By Lynda Kiernan
Over 2,500 supplier-shareholders in Australia’s largest dairy cooperative, Murray Goulburn, will be voting on May 8 at an extraordinary general meeting (EGM) on a proposed initial public offering (IPO) of a unit trust planned to raise A$500 million (US$390 million).
The structure of the proposed dual-share model will be similar to the Fonterra Shareholders Fund which listed in Australia and New Zealand in 2012, whereby investors buying shares through the IPO would gain economic exposure to Murray Goulburn and the dairy industry, but no voting rights.
Murray Goulburn believes that the listing of this unit trust could raise A$500 million (US$390 million) through the new structure, which the cooperative plans to allocate toward three major initiatives:
· $300 million toward expanding the company’s infant formula capacity and production capability.
· $190 million to boost the company’s long-life milk production, and to reduce operating costs.
· $145 million to reduce costs and increase production and innovation in the cooperative’s cheese and food service divisions.
Murray Goulburn is continuing to move away from commodities in favor of higher margin, value added products. Between the years 2012 and 2015, the company’s mix of sales has shifted from 61% commodities to 46% commodities, and by 2019 the company targets a split of 25% commodities to 75% value added dairy food products, according to managing director, Gary Helou. These value added initiatives will underpin the cooperative’s move to capitalize upon the increased demand for value added dairy products in Asian markets.
In 2014, Mr. Helou stated that the number of major dairy processors in Australia needs to consolidate from six to three in order to create profitable economies of scale, and noted that the influx of capital from this listing would strengthen the coop’s balance sheet in support of acquisitions by the group. Further details were not disclosed.
An additional benefit that may result from the listing is that Murray Goulburn suppliers would gain a recognizable value for their shares in the cooperative, strengthening their balance sheets in the eyes of lenders.
Dividends paid to investors would be tied to the milk price paid to Murray Goulburn suppliers, creating higher dividends when milk prices rise and lower dividends when prices fall. Returns to investors will also be guaranteed through a limit on retained earnings of 3% of the pre-payout milk pool, or approximately $50 million.
To receive relevant news stories with summaries provided by GAI News, subscribe to daily or weekly service.