Mega Merger By Christmas?Monday, Nov 6, 2000
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
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?