy co-op.

MG will be keen to settle the class action as soon as possible for fear litigants will block a meeting called to vote on the Saputo deal.

Whether the $220 million kept aside by MG is enough to cover the class action payout plus legal fees and costs to wind up the company may become a pivotal point.

If it goes to court, legal fees will erode the returns to shareholders and unit holders.

It will be cheaper to settle out of court and there are three precedents for guidance on payouts: the Multiplex class action in 2006, the Centro result of 2008 and Oz Minerals in 2009.

In Multiplex’s case, the estimated shareholder loss was $177 million but they settled for $100 million, or 62 cents in the dollar.

Shareholders in Centro lost about $1 billion, and were paid $200 million, or 20 cents in the dollar.

In the case of Oz Minerals, the shareholders’ estimated losses were $250 million. They settled for $60 million, or 32 cents in the dollar.

The simple average of these settlements is 38 cents in the dollar.

With claims of losses of about $1.20 a unit for MG, this would amount to about $246 million, given there are 205 million units issued.

A 38 cents in the dollar payout would mean MG coughs up about $93 million.

But if it was as high as 62 cents in the dollar — as was the case with Multiplex — the payout is $152 million.

It is unlikely all unit holders lost as much as $1.20 in the collapse in the unit price and equally unlikely all unit holders will participate in the class action, so the payout by MG could be less than $152 million or even $93 million.

That means unit holders and shareholders are likely to receive more than the estimated 75 cents return on investment indicated by MG based on the Saputo deal.

The return to unit holders and shareholders is likely to have a bearing on any vote on the Saputo deal, particularly since a syndicate of rival bidders has indicated a guarantee of $1 a unit or share when they cast their bid, expected in the coming weeks.

There are a few more moves to be made in this chess game.

• Peter Hemphill is The Weekly Times agribusiness reporter


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