Fonterra's conditional agreement to buy the failed NZ Dairies plant from the receivers will present some farmers with a dilemma. The financial guarantee of being fully paid for milk sent to the plant in this past season and security of supply for the new season will rule with most suppliers and they will be grateful for that.
But the previous company was formed with farmers who decided to choose another ahead of the Fonterra service, and many will now find themselves back in the fold. A deal has been made with existing suppliers on meeting the shareholding requirements and a six year lead time to find the funds for fully paid up shares.
How the Commerce Commission will rule on this acquisition is yet to be seen, but with other bids reported to be only at bargain base values it appears this may be the best and only bid for farmers to get out of this plant failure with minimal losses.
What are your views on Fonterra's dominating move, or would you rather have seen another smaller player purchase this plant and at least keep some competition in the NZ market?
Fonterra confirmed today it has entered into a conditional agreement to acquire the milk processing assets of the New Zealand Dairies Ltd group in South Canterbury. The acquisition, which is subject to Commerce Commission clearance, would result in NZDL’s existing farmer suppliers being paid in full by the receivers and being able to have their milk processed and paid for from the start of the new dairy season which commences in a few weeks.
The Russian-owned dairy factory was placed into receivership on 17 May 2012. The receivers, Colin Gower, Stephen Tubbs and Brian Mayo-Smith of BDO Chartered Accountants, called for bids to buy the business and assets of NZDL soon after. Fonterra CEO Theo Spierings said the acquisition ensures that the Studholme plant continues to operate and its farm suppliers have certainty that they will be able to sell their milk on a commercial basis from the start of next season.
“The Studholme plant is processing around 150 million litres of milk a year into milk powders for export,” said Mr Spierings. “It will complement our new Darfield plant which is due to start taking milk in August.“Our Strategy Refresh has clearly identified the importance of growing milk volumes and optimising our New Zealand manufacturing operations. This transaction helps deliver on that priority.”
As part of the agreement, NZDL’s existing suppliers have been offered the opportunity to supply Fonterra on contracts, which will enable them to become Fonterra fully share backed after the 2012/2013 season and require them to be shareholders within six years.Fonterra plans to operate the Studholme plant up until the end of the 2012/2013 season pending a decision by the Commerce Commission on Fonterra’s clearance application.
“This means that we are able to collect and process farmers’ milk from the start of the new season, avoiding the prospect of them having to spill milk,” said Mr Spierings.“The solution we’ve developed with the receivers will mean that suppliers who continue to supply NZDL have a tanker coming up their driveway to take their milk and ensures they still have an income.“It also means we are able to provide for continued employment to many of NZDL’s staff during this period.”
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Here is how to buy off the receiver: Jiang Zhaobai, the Chinese tycoon behind the company buying the Crafar farms
http://www.stuff.co.nz/business/industries/7116210/Chinese-buyer-for-Gu…
Gulf Harbour, a sprawling residential project being developed alongside a marina and golf course on the Whangaparaoa Peninsula, owes Bank of Scotland International (BOSI) $118m and Allied Farmers Investments $38m, according to its receiver, Tim Downes of Grant Thornton.
Reliable sources have told the Sunday Star-Times that the property is being bought for $35m
Allied Farmers and Bank of Scotland International look set to take a $121 million loss on the sale of the Gulf Harbour development north of Auckland when it is sold to interests associated with Jiang Zhaobai, the Chinese tycoon behind the company buying the Crafar farms.
Jiang is buying both sets of properties out of receivership.
Under the agreement, existing farmer suppliers to the failed South Canterbury processor would be paid in full by the company's receivers.
http://www.stuff.co.nz/business/farming/7108995/Fonterra-to-buy-NZ-Dair…
Henry T have a look back at this submission by NZDL from August of last year....
http://www.mpi.govt.nz/Portals/0/documents/agriculture/pastoral/dairy/nz-dairies-ltd.pdf
I understand when problems first surfaced at NZDL, Fonterra was interested in this factory 'at the right price', especially if other interests made low ball offers. Perhaps Fonterra see this factory as a relief valve if they have a major problem in one of their existing factories. I also wonder if they have been caught short, by the continual increase of conversions. 30 new conversions to Fonterra in Southland Otago and 60 more in other parts of the south Island. They are already looking to start phase 2 of Darfield earlier than planned and when Edendale had a significant breakdown milk was railed in to the north island.
