Murray Goulburn owes $677m to a syndicate of lenders and banks are now said to be keeping a close watch on the company as farmers abandon the co-op due to its lower farm gate price.
Investment bank UBS has been working with Australia’s biggest dairy processor.
Although it has not been formally appointed, it is expected to be outed as its adviser in the weeks ahead.
Yet that has not stopped others pitching their ideas.
One involves a takeover by a rival party, another a change in its co-operative structure.
Murray Goulburn is still the country’s largest buyer and processor of milk. Should the company collapse into receivership, it is likely to do more damage to the farmers and shareholders than just forcing them to take some sort of haircut.
Other rival dairy processors do not have the capacity to handle so much additional supply.
While a takeover is one option, with the company’s constitution linked to its co-operative structure, the hurdles are far higher than for a more traditionally listed company.
Consolidation in the industry would also likely trigger alarm bells at the Australian Competition & Consumer Commission, which raised red flags during the Warrnambool Cheese and Butter takeover battle about four years ago.
The supermarkets’ milk price wars, in which they have only charged $1 per litre, does not help matters, but the bigger challenge for Murray Goulburn is the global dynamics, such as the relaxation of European Union milk production quotas, the increased production in the US and Russian milk import bans, which has created price pressure.
A co-operative structure offers Murray Goulburn tax-free status, a luxury not enjoyed by listed rival Bega, but a change in the structure could be a benefit to the company.
One solution is adopting a structure similar to grain co-op CBH, a non-distributing co-op where farmers buy in on a not-for-profit basis to gain access to its networks.
Under the current structure, Murray Goulburn has preference shareholders, which would need to be paid out for the alternative co-op approach to be adopted.
A new structure at Murray Goulburn would see farmers receive rebates rather than profits, where the bigger volume distributed, the greater the rebate.
The big question, though, is whether Murray Goulburn, which is also publicly listed, currently has enough funds on its balance sheet to pay its current farmers out in an effort to embark on a sweeping overhaul of how the company functions.
Source: The Australian
Link: http://www.theaustralian.com.au/business/dataroom/bankers-pitch-for-murray-goulburn-work/news-story/343337ee471c5bd8ee7fcd6f34d619b5