The demise of Westland as a cooperative contains a lesson for all business, says Roz Henry, the new Cooperative Business NZ chief executive.
Williamson, of Hamilton Hindin Greene, says the capital structure review announced last week isn’t surprising; low payouts to farmer shareholders over the last few years aren’t sustainable by the co-op.
“Westland Milk needs to change to survive,” he told Rural News.
Westland’s board last week said it has picked Macquarie Capital and DG Advisory to “consider potential capital and ownership options that will create a more sustainable capital structure and support a higher potential payout”.
The review will look at a full range of options, Westland says. These will include continuing with the current co-op model, introducing a cornerstone investor to provide new capital to fund growth, and a merger or sale of the cooperative.
Westland has lost farmer shareholders to rival Fonterra after years of low payouts.
Following a change in board and management the co-op is forecasting a payout of $6.75 to $7.20/kgMS for this season; Fonterra is forecasting $7/kgMS.
Westland chairman Pete Morrison says shareholders have indicated they would support a plan that delivers higher returns and shareholder value.
“This strategy has the potential to add significant value to our business. We’ve had strong interest from new suppliers and we take great heart from that as well as the loyalty shown by existing shareholders,” he says.
“Shareholders have clearly indicated support for a plan that would create higher returns and shareholder value, which would likely require significant new capital.”
Morrison says to realise opportunities, Westland needs access to new and increased capital.
“We have relatively high debt levels and limited financial flexibility so it is now timely to look ahead and consider the options that can provide a sustained, higher payout and improve the company’s financial flexibility. Obtaining new capital would make a significant difference to the cooperative.”
Williamson believes Westland won’t have problems attracting investors.
“There’s a lot of interest for this type of operation; definitely there will be strong overseas interest.”
He says securing a cornerstone investor would depend on the price and “give and take” from shareholders.
“It’s still early days; Westland needs to go through the review and then shareholders have to choose.”
Morrison says the review would run for several months.
Westland Milk Products
- Founded in 1937
- NZ’s second-largest dairy co-op
- One of West Coast’s largest employers
- Contributes 14.35% of the region’s GDP
- Makes butter, dairy powders and specialist nutrition products