Suppliers welcome ACCC decision on MG sale to Saputo

The Australian Competition and Consumer Commission (ACCC) approved the sale, with stringent conditions around the future of MG’s Koroit plant, prior to the corporation’s extraordinary general meeting.

Shareholders are expected to agree to the sale to Saputo, at the EGM.

Saputo agreed to cut Koroit from the $1.3 billion portfolio of assets it is buying from MG.

It had failed to convince the ACCC its ownership of the plant would not affect farmgate milk competition in south west Victoria and parts of South Australia.

The Canadian giant already owns Australia’s biggest dairy processing plant, the Warrnambool Cheese and Butter factory (WCB) at nearby Allansford.

Saputo chief executive Lino Saputo said the company was very pleased with the decision.

“This is an important milestone in the process of completing our acquisition of MG,” Mr Saputo said.

“We now await the Foreign Investment Review Board’s (FIRB) decision and the results of the MG shareholder vote.”

He said he remained confident the transaction would be completed by May 1.

“Our goal remains to continue to invest in Australia with a long-term perspective and ensure we have a strong and sustainable dairy industry.”

MG suppliers said they were pleased the way had now been cleared for a vote.

Paul Mundy, Cobram East, said there was very little doubt MG would be sold to Saputo.

“I think people are over this,” Mr Mundy said.

“They want to put the whole, sad, sorry situation behind them, and to move on.”

He predicted a “very, very small” turnout at the meeting.

“Two and a half weeks ago, Saputo held prospective supplier meetings with us,” Mr Mundy said.

“It was very well attended, there would have been 80 people there,” Mr Mundy said.

‘In contrast an MG supplier meeting attracted about 20 farmers.

“That’s a very clear indication people are either fed up, or don’t believe what they’ve been told by MG.”

Mr Mundy said he had met Saputo chief executive Lino Saputo several times.

‘He is a businessman, as he should be, and clearly this is the business he knows exceptionally well,” Mr Mundy said.

Mr Saputo came across “as genuine.”

“He doesn’t pull any punches, what he says is what he means.”

Strathmerton dairy farmer Brad Adams said there was no other option, but to sell MG to Saputo.

He said he still believed Saputo should retain Koroit.

“MG had the opportunity to do what Saputo will do, that is rebuild the milk company properly,” Mr Adams said.

“Had I know this was going to happen, I would have moved milk companies the best part of two years ago.”

Naringal’s Hayden Ballinger said he was in the middle of calving, and wouldn’t be able to attend the meeting.

He said he had been hopeful the ACCC would allow the sale to proceed.

“As dairy farmers you want security, moving forward,” Mr Ballinger said.

“Stability is what the dairy industry really needs.”

He said it would be an emotional day for many suppliers.

‘The door has closed on MG but certainly a few people will feel sorry.

“Unnfortunately, that’s the reality of our position.

“Most people have accepted the fact MG had to be sold and are now looking to the future.”

Simpson’s Aaron Crowle said he was also in the middle of calving and wouldn’t be attending the meeting.

He said the ACCC had made things more difficult, by dragging out the sale process over the Koroit divestment.

“We don’t need any more uncertainty - what’s got to be done, has got to be done,” Mr Crowle said.

He agreed with the sale to Saputo

“We have to get MG out, the best possible way we can

 “They need to whack this through, before the end of the financial year, so we can all get a fresh start.”

The vote at the extraordinary general meeting will determine whether farmer shareholders follow the co-operative board’s recommendation to accept Saputo’s offer for MG’s seven factories and related assets and liabilities.

MG plans to distribute about two-thirds of the $1.31b sale proceeds to its unit trust shareholders, amounting to 80 cents for each share.

Further payments are possible, depending on legal action still hanging over the co-operative after its 2016 farmgate milk payment collapse and subsequent share price free-fall.

About $114 million in sale proceeds will also be made in milk payments to MG suppliers, including step-up payments on current farmgate milk prices.

The sale proposal followed MG’s disclosure it had been steadily losing milk supply, over the last three years.

In its evaluation of the asset sale, MG announced by October last year its milk intake was forecast to be about 1.93billion litres, a further 28 per cent reduction on the previous year.

MG’s called in independent financial advisory firm Grant Samuel to inform shareholders and farmers on the co-operative’s position.

Grant Samuel found MG’s ability to pay a competitive price was constrained by competitors, who were in a better position to pay more for milk.

“Any significant additional milk losses, whether as a result of competitor intiatives or otherwise, would reduce Murray Goulburn’s profitability and further undermine its ability to pay a competitive milk price, potentially sparking a further downward spiral in milk supply,” Grant Samuel said.

“Financing risks – including in relation to short-term debt covenant compliance – would be magnified by any additional milk losses.”

In its explanatory memorandum to shareholders, the co-operative outlined the position it now faced.

“In total MG estimates it has lost more than 1.6 billion litres of milk, or 45pc of its milk intake, since April 2016,” the shareholders statement said.

“If the asset sale does not complete, and no alternative proposal emerges, the directors consider it likely that MG will not be able to pay a competitive milk price in financial year 2018.”

Further milk intake losses might trigger an impairment to the value of MG’s assets, that could cause the co-operative to breach its banking covenants, and result in the potential withdrawal of creditors’ support.

“These circumstances could create material uncertainty that may cast significant doubt about MG’s ability to continue as a going concern.”

Murray Goulburn declined to comment, ahead of the EGM.