No rush to restart talks over merger

By PHILIPPA STEVENSON

The spluttering beacon of dairy industry mega cooperative plans shows signs of being smothered in a storm of indifference.

Major companies New Zealand Dairy Group and Kiwi Dairies have given no indication when they might restart merger negotiations that stalled in December over widely divergent views of their companies' value.

Last week, their focus appeared to be on everything but the proposal whose deadline is growing increasingly tight.

Before September 1, when enabling legislation will lapse, the industry has to garner 75 per cent farmer support, win the approval of the Commerce Commission and effect the difficult merger.

But in a two-day board meeting, Dairy Group directors concentrated more on Operation Eagle - their fallback plan for an industry split behind their company and Kiwi - and discussed a share structure and governance for a standalone company.

Meanwhile, Kiwi chairman John Young caused major ructions in industry boardrooms, executive suites and staff cafeterias by suggesting the mega co-op would result in wholesale job losses, with the move of Wellington-based Dairy Board functions to a small head office in Auckland.

His surprise resignation from the Dairy Board, and replacement by former Northland chairman Greg Gent, further muddied the waters.

Mr Gent has been picked as a possible mega co-op chairman but there have also been persistent rumours that Mr Young could step down as Kiwi chairman as well.

Last week's move could also be seen as a preliminary step for Mr Gent, who is being groomed for leadership with study at one of the world's main business schools, towards chairing a standalone Kiwi.

Meanwhile, the release of the make-or-break mega co-op business plan to farmers has been delayed, further heightening suspicion that it is being "spin doctored."

Doubts are growing among farmers because of the length of time it is taking. "It will have to be good to convince us now," said one. "We are sick of the shenanigans."

The plan has already been presented to the two companies' boards and Dairy Group signalled to its shareholders that they would see it at meetings starting on March 7.

But establishment board chairman Graham Calvert said the plan was undergoing further "stress testing," which he expected to be finished early this week.

It would then go back to the establishment board - unlikely this week because key executive, Dairy Board chief Warren Larsen, is overseas - and from there back to the companies.

A Dairy Group spokesman expected the March meeting dates would have to be rescheduled.

Mr Calvert said the plan's base case was unaltered but company directors had raised questions of how conditions such as currency and commodity price movements would affect it.

"We are stress testing any areas where we have made an assumption. Then you ask, what if you were wrong in that assumption? What would actually happen, does it leave MergeCo in danger?"

He said the preparation was important.

"As sure as eggs, the first farmer is going to get up and say, 'well what if this happens?' And if you don't know the answer we will be tripped up and it won't look good."

Reports of supposed leaked versions of the plan were dismissed by Mr Calvert and Dairy Board chairman Graham Fraser.

Mr Fraser said suggested staff redundancy figures and a new site for head office were fictions.

Mr Calvert said: "Any numbers being bandied about regarding the business plan are purely speculative, especially given that none of the dairy companies nor the establishment board have signed off on it."