Farmers mull bid for Westland Milk

Despite the prospect of a potential windfall, Westland Milk Products’ 400 shareholder farmers are reluctant to commit to a $588 million offer from Chinese company Yili Industrial Group until they know more.

The agreement prices Westland shares at $3.41 each, more than double the $1.50 they have traded at for years.

As part of the proposed deal, the cooperative’s farmers would also receive a minimum of the Fonterra farmgate milk price for 10 seasons, from August 1.

Westland had been looking for outside capital after struggling to be profitable and pay a competitive payout to its farmer suppliers.

For the 2017-18 season its payout was more than 50 cents a kilogram below competitors Fonterra and Synlait, though it hoped to be more competitive this season.

Westland’s board had confidentially approached more than 25 parties to seek indications of interest in a cornerstone investment, a full acquisition or a merger with Westland.

Renee Rooney, who farms at Inchbonnie, near Lake Brunner, said ‘‘the devil is in the detail’’.

‘‘We haven’t had the opportunity as shareholder-suppliers to process the information. At this point it is a conditional transaction and nothing has been voted on by shareholder-suppliers,’’ Rooney said.

Federated Farmers’ West Coast dairy chairman Stu Bland said farmers were still digesting the news and would know more after meetings in the next few days.

‘‘It is not a surprise as it was always one of the options.’’

Farmers could accept the Yili offer or remain a farmer co-operative.

After some poor payout years, farmers weren’t financially able to supply the additional capital that Westland needed themselves. ‘‘Every farm’s situation is individual and different.

‘‘It is hard to make big decisions without some questions,’’ Bland said.

‘‘Once we go down this track there is no going back.’’

Southern Pastures, which became Westland’s largest supplier this season when it switched from Fonterra, would make a substantial windfall if the Yili deal goes ahead.

Supplying Westland with 4 million kilograms of milksolids, Southern Pastures paid $6m for its shareholding, but could receive $13.6m under the deal. Its nine dairy farms were in Canterbury.

Southern Pastures’ part ownership of Lewis Road Creamery had also created a significant new customer for Westland

Westland and Tatua were the only dairy co-operatives to remain from the megamerger which formed Fonterra in 2001.