Dairy Holdings shareholder Alan Pye teams up with SCF receiver, meaning 83.3% of the dairy giant is now on the block

By Gareth Vaughan

An 83.3% stake in Fonterra's biggest supplier, Dairy Holdings, is now on the block with dairy magnate Alan Pye adding his 20% stake to the 63.3% held by South Canterbury Finance's receiver and four other shareholders already up for sale.

South Canterbury Finance (SCF) receiver and McGrathNicol managing partner, Kerryn Downey, told interest.co.nz that Pye had "joined forces" adding his shareholding to SCF's 33.6% stake, a 24.99% stake held by three US investors - Little Cow Company, Pals Plus and NZ Cow Company - and 3.9% owned by Christchurch businessman Humphry Rolleston.

"So we have 83.3% that we're proceeding to sell," Downey said. "Alan Pye is the other shareholder who has agreed to sell with us."

According to Dairy Holdings' website, Pye has extensive land holdings in Australia and New Zealand, including substantial involvement in crop and dairy farming. He also owns Rushy Lagoon, Tasmania's second biggest dairy operation. Pye is also a Dairy Holdings director.

Dairy Holdings' operations are run through four autonomous wholly owned subsidiary groups, Dairy Farm Holdings Ltd, Clumber Farms Ltd, Livestock Holdings Ltd and West Coast (Dairy) Ltd. For the 2010/11 dairy season, the four are operating 72 dairy farms on 14,201 effective hectares, milking 43,439 cows that will produce about 15.1 million kilograms of milk solids.

Downey said the selling shareholders were open to be joined by other Dairy Holdings shareholders, but were "quite comfortable" with the 83.3% they had on the block. The Chairman of Dairy Holdings and one of the shareholders is Colin Armer, a director of Fonterra.

"We expect to receive indicative bids in early May," Downey said.

McGrathNicol is being advised by First NZ Capital, which is working with Christchurch firm Murray & Company, advisers to the US investors and Rolleston. Downey confirmed McGrathNicol's plans to sell SCF's stake in December.

SCF bought the Dairy Holdings stake from its majority owner Allan Hubbard in 2009 for NZ$75.7 million. In a swathe of correspondence released last November by the Reserve Bank on SCF, the central bank suggested SCF had paid almost twice as much for the stake as it was worth. 

The Reserve Bank also noted that Dairy Holdings had NZ$340 million of bank debt from what it described as the "three majors" and Rabobank. The central bank correspondence refers to a NZ$45 million ANZ loan facility held by SCF's parent Southbury Corporation, plus a NZ$100 million standby facility provided by BNZ and (ASB's parent) Commonwealth Bank of Australia.

It also notes an "at best" financial forecast for 2010 of break even, and "at worst" a NZ$8 million loss.

Belfast Park sale inches closer

Downey also confirmed McGrathNicol would soon launch a formal sales process for SCF's 64 hectare Belfast Park on the northern outskirts of Christchurch. The land was rezoned by the Christchurch City Council prior to the devastating February 22 earthquake to allow for mixed density residential development and small areas of commercial and industrial land. SCF owns the land through subsidiaries Belfast Park Ltd and Tyrone Estates Ltd.

"We are waiting on some valuations and a little bit more background information," Downey said.

"We're working with the Department of (Building and) Housing as there's obviously an urgent need for housing in Christchurch, especially in the mid-market segment that this development would focus on. Once we've got that data together including the valuations, we'll then embark on a full scale sales process."

He said it was likely to be a few weeks until a formal sales process was launched.

In the first SCF asset sale since McGrathNicol's appointment as receiver on August 31 last year, McGrathNicol yesterday announced the NZ$160 million sale of Helicopters NZ to Canadian Helicopters Limited.

McGrathNicol's task is to recoup as much as possible of the about NZ$2 billion the collapse of SCF, which was covered by the Crown retail deposit guarantee scheme, has cost taxpayers.

The receiver also has SCF's about 80% stake in Scales Corporation, the country’s biggest apple grower and exporter and also an operator of shipping logistics and pet food ingredients businesses, cool stores, industrial parks, bulk liquid storage and processing, and insurance operations, up for sale. Downey said final bids were in for Scales from short-listed bidders. However, there was a "little way to go" in the sales process.

Another SCF subsidiary, plant and equipment lender Face Finance, is also on the block. Downey said a short listed group of potential buyers was involved with Face and he hoped to be able to announce something "shortly." McGrathNicol is being advised by Deutsche Bank on the Face sale and Goldman Sachs & Partners on the Scales sale.

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