Murray Goulburn IPO, page-17

Put simply:

Murray Goulburn as a Co-op has a duty to its existing shareholders through the best possible return by way of milk price since to be a shareholder they must be a milk supplier (i.e. dairy farmer) and their amount of shares is determined by the volume of their milk supply each year.

Murray Goulburn as a listed Co-op has two set of shareholders, the original supplier shareholders who still seeks the best return for his supplied milk and now the non-supplier investor who seeks a return on capital from investing in the listed entity.

The non-supplier investor will have no voting rights in MG's business whereas the supplier-shareholder will retain voting rights indexed to their holdings which is determined by the volume of milk supply.

MG is in the tough position where it needs capital to address some major plant works and to be able to fund new initiatives to capture markets that they may otherwise miss out on. In order to raise funds it can either go further into debt (as was used to try and acquire WCB) or it can seek funding from the existing shareholders (i.e. dairy farmers) and that would probably get voted down as it puts undue financial stress on the farmers who are the shareholders and they are not overly comfortable with the milk wars driving their milk prices down to such an extent so it can then go to the equities market and seek funding through an arrangement. This is what they have chosen to do and some supplier to MG are now ex-suppliers as they don't agree with the approach.

The problem is if MG doesn't secure a greater supply of milk for processing, improved domestic market share and product pricing (tough to do in the current climate), secure new export markets (FTA and other initiatives should help but this is offset by Russia's behaviour and what is happening in the EU) then it will be tough to match a 7.5% yield to all shareholders whilst paying supplier-shareholders enough to ensure they stay as milk suppliers to MG. Slip one or the other and the decline of MG starts.

I will say that MG is stuck between a rock and a hard place on this one as staying as a pure co-op was a declining option, converting to a fully listed entity had its risks from market predators and loss of milk supply and somewhere in between these two there is a liveable trade-off, perhaps they have achieved.

I would rather watch and wait, for now.