Plan to delay or block Westland dairy cooperative sale over exit millions owed to farmers

Westland chairman Pete Morrison. Photo / Supplied

Farmer-shareholders who say they are owed millions of dollars by the Westland dairy cooperative will ask the Overseas Investment Office to delay or block the sale of the struggling company to China until they're repaid.

Westland's farmer-owners are to vote on Thursday whether to accept an offer from China's state-owned Yili dairy giant for the 75 year old cooperative. The deal is partly conditional on OIO approval.

Six former milk suppliers to Westland who exited the company last year because of its uneconomic payout and lost confidence in its leaders, say they are owed between $7 million and $8m by Westland in share redemption cash.

Spokesman and shareholder Pete Williams said the group - along with other farmers who have exited - have been advised by the cooperative they will have to wait for their money, in some cases until 2023, regardless of the proposed buyout by China's biggest dairy company succeeding.

The total amount owing to former suppliers is $11m according to the buyout scheme document, he said.

"This means the former shareholders become unsecured creditors of a subsidiary of Inner Mongolia Yili Industrial Group...providing what is an interest-free loan to a Chinese state-owned multinational while they are left to struggle financially," Williams said.

His group, which is working under legal advice, is still owed money despite exiting a year ago because Westland's constitution allows it to postpone repaying departing shareholders for up to five years.

"Westland appears determined to adhere to the five year stand-down, despite the likely change in ownership that has been forced by poor management and governance of the co-op."

Westland chairman Pete Morrison, a farmer and significant shareholder, has been approached for comment.

Williams said holding back money from Kiwi farmers when dairying was going through such a difficult financial time was "a disgrace".

The Westland scheme booklet said six company executives would receive total cash bonuses of $1.6m if the Yili sale goes through. The final 25 per cent of the bonuses will be paid six months after the deal is completed.

The farmers in the group going to the OIO are now Fonterra shareholders. They had to buy shares in Fonterra to supply milk.

Yili is offering Westland farmers $3.41 each for their shares. Westland's own independent advisor Grant Samuel has valued them at 88c-$1.30.

Williams said the group members were owed $1.50 a share by Westland - the cost of a share to supply.

The group was not at all concerned about forfeiting the difference between that return and the Yili offer, he said. They knew Westland was looking for significant capital when they chose to leave the company last year and knew they may forfeit a "windfall".

"This is absolutely a principle for us. It's morally wrong for them to still keep our money.

"We want our money in our businesses. The board is using our money to make the deal more attractive to the Chinese.

"Our beef is that they are taking advantage of a technical, legal clause in the old cooperative constitution to continue to hold our money as interest-free loan.

That money needs to go back to New Zealand farming."

Agriculture Minister Damien O'Connor said it was clear the group had a legitimate claim against the company. "They should proceed as they see fit."

He would investigate what the group's claim might mean in OIO consideration of the sale proposal.