Major shareholder backs sale of Westland Milk to China's Yili

Westland Milk's third biggest shareholder to support sale of the cooperative.

Westland Milk's third biggest shareholder will vote to accept a buyout offer from Asia's biggest dairy producer, Yili.

Dairy Holdings owns 1.73 per cent of the Westland farmer cooperative and its chairman Greg Gent said it would support the proposal to sell to Yili "but we are dreadfully sad to see a cooperative fail".

"Our milk is staying with Westland, we support the merger largely because we see little other option," said Gent.

Meanwhile, the board of Westland's biggest shareholder, Landcorp, is unlikely to make its decision before June. Chief executive Steven Carden said the 4.5 per cent shareholder has had one discussion with Westland leaders and is not at the point of making a decision on the way it will vote.

Dairy Holdings supplies Westland Milk with about one million kilograms of milksolids a year from five farms at Springs Junction. Landcorp supplies about four million kilograms of milksolids from 13 farms throughout the West Coast.

Chinese dairy giant Yili has offered the struggling cooperative a buyout deal worth $588 million, including taking on its debt and liabilities, which total $342.5m. Yili is offering $3.41 per share, subject to that being within, or above, an independent adviser's valuation range. According to Westland, the nominal value of its shares has ranged from 70c to $1.50 per share.

For the average-sized Westland farm, the share offer translates to about half million dollars cash.

The offer looks even more attractive since Westland last month cut its milk payout forecast - while other companies' forecasts around the country are rising on robust global prices.

Westland, which has grown out of the West Coast's 150 year dairy heritage, hasn't paid a competitive milk price for several years and is heavily in debt.

For many of its 429 shareholders, Yili's offer could save their farm - or at least create a market to sell it in.

The conditional deal comes with extra sweeteners. Yili has committed to collect all milk supply - not be sneezed at given the remoteness of some West Coast dairy farms.

It will also pay a competitive milk price of at least as much as the Fonterra farmgate milk price for 10 years from the season that starts on August 1.

Westland chairman Pete Morrison said farmer meetings about the Yili offer have been well-attended, cordial and polite.

"The feedback seems very positive. People understand the need for something to happen and this is a very good outcome."

Yili was one of 26 parties which answered the Westland board's call last year for a white knight with capital.

Morrison says the drop in Westland's forecast payout would have "sharpened the mind" but he doubted it would decide the vote.

"A number of years have been driving (farmers') thought process. People want a competitive payout for a long period of time to have a sustainable business."

To succeed, the Yili takeover needs 75 per cent shareholder support and must also be approved by shareholders holding more than 50 per cent of the shares eligible to be voted.

The deal, which formally is a scheme of arrangement, also needs High Court approval and the tick from the Overseas Investment Office. Yili has been a dairy processor in New Zealand for six years.

Morrison said the scheme document would go out to farmer-shareholders in early June.

It will contain an independent valuation of the company by Grant Samuel.

The shareholder vote is set down for July 4, but Morrison said it could be held as early as June 21.

More farmer meetings would be held in the months leading to the vote.