Merger Worth At Least $310 Million A Year

Sunday 25 February 2001

Merger Worth At Least $310 Million A Year: Business Case

The dairy industry merger is worth at least $310 million a year according to the comprehensive business case prepared by the CEOs of New Zealand Dairy Group and Kiwi Co-operative Dairies.

John Roadley, Chairman-designate of Global Dairy Company, said a summary of the business case was being posted to all shareholders this weekend with the full document being available at www.globaldairy.co.nz

“The business case is one of the documents that shareholders need before reaching a final decision on the merger and we want to ensure they all have the opportunity to read it and understand it,” Mr Roadley said.

“The business case spells out the economic rationale for the merger and identifies benefits, by the third year, in the order of $310 million a year.

“Cost savings of $120 million will be achieved through improved supply-chain management, a reduction in staff overheads and reduced financing and service costs. These cost savings will flow through after the first year.

“There will be revenue enhancements of a further $70 million from efficiencies in production planning, greater responsiveness on the world market and better use of existing plants and information. These benefits will be available in the second year of operation.

“A further $120 million of benefits will come from our greater ability to act strategically when seeking new markets or applying new technologies. These benefits will flow through by 2004.

“These benefits will be worth 30 cents per kilogram of milk solid by 2005.

“Through our shareholders, that wealth will flow to New Zealand as a whole.”

Mr Roadley said the CEOs had been deliberately conservative when preparing the business case and were confident the benefits could be achieved.

He also stressed that the benefits of the merger would ultimately depend on high-quality governance, management, and employees operating successfully in an unpredictable and fiercely-competitive international marketplace.

He also said he believed the benefits to New Zealand would be greater than the $310 million a year for farmers.

“There are benefits to New Zealand of owning and controlling a Fortune 500 company and having it based here in New Zealand. There are benefits in providing opportunities for New Zealanders to work in 120 countries and territories around the world and bring that experience back home to other businesses,” he said.

The release of the Business Case follows the release of the Merger Agreement in December, the industry’s submission to Government on competition issues in early January and Arthur Andersen’s independent valuation in late January.

Mr Roadley said the next major milestone would be the release of the full-fledged Amalgamation Proposal well before the vote.

“That package of documents will include everything shareholders need to make a decision – from the draft company constitution to rules for the proposed Milk Ombudsman.

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“It will bring together information from across the 26 work streams that are underway on the merger.

“The release of the Amalgamation Proposal will be followed by shareholder meetings throughout the country so that all questions shareholders have can be answered before they have to make a decision in April.

“Processes like this can never be as fast as all of us would like, but I am confident that shareholders will be satisfied with the information we provide prior to voting.

“That information will enable shareholders to vote ‘yes’ for the merger.”

END

Interviews with Mr Roadley can be arranged through Matthew Hooton, Sue Wood & Associates Ltd, on 04 4724688 or 025 2310237

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