By PHILIPPA STEVENSON agricultural editor
Dairy industry leaders may opt for a second-best industry structure because of their fears that a significant number of shareholders will desert the proposed mega co-op.
New Zealand Dairy Group chairman Henry Van Der Heyden yesterday said the major risk in establishing MergeCo was that farmers would
leave the company after the Commerce Commission indication that "fair value exit" should be allowed.
"That meant if a farmer left MergeCo he took his capital as well as his milk. If a certain percentage left, they put it at risk financially," he said.
Mr Van Der Heyden declined to say whether effort was being put into challenging the commission's objections to allow MergeCo to proceed.
Instead, Dairy Group and Kiwi Dairies, whose merger was key to forming the mega co-op, were reviewing the risks of other structures canvassed in a study known as the McKinsey report.
"We know the risks now with MergeCo, so now we have to quantify the risks of the other structural options," said Mr Van Der Heyden.
The industry would not sell itself short by pursuing an option that offered fewer benefits, he said.
The aim would be to go with the option posing the least risk "because the benefits of the two are roughly the same."
The McKinsey report has not been shown outside company directors. But this week the industry journal, Dairy Exporter, reported a summary which it said showed that after 10 years of MergeCo the industry would be better off by $800 million from the second-best option, and $3.1 billion ahead on the third-favoured option.
The second option provided for two companies competing in ingredients or more commodity products but having a joint venture to market consumer products.
The third option was for two fully vertically integrated companies competing against each other in both consumer and ingredients products.
Mr Van Der Heyden would not comment on the journal's report but said "there wasn't much in it" between MergeCo and the second best option.
At present, the two companies were "deciding on a process and defining the terms of reference" for the review of the options.
Mr Van Der Heyden rejected suggestions that farmers had not had enough information to make decisions.
He said the company planned to send out a summary of the report within a month.
