Directors of distressed sale company Westland Cooperative Dairy did not tell independent adviser Grant Samuel about their controversial agreement to pay $1.6 million in bonuses to senior managers.
It's doubtful the advice would have materially affected Grant Samuel's valuation of the Westland company, poised to be sold to Chinese dairy giant Yili, but it's a further twist in the Westland board's tardiness in informing shareholders about the bonuses.
Westland's original scheme booklet last month on the proposed sale to Yili did not mention the planned bonuses for six executives. They came to light when the company later issued a one page "update" to the scheme detailing "a management incentive plan".
Grant Samuel's report dated May does not mention the bonuses.
A Westland spokesman said chairman Pete Morrison would answer the Herald's question about why Grant Samuel wasn't advised of the bonuses after the result of the shareholder vote on the sale on Thursday July 4.
The spokesman said the omission of the bonus agreement from the initial scheme booklet was "a genuine oversight". He said the omission had been identified by the company itself, not a financial markets regulator.
The company refused to provide a copy of the Grant Samuel report.
Grant Samuel has been approached for comment.
Herald inquiries established that independent advisers would expect to be told of such bonuses. While they may not make a material difference to a valuation, the advice would be of use to shareholders. An independent adviser could be expected to at least comment on such a plan, market sources said.
Chief executive Toni Brendish, who was paid more than $1 million last year, will receive $680,000 of the $1.6m cash bonus.
The bonus plan has been strongly criticised by shareholders because some of the executives have contributed to the poor performance that has led to Westland's present situation.
Agriculture Minister Damien O'Connor told the Herald the bonuses are "unethical, immoral and outrageous".
But Westland chairman Pete Morrison and major shareholder Dairy Holdings have said the "management incentive plan" is standard practice in a takeover to ensure the incoming owner has managers in place to run the business. Morrison said the total bonus was comparable with that paid by other companies.
The update about the bonuses said senior managers had put "a significant amount of additional work" over more than 12 months into investigating future capital and ownership options for Westland.
Minister O'Connor has a different take.
"If the management and board had put more effort into selling product and less effort into selling the company, everyone would be better off."
He said while the sale proposal was up to farmers, he was "deeply disappointed" for the West Coast.
"If this proceeds it means the loss of the only big company and one that the West Coast owns."
As well as shareholder approval, the sale to Yili needs a tick from the Government through the Overseas Investment Office and from the High Court.
Yili, which owns the Oceania dairy company in South Canterbury, is offering $588m for Westland. Of this $246m is to buy all farmer shares - the rest is the assumption of Westland's debt and liabilities.
Grant Samuel valued 75 year old Westland's equity in the range of $63.3m to $99.7m, which corresponds to value of 88c to $1.38c per share. Yili is offering farmers $3.41 per share.
Westland is highly geared within current debt facilities of about $390m.
As at January 31 there was about $65m "headroom" available within these facilities, said Grant Samuel.
The company was likely to come under pressure to reduce net debt which would curb planned capital expenditure and more likely ensure a reduction of milk payment to shareholder suppliers.
For several years Westland has not been paying its farmers a market price for milk primarily because its processing facilities have become less competitive, overheads had risen and new investments were not contributing to the balance sheet as expected.
A group of former farmer-shareholders who say they are owed up to $8m by Westland has asked the Overseas Investment Office to delay or block the sale until they are repaid. The money owed to them is for share redemption. The farmers left the company in 2018 citing lost confidence and poor payouts.
Westland now classifies them as unsecured creditors and has advised they may not be paid until 2023. The group says their money has become an interest-free loan to Westland, and makes the balance sheet more attractive to Yili. In total $11m is owed to farmers who have left the cooperative.