Dairy deal would rob MergeCo funds

By PHILIPPA STEVENSON agricultural editor

Kiwi Dairies shareholders vote on a takeover of Northland Dairy tomorrow amid charges that the "curtain-raiser" move could threaten the industry's main, mega co-op game plan.

Last night, Dairy Group chairman Henry Van Der Heyden warned that a Kiwi-Northland merger would "undoubtedly" compromise efforts to form an industry-wide mega co-op.

His company's negotiations with Kiwi, crucial to integration plans, were at a critical stage, he said. "Kiwi and Northland shareholders - by voting in favour of the smaller merger - have to know why this could seriously prejudice the bigger merger."

Mr Van Der Heyden said Kiwi was incurring a further $112.5 million of debt to clinch the Northland deal when its existing debt burden was one of the main reasons holding up the deal with his company.

"If the Northland merger goes through on this basis, the bottom line is we are going to be that much further apart."

Mega co-op establishment board chairman Graham Calvert said an $112.5 million capital payment to Kiwi shareholders - compensation for the difference in the two companies forecast earnings - was effectively coming off the balance sheet of MergeCo, the proposed $13 billion company made up of up to eight companies and the Dairy Board.

"It's no good having a MergeCo that can't do all the things [planned] because we paid all the money out to farmers when we put it together."

The merger between the nation's second and third biggest manufacturing companies was announced last month just as Kiwi and industry giant, Dairy Group, began their negotiations.

Kiwi chairman John Young and his Northland counterpart Greg Gent have assured their combined 5900 suppliers that the merger was a step towards the mega co-op.

But Mr Calvert, a Dairy Group director, dismissed that as "dreamland."

"It won't help it. It just makes it more difficult," he said. "If it was only a small amount it wouldn't matter, but $112 million is not chicken feed."

Two Waikato farmers, Lloyd Downing and Stuart Grower, have suggested that Dairy Group would be forced to match the cash payout to ensure equality between its shareholders and Kiwi's.

The combined advances would strip $340 million out of MergeCo, Mr Downing said.

Mr Calvert said he had implored the companies not to do things that would financially weaken MergeCo.

However, without MergeCo's business plan, which is not expected for at least six weeks, he did not know how critical any cash drain would be.

"If that was the only sum that was paid out, then that would be one thing, but we are still trying to put five other mergers together. The others are significantly smaller but if they all end up paying some money out, then it would be a real problem."

Northland suppliers vote on Friday, regardless of the result of the Kiwi poll.