Faith in the farmer-cooperative as the sacrosanct business model for New Zealand dairying has taken two heavy hits in recent hours.

Farmer-owners of the distressed Westland Cooperative Dairy company, the West Coast's biggest business, have voted overwhelmingly to sell their company to Chinese dairy giant Yili.

And the share price of Fonterra, New Zealand's biggest company and a farmer-owned business, has taken a hammering that's wiped about $1 billion off its market capitalisation in one month.

The sale of 75 year old Westland Milk Products to China now looks a foregone conclusion after its 326 farmer-owners voted by nearly 94 per cent to a $588 million takeover offer from Yili. Only 6 per cent of shareholders voted against the offer, which will see Yili pay farmers $242m or $3.41 per share cash for shares Westland's independent advisor Grant Samuel valued at only 88c-$1.38 per share.


Yili will also take on Westland's $342m of debt and liabilities, and has undertaken to pay Westland farmers the same price as market payout setter Fonterra for 10 years. Westland suppliers have not received a market price for their milk for several years because of the company's financial struggles.

Another deal sweetener is that Yili will pick up all existing milk supply for another decade in a region where most farmers have no choice of processor to supply.

If all goes to plan, Westland could be owned by Yili from August 1.

A delighted Westland chairman and major shareholder Pete Morrison said the deal would inject $75m cash into the West Coast economy by Christmas in the form of advance milk payments and because farmers would not be called on to lose 20c-40c/kilogram milk solids from their next payout to keep the company afloat.

On top of that farmers will receive a cash lump sum for their shares. The average production farm is expected to receive around $500,000 from the Yili buyout.

The deal still needs Government approval through the Overseas Investment Office (OIO) and the tick from the High Court. Yili is an established investor in New Zealand, having bought and expanded south Canterbury dairy processor Oceania for around $650m.

Morrison said he hoped for OIO approval before July 18, when the High Court is due to look over the transaction. Yili applied for OIO approval in April.

Meanwhile, New Zealand's private company dairy sector players are looking on as the share price of Fonterra, a farmer-owned cooperative with similar fundamental high debt and capital-starved issues to Westland's, is hammered.


Fonterra, a $20b revenue company, has units in farmer-owned shares on the sharemarket. The units carry dividends but investors cannot vote on how the company is run.

The share price has been sinking this year.

It's now 30 per cent lower than this time last year but reaction to the slump is as soft as the stock itself.

Market analysts say the fall is unsurprising given Fonterra's earnings downgrade forecast of May. Farmers who own the shares say they're far from happy but the value of Fonterra is not reflected in its share price, but in its assets and their past investments in them.

However they all agree the clock is ticking on patience with Fonterra sorting out its issues of high debt, poor investment decisions, and a clunky capital structure which does not seem to benefit investors whether they be farmers or unit-holders.

On Thursday the price of Fonterra shares and units in those shares on the NZX fell by 24c or 6.9 per cent at close to $3.51 in light trading. The fall took Fonterra's market capitalisation to $5.6b, compared to $6.4b just one month ago on June 4.

Units in Fonterra shares listed in 2012 at $5.50, quickly jumping to $6.67. In May 2013 they hit $8. In the past month the price has fallen by more than 35c.

Chairman John Monaghan has been approached for comment. He is overseas.

But market analysts say the steady journey south is unsurprising given the embattled dairy company's forecast earnings downgrade in May and lack of progress announcements since it started a major restructure and strategy review under new leadership late last year.

And while Fonterra's farmer-owners are far from happy, they say the share price is not a measure of the company's value, which is in its assets.