Bad blood factor in failure of dairy merger

By PHILIPPA STEVENSON

A scripted presentation by New Zealand Dairy Group directors to a series of shareholder meetings claims external issues led to the collapse of their key merger with Kiwi Dairies.

But the fierce rivalry between the two companies, given as the underlying reason for the breakdown in March, again emerged as the true explanation when sceptical suppliers questioned their leaders at a meeting last Thursday.

Deputy chairman John Roadley delivered Dairy Group's formal line on the merger failure at the gathering near Te Awamutu, one of 41 being held around the country until this Thursday.

He echoed the explanation chairman Henry Van Der Heyden gave the Business Herald earlier the same day but departed from the script under questioning.

The historic enmity between the companies destined the talks to failure from the very beginning, Mr Roadley said.

In the four-part presentation, Mr Van Der Heyden and Mr Roadley's addresses are entitled "Back to the Future" and deal with the way forward from the failed merger.

The two leaders told farmers that they did not have the mega co-op integrating manufacturing and exporting arms that so many of them had hoped for because the Commerce Commission had insisted that the industry dispose of one of the domestic milk supply companies and provide fair value exit for any farmer leaving the single company.

The potential run on the co-operative's capital and milk supply was too high a risk to take, they said.

Contrary to Mr Van Der Heyden's statements at the time of the merger collapse, the company leaders now deny the impasse was over a difference in company worth of 40c a kilogram of milksolids - about $212 million for Dairy Group suppliers.

The two men have also moved to dispel what they said was a perception that Kiwi was more cooperative than Dairy Group.

"The fact is, both are as cooperative as each other, but there are fundamental differences in philosophy," Mr Roadley told 40 suppliers in the Pokuru School hall.

Mr Van Der Heyden on philosophy: "We believe that part of the industry strategy was to unbundle the milk price, give farmers choice in pursuing the bold strategy and the parts of the business which should de-link ownership and supply. Kiwi would like to have everything bundled together."

Mr Roadley told his audience there was no right or wrong philosophy but the issues had to be resolved for the merger talks to resume.

"We have to work with Kiwi. We are a joint venture in the Dairy Board," he said.

A steering committee, made up of three members from each company, would have its second meeting in Wellington today and was "genuinely reviewing the mistakes of last year," Mr Roadley said: "we've got to ensure no [industry] value is destroyed. Everybody is dead scared we're going to tear the arms off each other."

One farmer queried how the two companies could now work well together when they could not do so for the mega co-op, "which was supposed to deliver everything you say we need."

Speaking off the cuff, Mr Roadley, a champion of the mega co-op for around five years, said the merger failed because "we never laid a decent foundation to work together."

The companies had a history of poor relations. There were violent personality conflicts and "we started a combative process from day one."

"It was destined to fail from the word go. I wanted to pull the plug before Christmas because it had a bad smell about it," Mr Roadley said.

He admitted "it sounds like kids that can't play the game."

New blood in both camps, particularly Mr Van Der Heyden and Kiwi's new chairman, Greg Gent, could make a big difference to inter-company relations, Mr Roadley said.

After the meeting, several farmers criticised the company for failing to address issues that would enable them to make key business decisions.

They wanted to know when a moratorium on new milk supply would end and when a new share standard would be set. Without that knowledge they did not know the cost of farm expansion or increasing supply designed to increase their earnings.