Well press-wise sylait were the folk most likely
http://www.odt.co.nz/news/business/148799/synlait-buys-one-firm-eyes-an…
Synlait Milk is bidding to buy rival South Canterbury dairy company New Zealand Dairies after yesterday announcing the purchase of Oceania Dairy, which has abandoned plans to build a plant at Glenavy, on the Waitaki Plains.
Operations manager John Roberts confirmed yesterday Synlait was bidding to buy New Zealand Dairies (NZDL), which operates a five-tonne-an-hour milk drier plant near Waimate and is being sold by its Russian owners Nutritek.
Synlait's purchase of Oceania included supply contracts with 30 farmers on the Waitaki Plains, some of whom were suppliers to NZDL but were in the process of switching to Oceania.
CO I understand your point of more producers/farms coming on line etc, however, buying NZDL is not increasing capacity, just shuffling existing capacity (as fonterra is taking on/chauffeur driving the NZDL suppliers).....
fonterra can say they have one processor less DIRA milk to sell......
but why the sweetheart deal for unsecured creditor NZDL suppliers (if as unsecured creditors have been paid, then the secured mortgage/debenture lender has been paid in full?)?
or is this how they negotiate/do business with the Oz supermarkets.....
How will Commerce Commission think about this:
http://www.comcom.govt.nz/clearances/
http://www.comcom.govt.nz/mergers-and-acquisitions-guidelines-consultat…
We will consider whether to include the Divestment Guidelines (PDF) and Failing Firms Guidelines (PDF), revised as appropriate in the updated guidelines.
From Failing Firms:
3.02 The Commission’s Mergers and Acquisitions Guidelines refer to two scenarios in which the
Commission will assess a failing firm counterfactual:
“The first is where, but for the anticompetitive acquisition, the business’s assets would exit
the market. The assets may become scrap or may be put to an alternative use. This option
may involve only one potential purchaser.
The second scenario is where there are a number of bidders for the failing firm, which must
be sold. In this case, the Commission adopts a counterfactual that assumes an acquisition by a party that would not give rise to a substantial lessening of competition.”3
The purchase price "above" other interest would seem to demonstration existing market dominance.
The knocking out of DIRA independent processor supply could be a motivation.
The NZDairies production of standard (and declining) MP production just a "spot-on-the-bottom" for the big fella..
There were others prepared to pay some $$'s
Q: what are we missing?
If govt. wished to see supplier farmers nor out of pocket, why not just cut a cheque (welfare), rather than have fonterra pay over the top...
Fonterra is obliged to pick up milk that is "available" anyway, it doesn't need provide "sweetheart deals".... and who down there would rush to supply an independent processor again anytime soon.... fonterra could have used the stick, rather than carrot, to demonstrate the reality of farm supplier to the non-believers (we have posted ear;ier about the counterparty risk created by selling to processors other than fonterra) ....
Now, imagine if fonterra get this through', then one by one, offer similar terms to every other independent farm supplier (400, to 500 suppliers?).... if you were synlait or open country supplier, you'd have to think, well why not jump back to the mothership with a set shareprice and pmt on terms....
Would the big fella be for putting salt on the independents' tails...
Interesting as he couldn't extract more $ from Bright to buy the factory.
We've always thought the local side was less than flush as the farms were later conversions and geared up to fund the factory pre bright days.
Maybe bright think they can buy the other half for a song going forward, or at 51% they don't need do anything.
The farmer co-operative is developing its 650-hectare site just outside the rural township in Canterbury into a $200m stage-one complex of a 15.5-tonnes-an hour dryer and facilities and $300m stage-two 30t/hr dryer, the world's largest, extra warehouse space and a railway connection.
http://www.stuff.co.nz/business/farming/7110863/Milk-complex-on-track-f…
Chalkie reckons the playing field is tilted in the co-op's favour and legislators should heed advice to inject more balance.
It is already apparent that new milk processors struggle to attract investment as New Zealand financiers fight shy of taking on Fonterra.
South Island processor Synlait, believed to be an underbidder for NZ Dairies, needed Chinese money to reinforce its ambitions, while an operation proposed by Oceania at Glenavy, not far from Studholme, remains in hibernation with local investors conspicuous by their absence.
http://www.stuff.co.nz/business/opinion-analysis/7174897/Might-of-Fonte…
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