Westland Milk shareholders vote 94 per cent in favour of sale to Yili

Thursday, 4 July 2019

Potential buyer of Westland Milk Products, Yili, will pay top management generous bonuses if the sale succeeds.

Westland Milk Products farmer shareholders have voted strongly by 94 per cent to accept the $588 million offer from Chinese company Yili Industrial Group.

About 430 farmers were eligible to vote, making up 2,775 votes. For the deal to pass, it needed 75 per cent shareholder support and also had to be approved by shareholders holding more than 50 per cent of the shares eligible to be voted.

Westland is the largest employer on the West Coast, with its headquarters in Hokitika, where 550 staff work.

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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.

The deal now has to be given the green light by the Overseas Investment Office and approval from the High Court (with the final court hearing scheduled for 18 July).

Yili has stated it is 'not subject to any state control or direction', although 25 per cent of the company is owned by the Chinese Government.

Chairman Pete Morrison said shareholders had shown strong support for the proposal.

Prime Minister Jacinda Ardern visited the Westland Milk Products factory last year to announce it would receive a $10m loan which was never ultimately executed.

'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.

Westland Milk Products is the West Coast's largest employer, with a factory complex in Hokitika.

'The offer of $3.41 per share is significantly higher than the independent adviser's valuation range ($0.88 to $1.38 per share) and the milk supply commitment ensures a minimum price for 10 seasons of at least the Fonterra farmgate milk price.

'The board recognises that the vote today 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,' Morrison said.

At $3.41 each, the shares are worth more than double the $1.50 they have traded at for years. For the average-sized Westland supply farm, the share offer translates to a windfall of about $500,000.

Westland had been looking for outside capital after struggling to be profitable and pay a competitive payout to its farmer suppliers.

The sale has been surrounded by controversy, with claims of top management having a conflict of interest because they will collectively pocket well over $1m if the deal goes through. Chief executive Toni Brendish will receive $680,000, with other executive staff in line for payments from $100,000 to $360,000.

However that has been rejected by chairman Pete Morrison who said Westland board members would approve the deal, not management, and board members would get no benefit from the incentive scheme.

He said the bonuses were negotiated before the offer was made last year by Yili.

'If senior executives left during the process it would have presented a picture of instability and that would have undermined possible interest and proposals,' Morrison recently said in a statement.

The largest shareholder is corporate farmer Southern Pastures, with ex-All Black captain Graham Mourie as one of the principals. Last year it paid $6m for its shares; following the sale it will receive more than twice that amount.

However Southern Pastures announced last week it would abstain from voting on the deal.

Landcorp also stands to gain a windfall of about $11m from the sale, but has not revealed its voting stance.

A group of former Westland Milk Products farmer shareholders wants to be paid the $11m they are owed immediately, rather than after five years as the co-op's constitution states.

They have written to the Overseas Investment Office to stop the sale because they say they are effectively providing 'an interest-free loan to a Chinese state-owned multi-national while they are left to struggle financially'.