Australian Co-operative Foods Limited (ACF), which trades as Dairy Farmers, and National Foods today announced that ACF members had approved the National Foods proposal to acquire all of the shares in the Co-operative for a cash consideration of $5.65 per share1.
ACF Chairman Ian Langdon said that in order to succeed, the National Foods proposal had been subject to a number of conditions precedent including obtaining the support of 75 per cent or more of active members who voted in a special postal ballot.
“I’m pleased to report that the National Foods proposal received the support of 96.3 per cent of ACF active members who cast formal votes in the special postal ballot,” Mr Langdon said.
“On an actual vote basis, this equated to 1,292 formal votes being cast in favour of the proposal and 49 formal votes cast against.
“More than 88 per cent of ACF’s total number of active members chose to exercise their right to vote in the special postal ballot – indicating a high level of interest in the proposal.
“Following this successful ballot, a court hearing will take place on 18 November to seek approval of the scheme. If court approval is granted at this time, it is proposed that the scheme will be implemented on 26 November – at which time ACF members and qualifying former members will be paid their entitlements2.
“In addition to achieving at least 75 per cent support of those ACF active members that voted, the National Foods proposal also required Dairy Farmers Milk Co-operative (DFMC) to enter into revised supply contracts with new or existing suppliers until at least 30 June 2010 for minimum specified milk volumes by region.
“In this regard, I’m confident that DFMC will successfully secure the prescribed minimum milk volumes required by the National Foods proposal.
“The National Foods proposal had been unanimously recommended by the boards of both ACF and DFMC in the absence of a superior proposal. Further, the independent expert, Grant Samuel & Associates, concluded that the proposal is in the best interests of members in the absence of a superior proposal.”
Proposal maximises shareholder value
ACF Chief Executive Rob Gordon said the overwhelming member support for the National Foods proposal – as evidenced by high voter participation in the special postal ballot and the actual result – was a reflection of the attractiveness of the proposal to members.
“In the view of the ACF Board, the timing was right to implement a trade sale in relation to the business, given the completion of a business transformation program to convert it from a traditional supply focussed co-operative into a fast moving consumer goods business along with ACF’s strong business performance,” Mr Gordon said.
“The National Foods proposal represents an enterprise value of $910 million for ACF3, which, in turn, implies a transaction multiple of 12.8x fiscal 2008 EBITDA4.
“According to the independent expert's report, the consideration under the National Foods proposal represents relatively high multiples of earnings for ACF and provides ACF members with certain cash consideration that reflects the strategic value of ACF to National Foods and the substantial synergies that are expected to be generated.”
Vision for the combined business
National Foods Managing Director Ashley Waugh said he was delighted that ACF members had voted overwhelmingly in favour of the National Foods proposal.
“This is a significant milestone for ACF and National Foods, and we thank ACF members for their support and commitment to the opportunity which this now provides,” Mr Waugh said.
“We’re looking forward to working with them, through the DFMC, to ensure a strong and sustainable dairy industry.
“We still have some hurdles to clear, but should we succeed in bringing National Foods and ACF together, we will work with the management and employees of Dairy Farmers to ensure a smooth transition.
“Bringing together two large organisations is not a task that can be rushed, and our initial focus will be on maintaining “business as usual” through December and the Christmas period. Customers and suppliers will not see significant operating changes as we ensure the Christmas trading period is met.”
DFMC support for the proposal
DFMC Chairman Ian Zandstra said the successful National Foods proposal would give rise to a new era in Australian dairying that would ultimately benefit DFMC suppliers.
“Under the terms of the National Foods proposal, DFMC was required to enter into revised supply contracts with new or existing suppliers until at least 30 June 2010 for minimum specified milk volumes by region,” Mr Zandstra said.
“Within this context it’s pleasing to note that DFMC is highly confident that these volumes will be met in both Northern and Southern regions.
“The new milk supply arrangements available as part of the successful National Foods proposal will provide the opportunity for DFMC suppliers to have a secure outlet for the raw milk they produce.
“Those arrangements are underpinned by the successful application for authorisation by the ACCC to continue with back to back milk purchasing policies and pricing for a period of five years following the sale of ACF.
“Attractive milk prices have been agreed until 30 June 2010 and after that date DFMC will negotiate ongoing milk prices with ACF (when owned by National Foods), who have indicated an intention to pay DFMC suppliers regionally competitive farm-gate milk prices.
“The authorisation, and the milk supply arrangements it supports, mean that DFMC’s members will continue to be represented by a strong and viable DFMC committed to ensuring its members’ interests are met.
“Further, DFMC was required to hold a plebiscite of its members in order to direct how to cast DFMC’s vote on the National Foods proposal.
“As a result of this plebiscite – in which 96.1 per cent of voting members indicated their support for the National Foods proposal – DFMC cast its single vote in favour of the proposal.”
1. This consideration will depend on the actual number of ACF shares on issue at the scheme record date and is expected to be $5.65 per share. It could be slightly higher or lower but would not be less than $5.64.
2. Approval to amend the terms of Convertible Co-operative Capital Units (CCU) so that CCU holders can participate in the National Foods proposal has been obtained.
3. Multiple based on EBITDA of $71 million before costs related to shareholder liquidity event.
4. Assuming a forecast financial indebtedness as at the time of the close of the Proposal of $235 million before netting off for surplus assets of $26 million.
