Negative Response Received From Westland Board

Fonterra Confirms Negative Response Received From Westland Board

Fonterra Co-operative Group Limited confirms that its approach to the Board of Directors of Westland Co-operative Dairy Company Limited for discussions regarding a proposal to merge the two companies has been rejected.

The Chairman of Fonterra, John Roadley, said the Board of Westland had indicated that it was opposed to the offer. It had also declined Fonterra’s offer that Mr Roadley and the Fonterra Chief Executive Officer, Craig Norgate, meet the Westland Board to discuss the proposal. It has been reported in the media that Westland’s shareholders will be asked to vote on the offer in mid-January, but that the company’s Board will recommend against accepting it.

Mr Roadley said Fonterra was both surprised and disappointed with the response. “It appears that Westland’s Board have decided that Westland’s shareholders will not have an opportunity to assess the offer properly before being asked to vote on it. We have not been asked to provide information setting out the offer in detail, nor to attend any shareholders’ meeting. It is unclear whether any form of independent assessment will be made available to the shareholders. It seems probable that they will have nothing on which to base this important decision other than the recommendation of their Board – a recommendation made without any discussion with Fonterra.”

Mr Roadley said the offer has been made in the interests of a united and strong New Zealand dairy industry, with the benefits of scale and international market access. “These benefits amount to an increase in earnings of more than $300 million per year within three years. Fonterra is well on the way to achieving the benefits following its formation last year, and more than 96% of New Zealand’s dairy farmers have joined it as shareholders. A merger with Westland would further strengthen the industry and allow Westland’s shareholders to participate in the wider benefits of being part of Fonterra.”

Fonterra’s approach to the Board of Westland indicated that the merger would be proposed on the basis of a one-for-one share exchange. This would result in a merger on the same terms adopted by the 14,000 shareholders of Kiwi Co-operative Dairies and New Zealand Dairy Group when Fonterra was created in October 2001.

Mr Roadley said there was currently a unique window of opportunity for Fonterra and Westland to merge, taking advantage of the special legislation that enabled the merger of Kiwi and New Zealand Dairy Group last year and the subsequent creation of Fonterra. Under this legislation, a merger of Fonterra and Westland could be carried out without the need to seek Commerce Commission approval. “The key issue is that, unless a merger can be effected by 8 March this year, the window of opportunity will close – forever. Provided a proposal was circulated to Westland shareholders by 31 January, that timeframe could be achieved,” Mr Roadley said.

“If our current proposal is not successful, any subsequent attempt to merge would require approval from the Commerce Commission, which would be costly and may not be forthcoming.

“Generations of farmers have built the New Zealand dairy industry to where it is today. For the first time, we are in a position to extend the opportunities created by that hard work to all involved in the industry, on an equal footing. Failure to achieve a merger would leave Westland and its shareholders competing in a global market, with increased commodity price risk arising from their position as a single-product supplier and without any participation in the benefits arising from the creation of Fonterra.

“Our merger proposal seeks to extend the considerable benefits of a unified industry to Westland’s shareholders. In doing so, it provides undertakings that would protect their position in terms of local milk processing, dairy development and milk pricing,” Mr Roadley said.

Mr Roadley said Fonterra would assess its options in the near future before deciding whether to take any further steps in relation to the offer.

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