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Mega Merger By Christmas?

Greetings Readers

Once again the two major dairy companies have come up with different schemes to manage the need for fair value entry and exit of the dairy Industry.

In terms of remaining true to the principles of cooperatives it appears to me that Kiwi have come up with a better scheme although the “devil may be in the detail” as the scheme is defined in detail for shareholders.

Determination of annual value on the basis of cash flow rather than capital is an interesting approach that may be key to ensuring the seemingly insurmountable problem of defining a value that more closely reflects the reality of the companies trading activities.

However the principle of trading in capital notes introduces an element of capital risk that has not been present on coop dairy structures in the past as dairy companies had been able to trade way past the point where normal corporate operations would have been close due to insolvency by normal commerce rules.

How such a situation will be reflected in the value of capital notes will be a test of Kiwi’s proposal. In all these deliberations we have a tendency to focus on how the structures we are putting in place will allocate equitably the companies growth and value.

But farmer share holders and capital note holders should also be aware that there can be a downside to dairy company operations and ensure that a decline in fortune is reflected equitably as well by this new structure.

NZDG with its peak milk share allocation proposal continues the approach that seems to have dogged their recent past by continuing to seek temporary palliatives for more complex problems.

In many ways NZDG seems to be operating as if it subconsciously wishes to be a sunset company cashing up its assets. Could this be the wish of NZDG suppliers?

Good Farming

The Editor


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