The board of Alliance Group is hoping a sprinkling of financial sweeteners and the enticing prospect of increased bargaining power over international customers can convince enough of its 4,216 farmer shareholders to back its recommendation to hand over control of the last remaining fully farmer-owned New Zealand red meat co-operative to Ireland’s Dawn Meats.
The NZ $250 million (€128 million) deal, which needs the agreement of 75 per cent of voting shareholders, as well as regulatory approvals to go its way, would clear an estimated year-end debt pile of $188 million weighing on Alliance’s balance sheet.
A further $22 million would be retained for investment in the business, leaving $40 million to be paid out to Alliance’s farmer shareholders.
Dawn’s offer for 65 per cent of Alliance values the company at $502 million, boosting farmers’ current equity by 26 per cent to $135 million.
READ MORE
During a call with shareholders, Alliance chairman Mark Wynne emphasised the potential for further gains in the international market.
“We are seasonal suppliers with the opposite seasons in the northern and southern hemispheres [and] this enables us to have all-year-round supply and that is very attractive to both retailers and food service players,” Wynne said.
Wynne said Alliance’s strength in lamb marketing – it is the largest sheep-meat exporter in the world – complemented Dawn’s strong beef brands in the UK and Europe. Alliance by contrast has long-standing customers in China and the rest of Asia.
Asked if trading its way out of its debt difficulties or selling a minority stake had been considered, Wynne said the Alliance board believed neither was a viable option.
Although the co-operative was trading profitably again after two years of heavy losses, it was not making enough to repay debt in a time frame that would satisfy its bankers and leave sufficient cash for future investments in the growth of the business.
Likewise offers for a minority stake fell short on both these measures.
Wynne said failure to approve the deal could cause the co-operative’s banks to seize control of the business, with implications ranging from cutting funding for livestock purchases through to fire sales of assets.
“Not to scare you, just to put the counterfactual back on to the table,” Wynne said.
While Alliance still has to win over shareholders, there are also regulatory and political hurdles to clear if the deal is to go ahead.
Last year’s New Zealand-EU free trade agreement requires investments over $200 million to be scrutinised by the Government’s Overseas Investment Office.
Further powers are available to government ministers to knock back applications where it “could grant an investor significant market power in an industry”.
Alliance is arguably the country’s largest sheep-meat exporter and third-largest meat exporter overall.
Winston Peters, leader of the New Zealand First Party, one of two junior members of the National Party-led Coalition Government, today lambasted Alliance’s courting of Dawn Meats as contrary to the country’s economic interests.
Speaking to The Irish Times before the announcement of the deal, Todd McClay, New Zealand’s agriculture minister and a member of the country’s National Party, said New Zealand First’s view of the transaction was “not the view of the government”.
“At the end of the day it is the farmers who need to make the decision,” he said.
