Murray Goulburn (MG) has warned its supplier shareholders that unless they support the proposed $1.31 billion sale of the cooperative to Canadian dairy giant Saputo, MG could face financial trouble.
In a letter to its shareholder suppliers on Wednesday, MG warned that if the sale did not go through and no alternative proposal emerged, it was likely MG “will not be able to pay a competitive farmgate milk price (FMP) in FY18 (2017-2018 financial year).
“As a result, MG is likely to lose more milk intake as competitors may offer a higher FMP than MG is able to support from its existing stand-alone balance sheet.
“Further losses of milk intake may trigger an impairment to the value of MG’s assets that could cause MG to breach its banking covenants, and result in potential withdrawal of creditors’ support and an increased risk to MG’s ability to refinance its expiring debt facilities; and – the upcoming maturities and refinancing required would be more challenging to undertake.
“These circumstances could create material uncertainty that may cast significant doubt about MG’s ability to continue as a going concern and, therefore, MG may be unable to realise its assets and discharge its liabilities in the normal course of business,” MG said in the letter.
MG supplier Brian McLaren of Woolsthorpe said he believed he had no alternative but to support Saputo’s acquisition of the cooperative.
“The only other alternative is to shut up shop and have it (MG) chopped to pieces by different companies and you get nothing for your shares,” Mr McLaren said.
In the letter to shareholders, MG chairman John Spark said since its cut its FMP in April 2016, the cooperative had lost 45 per cent of its milk intake.
“This milk loss, combined with MG’s future capital requirements, has meant that MG has not been able to pay a competitive price for milk,” Mr Spark said.
In the letter, which advised shareholders of their opportunity to vote on Saputo’s buyout offer at an extraordinary general meeting (EGM) on April 5, MG said the sale to Saputo would give shareholder suppliers and unitholders an estimated net value of $1.15-$1.20 per share.
MG said it will make an initial distribution of the sale proceeds to supplier shareholders and unitholders of $0.80 a share/unit if the resolutions at the EGM to sell to Saputo were approved and the sale went through.
The 80c share/unit would be paid within 10 business days after the sale’s completion. The proposed sale to Saputo was expected to be completed by May 1.