Merger spells the end for the NZDB

New Zealand Dairy Group and Kiwi Co-operative Dairies are to merge in a bid to extend their global reach. Should the move go ahead it could be the last we hear of the industry’s marketing body, the New Zealand Dairy Board (NZDB).
An agreement, signed by the chairmen of both companies last month, reveals plans for the NZDB to be integrated into the new super-dairy, to be known as Global Dairy Company (GDC). The Board will be stripped of its statutory powers and export monopoly within a year of the merger taking place.
All assets of the NZDB are to be integrated into GDC in an effort to create efficiency gains worth up to NZ$300 million (r140m) a year. Such a move eliminates the risk that the NZDB’s assets will be carved up between competing companies, thereby potentially destroying much of their value.
Under the terms of the proposals manufacturing and marketing arms of the two companies are to be fully integrated and will continue to be controlled by dairy farmers. The focus of the new firm will be princi- pally offshore, with 95% of GDC’s product being sold overseas. This should allow New Zealand’s three remaining smaller dairies to consolidate their share of the domestic arena and possibly venture into export markets themselves.
New Zealand Milk, the NZDB’s recently formed consumer products strategic business unit, will become a separate legal entity with its own board of directors but will be owned by the GDC.
The merger still requires approval from at least 75% of the farmer shareholders and also needs regulatory and legislative approval before it can take place. Shareholder and government consultation will take place over the next two months and the formal amalgamation proposal will be issued in March. For the merger to take effect by 1 June 2001, in time for the 2001/02 season, shareholder approval is required by the end of March.
The degree of control and return each farmer receives will be proportionate to the quantity of milk he or she supplies. Shareholders will be represented by a board of 13 directors, ten of them farmers.
Key elements of the legislative and regulatory package are the sale of New Zealand Dairy Group’s 50% shareholding in New Zealand Dairy Foods to open up the local market to competition, the removal of the NZDB’s single seller powers within 12 months, the establishment of a body to represent the interests of dairy farmers, provision for fair value exit for farmers wishing to supply a competitor and the new company being subject to a regulatory review after three years.
The merged company would be the 14th largest dairy processor in the world and New Zealand’s only company of global scale. It would operate in 120 countries, have a 35% share of world dairy trade and be responsible for over a fifth of New Zealand’s exports. GDC’s assets are estimated at around r3.53 billion.
Satisfied with the outcome of negotiations, NZDB chairman Graham Fraser has taken the opportunity to step down. John Roadley takes up his role and becomes chairman-designate of the new entity. Greg Gent, chairman of Kiwi Dairies, will be Roadley’s deputy. The NZDB’s chief executive officer, Warren Larsen, has also indicated his intention to stand down in May after nine years in the position.
Roadley conceded that the merger would result in some job losses where manufacturing and marketing operations overlap, but he emphasised that the restructuring process would not mean wholesale change or redundancies.