Mega-merger views clash

By Philippa Stevenson

New Zealand Dairy Group and Kiwi Dairies this week go into crucial discussions on the formation of a mega co-op but their leaders are split over the way the industry should unite.

Yesterday, Dairy Group chairman Doug Leeder and Kiwi head John Young revealed similar views on the goal of merging nearly all the country's dairy companies within a year but opposing views on how to achieve it.

Mr Young favours a one-hit mega-merger of all nine companies but Mr Leeder said a package deal was prone to being sunk by one company and the mega co-op should be reached by a succession of two-company mergers.

As the industry's two biggest companies begin talks - and in Northland today the Dairy Board begins a series of presentations on the mega co-op to farmers - it has been disclosed that the stakes are higher than the board announced last week.

Last Wednesday, Dairy Board chairman John Storey said a mega co-op integrating manufacturing companies with the exporter could lift dairy earnings by $300 million a year.

Yesterday, Mr Leeder said taking into account cost savings and an expected $150 million from the "catalytic event" of putting the new structure in place, the deal could deliver more than $500 million a year.

Around $170 million annually was still to be realised from the $250 million in cost savings identified in the manufacturing sector by the industry's Business Development Project. Of that, $50 million was forecast to be attained this year, but the actual figure was expected to be closer to $80 million.

Mr Young said that was too much "not to capture it as soon as possible."

"If we're going to get there we should try and massage it there altogether at once. There is a genuine will right through the industry to pick up the ball and run with it."

He said companies had a fair idea what one another's financial position and payout prospects were and full due diligence, like the six months taken to complete the recent Dairy Group/Sidco merger, was too long.

However, Mr Leeder said a multi-company merger could fall over with a no vote from one company's shareholders. If Dairy Group and Kiwi merged they would comprise 85 per cent of the industry, an entity which could then merge with remaining companies one by one.

The process would involve goodwill and integrity to ensure that the merger process did not stop short of involving all those who wanted to join.

He said the new company was unlikely to be established at an existing dairy industry base. Instead, it should be near an international airport such as Auckland or Christchurch.

It would also involve big staff changes to introduce new skills and culture. The experience of other companies was that between 20 and 30 per cent of staff were new.