Despite the prospect of a potential windfall, Westland Milk Products’ 400 shareholder farmers are reluctant to commit to a $588 million offer from Chinese company Yili Industrial Group until they know more.
The agreement prices Westland shares at $3.41 each, more than double the $1.50 they have traded at for years.
As part of the proposed deal, the co-operative’s farmers will also receive a minimum of the Fonterra farmgate milk price for 10 seasons, starting from August 1.
Westland had been looking for outside capital after struggling to be profitable and pay a competitive payout to its farmer suppliers. For the 2017-18 season its payout was more than 50 cents a kilogram below competitors Fonterra and Synlait, though it hoped to be more competitive this season.
Westland’s board confidentially engaged with more than 25 parties to seek indications of interest in a cornerstone investment or full acquisition or merger with Westland.
Renee Rooney, who farms at Inchbonnie, near Lake Brunner, said “the devil is in the detail”.
“We haven’t had the opportunity as shareholder-suppliers to process the information.
“At this point it is a conditional transaction and nothing has been voted on by shareholder-suppliers,” Rooney said.
Other Westland dairy farmers spoken to declined to comment until they had more information.
Federated Farmers’ West Coast dairy chairman Stu Bland said farmers were still digesting the news and would know more after meetings in the next few days.
“It is not a surprise as it was always one of the options.”
Farmers could accept the Yili offer or remain a farmer co-operative.
After some poor payout years, farmers weren’t financially able to supply the additional capital that Westland needed themselves. “Every farm’s situation is individual and different.”
“It is hard to make big decisions without some questions,” Bland said. “Once we go down this track there is no going back.”
Southern Pastures, which became Westland’s largest supplier this season when it switched from Fonterra, would make a substantial windfall if the Yili deal goes ahead.
Supplying Westland with 4 million kilograms of milksolids, Southern Pastures paid $6m for its shareholding, but could receive $13.6m under the deal. Its nine dairy farms were in Canterbury.
Southern Pastures’ part ownership of Lewis Road Creamery had also created a significant new customer for Westland
Westland, along with Tatua in Waikato, were the only two dairy co-operatives to remain separate from the mega-merger which formed Fonterra in 2001.
The West Coast celebrated 150 years of commercial dairying in the region late last year.
Westland chief executive Toni Brendish said that since those early beginnings, the dairy industry had grown to be an important social and economic contributor to the West Coast region.
“Dairy generated more than 14.3 per cent ($234.4m) in gross domestic product in the region in 2016 alone.
More than 9 per cent of the coast’s workforce are staff of Westland, with shareholder farmers and their employees additional to that. Dairying creates an important downstream effect for the regional economy,” Brendish said.