Hi all
The cash offer isn’t the most important thing for the farmers. Break it up like this:
55M shares on issue
27M locked up with bidders, 27M free
60% Mum & Dad shareholders, 40% farmer, (10% controlled by board)
Let’s assume the 600 farmers have an average 130,000 shares, so with Saputo’s bid it’s about $1M.
If Saputo wins there are no ongoing gains or synergies to be taken out of the supply chain that can go back to farmers. So they still keep getting hit around the head with a baseball bat regarding price and long term profitability.
If dairy farmers chose to merge WCB, Bega and MG, the savings out of the dysfunctional supply chain would range from 7c - >14c once the process is fully complete. Let’s work with 7c initially: the average farm supplies 1.5M litres, about $100,000 more into farmers ongoing income stream at a minimum.
With this option we’re export focussed and the industry can grow in volume and farmer base. There is a good future in dairying.
The Saputo option is not export focussed, has not gained any of the waste from the clumsy and under-utilised manufacturing sector and our industry would continue its decline and probably shrink to about 6Billion litres. It would also indicate to interested foreign interests that we are not long term thinkers and that we have put up the white flag and told everyone our industry’s for sale.
I would predict that MG would not last more than 2-3 years before it’s taken over. If someone’s willing to pay more than $10/share for WCB, MG would be worth $30-40/share.
ACCC is a problem but it is a completely different problem from last time around. It wouldn’t succeed if it was the company asking for approval. This time it must be the dairy farmers that ask for government and ACCC approval because this industry is slowly dying and will do so if this doesn’t happen.
On national interest grounds it is of huge importance for Australia’s future prosperity as Terry McCrann’s article highlights we do have a natural competitive advantage. The other aspect to remember is that there is excess capacity in the manufacturing sector. If WCB farmers decided to take the $7.50 offer and there is a stalemate with what the other shareholders want, we could shift ¾ of WCB’s milk into MG and the WCB assets would become worthless. Farmers could do that with any one of those assets and by moving their milk they would bypass any ACCC requirements because they are individuals just shifting milk to their processor of choice.
For the rest of the investors this is a simple takeover battle. For the Australian dairy industry it’s a choice between taking control of our industry or starting the process of slow decline. That’s what we’re debating. There will be no CEO’s from any company speaking. It’s about farmers understanding the choices that face them.
Cheers
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