Murray Goulburn sale process frustrates bidders

10 Nov, 2017 04:00 AM
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The Inner Mongolia Yili Industrial Group Co Ltd is said to be a bit more that perplexed at the process that saw Murray Goulburn close a takeover tender process apparently early and choose the path of least resistance by opting to sell its business for $1.31 billion to major competitor Saputo.

At one point Yili, with is apparently Asia's eighth-biggest dairy company, was regarded as a frontrunner in a process that aimed to rescue Murray Goulburn from itself and probably its bankers.

But, having expressed interest and been given access to a preliminary data room, the Inner Mongolian milk company was surprised to be refused access to full due diligence on the basis that its success might take too long.

While we have no insight into what the Murray Goulburn board might be thinking, it would likely be fair to conclude that it assessed the Foreign Investment Review Board a procedural hurdle that could be too high and may have wondered too about the tightening export capital constraints in China.

Sources close to the deal tell us that Yili had developed a recapitalisation and governance structure that "could have surfed through FIRB" and assess the idea that capital might be hard to access as being even more risible.

Yili's fix would have seen a recapitalised Murray Goulburn sit 51 per cent controlled by the Inner Mongolians with the balance held by the farmers and the MG Trust listing maintained. The farmers and Yili would hold an equal number of seats at the board and an independent chairman would be given the casting vote.

But initial Mongolian befuddlement turned to something closer to anger when a process that was supposed to run through until December was closed ahead of schedule to allow Murray Goulburn to sell its assets.

The view from inside Team Yili, which was being advised by Bank America Merrill Lynch, was that there was a timeline that stretched to December and that Murray Goulburn was working towards announcement of a shortlist of bid candidates at its annual general meeting on 27 October. They got that wrong.

Instead, sometime through September-October, Murray Goulburn started dealing selectively to advance a deal with either Bega or Saputo without bothering to inform the others involved in the sale process that they had been sidelined.

This idea that the sale process was refined and then truncated after being made unnecessarily risky for non-preferred candidates might be dismissed as just sour milk from a disappointed suitor but for the uncomfortable fact that at least one of the other actors in this theatre has expressed pretty much the same anxieties, and done so far more publicly.

New Zealand's regional milk champion Fonterra has taken its concerns about the Murray Goulburn process directly to its rural constituents through rural news bible The Weekly Times.

The Times reported last week that Fonterra had proposed the formation of a "super dairy co-operative" but that its offer was rejected as "non-compliant" with the Murray Goulburn board's requirements.

Fair enough. But Fonterra then complained that re-framing its pitch was made effectively impossible because, like Yili, it was not offered due diligence.

Now, as it turns out, Murray Goulburn has confirmed that no one but Saputo got to see the numbers. And that is because, somewhere along the way, the Canadians were selected as the preferred bidder but none of the other bidders were told that it was all but game over.

Murray Goulburn says it sits open to counteroffers.

But how could any of the defeated bidders sensibly match the structure and pricing of the Saputo deal without getting due diligence?

This chimera of an auction that was supposed to protect, above all things, the interests of the farmers, sits consistent with pretty everything that Murray Goulburn has done since it launched itself onto the public equity markets in 2015.

The past three years have been marked by strategy built on delusion and scarred by successive managements that have expressed nothing but clumsiness under pressure.

And, once again, the big losers here will be the dairy farmers.

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