Mar 18th 2019 /
The Board of Westland Co-operative Dairy Company Limited has signed a conditional scheme implementation agreement to sell the West Coast dairy co-operative to Hongkong Jingang Trade Holding Co., Limited (“Jingang”), a wholly owned subsidiary of Inner Mongolia Yili Industrial Group (“Yili”) for $3.41 per share, representing an enterprise valuation of $588 million1.
Chairman Pete Morrison says “the board believes that the proposed transaction represents the best available outcome for our shareholders, and has the unanimous support of the Board2. The acquisition price represents an attractive price to the Westland shares’ nominal value3. Westland will seek shareholder approval for the proposed transaction at a special shareholder meeting which is expected to be held in early July 2019.”
“Under the proposed transaction our shareholder farmers who are existing suppliers upon the implementation of the scheme will receive the benefit of Westland’s (under the new ownership) commitment (which is guaranteed by Jingang) to collect milk and pay a competitive payout of a minimum of the Fonterra Farm Gate Milk Price for 10 seasons from the season commencing 1 August 2019. A Supplier Committee comprising five representatives from existing Westland suppliers and five representatives from Westland (under the new ownership) will be formed to maintain communications and transparency between existing Westland suppliers and Westland going forward.”
Yilli is the largest dairy producer in China and Asia and has a strategy to grow both its domestic and global businesses. Yili acquired Oceania Dairy Limited (“Oceania”) in 2013 and since that time it has invested 3 billion RMB (approximately $650 million4) in establishing milk powder, infant formula and UHT production lines for Oceania.
The proposed transaction follows a strategic review conducted by the Board. At the conclusion of the review, the Board initiated Project Horizon – a process to explore future capital and ownership options to provide a long-term solution for shareholder farmers following Westland’s inability to deliver a competitive milk payout in recent years.
The Board confidentially engaged with over 25 parties in a competitive process to seek indications of interest in a cornerstone investment in Westland or a full acquisition or merger with Westland. The Board then shortlisted a small number of parties to participate in detailed financial, legal and operational due diligence and to review and negotiate potential transaction documents with Westland.
“We have advised shareholders of the proposed transaction and our recommendation.”
“A detailed shareholder booklet containing information relating to the proposed transaction, the Independent Adviser’s report, the reasons for the director’s unanimous recommendation and shareholder meeting information is currently expected to be provided to our shareholders in mid June 2019. We will also hold farmer consultation meetings to discuss the proposed transaction and information provided to date”.
“We will also brief staff, customers and key stakeholders on the deal,” Mr Morrison said.
The proposed transaction will be by way of a scheme of arrangement and requires the approval of 75% or more of the votes of shareholders (in each interest class) who vote; and more than 50% of the votes of all shareholders entitled to vote (whether or not actually voted).
The proposed transaction also requires High Court approval of the transaction in accordance with section 236 of the New Zealand Companies Act, consent under the Overseas Investment Act, and completion of other customary conditions.
Yili has been in New Zealand since 2013, when it acquired Oceania, the South Canterbury-based dairy company, since that time it has invested RMB 3 billion (approximately $650 million4) in establishing milk powder, infant formula and UHT production lines for Oceania. In recent years it has provided its supplying farmers with a payout higher than the average industry payout. Yili is China's largest dairy producer with an estimated 22 per cent market share.
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1. Representing $3.41 per share for 72,008,605 Westland shares outstanding plus net debt and other assumed liabilities totalling $342.5 million.
2. Subject to the Scheme consideration of $3.41 per share being within or above the Independent Adviser’s valuation range.
3. The nominal values of Westland shares range from $0.70 to $1.50 per share.
4. Calculated as at today’s RMB/NZD exchange rate of 0.217.
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